Nationalise The Legal Service?

I know the title sounds bizarre but hear me out. I’m not a Communist, just thinking aloud. Allow me to play Devil’s advocate for a moment, and have a little thought experiment. I’ll just apply the logic of public or private debate to the legal service and see where we end up.

The reason we have public services is to provide important services to people who otherwise couldn’t afford them. The problem with the private sector is that it allows richer people to get better outcomes simply because they have more money rather than because they are more deserving. (There are other reasons but this is a quick summary of the main reason). We have public education so that poor people have the same opportunities as everyone else. Rich people use private education to effectively buy better results and ensure their children have an advantage in life. We have public health so that everyone receives medical attention even if they are too poor to afford it. The rich use private health to effectively skip the queue and receive better care faster even if they are not in most need of attention.

Now let’s look at the legal service. This is a mainly private system where each individual chooses a lawyer to represent them in court and argue their case. There are asymmetric information problems as there is no way for an individual to know how good a lawyer is before hiring them. There are also game theory problems where hiring a lawyer is like an arms race, both parties spend more and more just to stay at the same point. The main lawyers make enormous money, while trainee barristers earn little or no money. To become a lawyer requires years of studying in university followed by years of unpaid work experience. This is way children of rich parents dominate the legal services. Lawyers cannot advertise, instead they work through firms and personal networks. As a result patronage is rife and who you know is as important as what you know. If people have little or no money, they can avail of free legal aid, provided by the state.

Imagine two people, A and B, get into a fight. Both claim they are innocent and the other person started it, while they merely defended themselves. Imagine A is wealthy and can afford to hire a lawyer for €1,000, while B is poor and can only afford a lawyer costing €100. Who do you think will win the trial? Clearly A has a big advantage, but not because he is less guilty, but because he hired the better lawyer. In other words he is less likely to go to jail because he has more money. Is this any different from buying a court?

Let’s say C is a reckless driver and hits D with his car. All things being equal, D would receive compensation. But imagine instead D is poor and C is rich. Imagine D is too poor to afford a lawyer and cannot afford to take time off work or he won’t be able to pay rent and electricity. Imagine C is rich and hires a top lawyer who uses his skill to imply that it was actually D’s fault he got hit. In this case even though D was in the right, C wins. How can this system be called right?

The law is supposed to be blind and neutral to an individual’s wealth, but as this example shows, it is possible for the rich to use their money to get a more favourable judgement. Just as private health and private schools means the rich can use their money to give themselves an advantage over the rest of society, so too does private legal services. This is why rich people almost never go to jail, even if they still millions, while poor people go to jail for shoplifting. Many people think it is fundamentally wrong for people to buy better education, but what about buying a court? What is the difference between this and corruption? Corruption is illegal, less expensive and more effective. So what is to be done?

Just as a nationalised health system would be more equitable and efficient (the government can use economies of scale and market power to hold down costs and wages), so would be a legal service. Imagine as a system where everyone receives free legal aid (paid for through taxes). Lawyers would be state employees and receive a fixed wage. The obscene wages earned by the top lawyers would be gone as would the pittance received by trainee lawyers. In effect, wealth would be redistributed within the system. Each person taking a case would be randomly assigned a lawyer (obviously only ones trained in that area). The outcome of A and B’s trial would have less to do with how much money they have and more with the details of the case, and of course luck. C would no longer be able to buy a verdict and D would be properly compensated.

A free service may encourage people to overuse the service and sue each other over nothing. This may not be a huge problem as court is a major pain for people involved and something people try to afford as much as possible. It needs to be seen if the current system leads to underuse in which case a free system would fix this. There could be a small fixed charge to deter this, say €100 or €1,000 depending on the case. This has the problem of being regressive in that the poor pay the same rate as the rich and the very poor may not afford it. A means test could be used though this is extra bureaucracy than in a universal system.

Lower wages may deter people from becoming lawyers. Is this a bad thing? After all, if you think about it, lawyers are not productive. The do not produce anything or add to the wealth of the nation. They merely shift it from one hand to another (the economic term is rent-seekers). If wages are lower, then more people may choose to be scientists or engineers than lawyers, which would presumably make the country better off. As the chance of a lawyer winning a case is more dependent on their skill relative to their opponent rather than their absolute skill, if the overall standard of lawyers drop, the country may be no worse off.

Needless to say this proposal hasn’t a hope in Hell of ever being implemented. The legal service would naturally fight tooth and nail against it and they would be enormously powerful. No politician would ever suggest something that sounds frankly Communist. Even I know it sounds mad. But it is worth thinking about.

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20 Comments

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20 responses to “Nationalise The Legal Service?

  1. I love this idea. It is parallel to my idea of criminal reform: All legal professionals in criminal law are public employees. The state chooses a prosecutor from the same pool as a defendant chooses from. The two sides agree on a judge from the same pool. Much closer to arbitration. Jury trial is still
    possible, but I see most cases being arbited by the smaller, less expensive quartet.

    In civil law, however, it can be argued that attorneys are expected to become technical experts to some degree, so perhaps some in the common pool hold endorsements to a particular field.

  2. Sinéad

    Frankly, I find this suggestion offensive. Implying that lawyers only act to the best of their ability for “rich” people is both unfair and untrue. Lawyers are compelled to act to the best of their ability for whomever they are representing. Just because one lawyer is paid more than another does not mean that they are better.
    The thought of forcing an entire profession to earn fixed wages is ludicrous. What makes the legal profession any less deserving of competitive wages based on skill? To make your suggested system equitable, a fully Communist system would have to be implemented with wage restrictions on all sectors.
    I resent the implication that less people becoming lawyers would make the country automatically better off. The legal system is the foundation and cornerstone of our democracy, and law and order. I think you have treated it in a very flippant manner in this piece.
    Public and private tiers are a natural result of a capitalist society. They may not be entirely fair, but they’re better than forcing limitations on people against what you think the “average” should be.

    • Hey Sinead, I’m surprised your offended, but I think you might have misunderstood,me. I didn’t say lawyers only act their best for the rich, but rather that only the rich can afford the best.

      You seem to be crossing lines when you say that just because a lawyer is paid more doesn’t mean he/she is better, but then in the next sentence that the problem with a fixed wage is that lawyers would not be rewarded for being more skilled. Do wages reflect lawyers skill?

      I’d say its only a rough correlation, but there is a clear difference between the best and the worst paid lawyers. It is pretty clear that a rich person could afford some of the best legal advice and therefore gain an advantage in court (why else would they hire one?). Surely this is contrary to accepted norms of justice and fairness?

      As a law student I understand how you can take this personally (which wasn’t my intention) but I feel that society would benefit more if more people became scientists instead of lawyers. In the same way a business degree makes you more economically productive than an Arts degree. Obviously if there were no lawyers, society would collapse, but the legal system resembles an arms race where it depends greatly upon your skill relative to your opponents. An escalation by both sides does not necessarily create any additional benefit but does increase cost.

      • Sinéad

        My intent was to say that wages do not actually reflect all lawyers’ skills. Barristers are not employed by any company and therefore cannot be head-hunted and offered large amounts of money to only work for rich people who can afford them.My second point was just wondering why you were only targeting the legal system in your suggestion not to base wages on performance.Actually, !wages” is something of a misnomer for barristers in Ireland.

        Yes, but the law is still the law. You need to have more faith in our judges that they can see beyond stylistic rhetoric to who should win based on the law itself. If someone can make an argument to win a case that it looks like they should not have won, then you can blame the common law system (based on case law) for that, because they would need precedent.

        I think there’s more to life than being “economically viable”. It’s very depressing to think of life as working to produce something for the state until you die. I would point out that some of the best legal minds in the country work for the State.

        • Bit late here, but Sinead, you say:

          “What makes the legal profession any less deserving of competitive wages based on skill?”

          and

          “My intent was to say that wages do not actually reflect all lawyers’ skills. ”

          These two statements seem contradictory to me.

          The thing about lawyers is that they are positional: one lawyer’s skill only matters in comparison to others. If I tried to take on a 5 year old lawyer in court, I would hope that I’d win. If I tried to take on a lawyer, I’d lose.

          With positional goods, markets don’t work well – they simply create an arms race as everybody tries to one up each other with a roughly fixed pool of talent. This is both exacerbated by and exacerbates inequality. Robert’s suggestion would go some way toward eliminating this.

  3. I suppose the only issue would be that, with the state also having a capacity as a prosecutor, however separately public prosecutors and solicitors were kept, there would be allegations of conflicts of interest. That can be overcome, though. I suppose another question would be that of how expensive a subsidised legal system would be to maintain.

    Yet it has been a long accepted principle that justice takes precedence over cost. The present system doesn’t achieve this, with the rich buying undue influence. Yes, nationalisation of the legal service has my vote. Shame it won’t happen.

  4. I suppose you don’t have lawyers as friends since they would take offence at this but I do agree with you to some point. Every time i am unfortunate to listen to lawyers on tv arguing on the same matter, they have as varied an opinion as they come and depending on what side of the political divide they support. The country would be much better off with fewer lawyers

  5. GM

    I’m sure you won’t mind if I ignore most of your article and instead take this opportunity to attack a core assumption!

    “The problem with the private sector is that it allows richer people to get better outcomes simply because they have more money rather than because they are more deserving. (There are other reasons but this is a quick summary of the main reason). We have public education so that poor people have the same opportunities as everyone else. Rich people use private education to effectively buy better results and ensure their children have an advantage in life. We have public health so that everyone receives medical attention even if they are too poor to afford it. The rich use private health to effectively skip the queue and receive better care faster even if they are not in most need of attention.”

    I had exactly the same view as this from when I first understood political ideas, until around the age of 19. At that point I was compelled to abandon it. This was despite being fairly knowledgeable in utilitarian ethics (I was a fan of Peter Singer) and also having some strong egalitarian instincts.

    What made me abandon it was some deeper thought on fundamental economic truths. I did not have to give up my utilitarianism. I did not have to give up my sceptical inclinations. I did not have to abandon reason. On the contrary, it was my commitment to reason which forced me to abandon the Left, and abandon it completely.

    You’ve probably heard these arguments before, but maybe I’ll strike lucky and say them in a slightly different way.

    From a political point of view, it’s completely acceptable for rich people to have better healthcare and better education than other people. It’s completely acceptable for rich people to give better healthcare and better education to their family members. This is true even if we think society as a whole would be better off if they gave more to the relatively poor. Even if we have a crude utilitarian perspective which says that society’s overall utility would be improved if they shared the wealth around more, it still doesn’t hold that the government should intervene and redistribute it.

    The reasons why are tied to the fundamental truth that humans respond to incentives. Mainstream economists say “incentives matter”. In a more profound way, Ludwig von Mises said “Humans act” (meaning that they engage in purposeful behaviour). This is to say that human behaviour always takes place in the context of a means-end framework.

    If a government steals from producers to give to non-producers, it is inevitably creating an economic environment where less production takes place. It is inconceivable that there could be any other consequence to this action. This is also true in the case of inheritance tax: where wealth is left in inheritance, the producer has demonstrated a preference for where the fruits of their labour should go upon their death. To take wealth from inheritors is to attack the property rights not just of the inheritor but also of the person who originally produced that wealth. Inheritance taxes and economically equivalent activities are certain to damage the motivation to produce wealth among anybody who is even partly motivated by the desire to pass it on to their children.

    This is what it comes down to: People who produce are not hurting other people by doing so. If I am very productive, it does not make you less productive. It does not hurt society if I work hard or if I am lucky or if I am smart or if I am naturally talented. In fact, the rest of society is likely to gain very much from my productivity, to the extent that I trade with them. This is because in the market, the rest of society will provide me with value only in proportion to the value which I also provide to them. Because we know that trade only takes place when each party benefits (due to the differing subjective valuations of the goods in question), the rest of society is undoubtedly better off for my existence.

    And furthermore: even if I am naturally as skillful with a football as Cristiano Ronaldo, even if I did not have to do any work to achieve this skill and would do it even if I wasn’t being paid, it still doesn’t follow that society as a whole would necessarily gain from taking my wages away from me. Even if it serves no other purpose, the bids which I receive for my work help to demonstrate to me where my skills are most in demand, and helps me not to waste my skills by using them in ways which don’t satisfy the most urgent consumer desires.

    I’d like to come back to subjectivism for a second. We should always be careful not to impose our own vision of what is desirable onto others: that is a pure logical error. Other people do not share our preferences. The exact preferences of other people are extremely difficult to ascertain; as a general rule, our best evidence with regards to their preferences are those preferences which are demonstrated by their actions. If somebody voluntarily takes actions which they would have known were likely to lead them to have a low or average level of wealth, it is probably fair to assume that they did not want to take the actions which might have led them to be rich. Assuming that somebody wanted to be rich, despite taking actions which they would have known were likely to lead to them being poor, is a very difficult position to take.

    Of course, if they then fail to get as much healthcare as somebody else, then we can still feel sorry for them. We can try to help them. Stealing from a rich person might help them in the short-run too.

    In the long-run, though, for many of the reasons discussed above, stealing from the rich does not help society as a whole. The rich person, in paying for their healthcare and education, is stimulating the supply of these goods and services. Without their demand for these goods and services, they wouldn’t have been supplied in the first place. In the free market, more healthcare and education is stimulated to exist when the rich are allowed to pay for their own, and they have not hurt anybody else by consuming these goods and services. They should be allowed to consume as much as they want, since it is merely an indirect payment for the other forms of wealth which they already provided for society. I say all of this despite still being a utilitarian.

    • You seem to confuse two separate issues, that of public services and taxation. You appear to disagree with my view of public services, but you use the logic of a criticism of taxation. There is no reason why public education must be based upon stealing from the rich. In fact public education dates from the 19th century before there was a progressive tax system. Likewise, you can have a progressive tax system, but not a universal public service.

      “If a government steals from producers to give to non-producers, it is inevitably creating an economic environment where less production takes place.”
      Not necessarily. Producers still have to make a living and often many of the rich are not motivated by monetary gain but rather want success for its own sake. If I have children, this will motivate me to work even harder even if a sizable part of my income is given to non-productive children.

      Whatever the theoretical value of this argument, it is hard to argue it empirically. The countries with the highest level of taxes and kost generous welfare state in Europe (Sweden, Denmark and Norway) are some of richest countries in the world. The are far richer (across a range of indicators not just GDP) than small government countries like America.

      Taxation is not theft if the government is a democracy. As the poor performance of Ron Paul shows, the majority of Americans do not agree with Austrian Libertarian ideology and do not wish to abolish taxes or the state.

      Its funny that you should use the example of Cristiano Ronaldo, because you miss the difference between private welfare and societal welfare. For example if Ronaldo became an aid worker in a third world country or a factory worker, he would produce more and make society better off. However, he would not be paid as well. So instead he has an incentive to perform an action that benefits himself but not the rest of society.

      Subjectivism as you describe it rules out any public policy action. Every decision will impact someone in ways they or may not like. I seriously disagree with your implication that poor people somehow “choose” to be poor and it would be wrong to help them. (This might be more of a poor choice of words in your behalf rather than your actual opinion)

      “Without their demand for these goods and services, they wouldn’t have been supplied in the first place. In the free market, more healthcare and education is stimulated to exist when the rich are allowed to pay for their own, and they have not hurt anybody else by consuming these goods and services. ”
      Actually under a public system there will be just as many (if not more) doctors and teachers so the rich are not creating any jobs but rather redistributing jobs. They actually are harming the rest of society because their wealth allows them to buy the best teachers and doctors thereby denying them to rest of society. So what you end up with is a two-tiered system where the best teachers are in the private schools and the public schools have to make do with what is left over.

      Thank you as always for your interesting and engaging comments which I always enjoy discussing with you. Keep them coming.

      • GM

        Hello again!

        I hope you don’t mind that I’ve summarised your points.

        (1) Public services and taxation are separate issues.

        Frankly, this is an impossible position for you to take. Since we are talking about government services, then taxes must be used to pay for them. How else are they to be paid for? The government does not exist like a private business, generating funds from voluntary payments. If it could do that, it would have no need for the use of force. No, the government exists by taxing people and redistributing the proceeds. That is how it works. If the government pays for education, for example, it must have taxed some people to do it, or paid for it by issuing a bond and promising to tax people at a future point. It doesn’t matter whether the tax system is “progressive” or “flat”; money is being redistributed in a way which is outside of the conventions of contract and voluntary exchange. Wealth is being redistributed from people who acquired it through voluntary mechanisms to those who did not.

        (2) Producers might work just as hard even if the incentives to do so are less.

        This flies in the face of basic economic fact.

        As you hint at, the diminishing marginal utility of money does suggest that some people in a high-tax environment might work harder to achieve certain basic objectives (such as feeding their children) which they might have been able to achieve with much less work in the absence of taxes. Such an argument falls down when you consider that in the long run the absence of taxes would generally incentivise taxpayers to work harder and to have more kids than they could otherwise have afforded, due to taxes.

        If there is less incentive to do something, people are less likely to do it. If this is untrue, then we might as well throw all of economics away.

        (3) America is a small government country. Small government countries do worse than big government countires.

        America is not a small government country. It used to be. That’s why it became the richest and most powerful country in the world. Soon, that will no longer be the case. Did you know that 17% of households in Singapore are millionaire households? Singapore happens to be the second most free economy in the world, after Hong Kong (according to Heritage).

        In no particular order, the richest countries in the world are Luxembourg, Qatar, Monaco, Switzerland, Lietchenstein, Hong Kong, Norway, Singapore and the UAE. There are many reasons why these might be rich, but the list is a very weak argument for socialism. It’s an even worse argument for mass democracy or grand political unions.

        (4) Taxation is not theft if the government is a democracy.

        If you really think there is no such thing as objective reality, then to be honest there is probably little point in continuing the discussion.

        Do you think that just because the majority of people think that something is true, it is necessarily so? Do you think that a government policy must be the best one if the majority of people want it?

        (5) “Its funny that you should use the example of Cristiano Ronaldo, because you miss the difference between private welfare and societal welfare. For example if Ronaldo became an aid worker in a third world country or a factory worker, he would produce more and make society better off. However, he would not be paid as well. So instead he has an incentive to perform an action that benefits himself but not the rest of society.”

        I’ve left your comment here in full, because I wasn’t sure whether to laugh or cry when I read it. To be honest, it’s probably something I would have said myself at some point, so I shouldn’t laugh too hard!

        You say that Ronaldo doesn’t benefit the rest of society. Where does his money come from, then? It comes from the rest of society! It comes from people buying tickets to watch him play, TV subscriptions, merchandise, the products he sponsors, etc. etc. He doesn’t just print it or extort it from others; he is given it as payment for the value he provides. To say that he benefits himself and nobody else is to misunderstand at a most fundamental level how the market works..

        You might argue that playing football has no value. But who are you to judge? Even if you don’t care about it, would you impose your opinion on everybody else? (unfortunately, the answer is a resounding Yes for many on the Left).

        You might argue that even if some people care about football, it doesn’t make sense that he should earn so much when it’s only entertainment and not a serious service. To that, I would ask if you’re familiar with the Paradox of Value? Why do diamonds cost more than litres of water, even though we need water to live and we don’t need diamonds?

        I tried to emphasise in a previous comment the importance of marginal utility. There are exceedingly few people in the world with the skill of Cristiano Ronaldo. There are billions of people capable of carrying out manual labour. This explains why the marginal utility of an extra person performing manual labour is therefore quite low on a relative scale, while the marginal utility of somebody playing football with the skill of Ronaldo is extremely high. The opportunity cost of Ronaldo performing manual labour in a factory instead of playing football for Real Madrid would be gargantuan.

        (6) Subjectivism as you describe it rules out any public policy action. Every decision will impact someone in ways they or may not like.

        Follow the truth wherever it leads. Personally, I’m not convinced that subjecticism alone rules out government activity (although it is part of the economic pillars which do).

        (7) “I seriously disagree with your implication that poor people somehow “choose” to be poor and it would be wrong to help them.”

        I didn’t say it would be wrong to help them. I have made no argument for the prohibition of charity. What I said was that stealing from the rich on a permanent basis would not help society as a whole.

        I don’t deny for a minute that luck plays a role in how wealthy we become. But there is much, much more to it than luck. How hard you work is a very significant factor. Your willingness to take risks. Also your intelligence and education, which can be considered as gifts from your parents.

        Lest you misunderstand me, I haven’t claimed that poor people wouldn’t prefer to be rich. I have merely stated that in many cases, it was predictable not just by somebody like you or me but also by the poor themselves that the actions they took in the past were likely to lead to them being poor. Somebody who drops out of school and takes occasional unskilled jobs would know that they are probably not going to be rich by taking these actions. They are entitled to take these actions. The perfectionist Left, though, sees almost every poor person as a victim of circumstance. This is because at a base level they don’t respect the subjective nature of preferences.

        (8) “under a public system there will be just as many (if not more) doctors and teachers so the rich are not creating any jobs but rather redistributing jobs. They actually are harming the rest of society because their wealth allows them to buy the best teachers and doctors thereby denying them to rest of society. So what you end up with is a two-tiered system where the best teachers are in the private schools and the public schools have to make do with what is left over.”

        In the public system you propose, who is paying for the doctors and teachers? I’m going to take a wild guess and suggest that it’s probably the rich private sector workers who are paying disproportionately for them, through the tax system. In other words, if the rich hadn’t bothered producing all this wealth in the first place, then taxes wouldn’t be capable of paying for doctors and teachers anyway. Once we realise this, we see that it’s not such a scandal if productive people consume more public resources than others: they paid more through the tax system to gain access to them. Unfortunately, this does not happen too often and in many cases there is no way for people to recoup the taxes they have paid.

        • GM

          “Lest you misunderstand me, I haven’t claimed that poor people wouldn’t prefer to be rich.”

          To clarify: it’s reasonable to assume that nearly everybody would prefer to have greater material wealth than they currently enjoy, if it was provided to them for free out of thin air. This is not relevant from an economic point of view, however. What matters from an economic point of view is what is possible in the real world, where goods are scarce and therefore not all demands can be met.

        • (1) Perhaps I didn’t phrase this well, but what I meant is that a criticism of taxes is not the same as a criticism of public services. It is possible to have taxes without public services. While it is obviously true that they are linked, they are not one and the same. For example, if I were to criticse schools, I wouldn’t begin by talking about roads, though it is obvious that in order to get to school you must use a road. Its more a question of staying on point.

          (2) This is a question of the income and the substitution effect. One states that as people get paid more, they will work more as they have a greater incentive. (This is what you were referring to) The other states that as people get paid more, they will work less. This is because they have enough money to meet their needs and now want time to enjoy their wealth. There is a constant battle between these two influences that pull in opposite directions and labour economics is all about which side predominates.

          (3) According to the OECD, America is a small government country. Its level of government spending is below average and similar to that in Switzerland
          http://www.oecd-ilibrary.org/sites/9789264075061-en/03/01/index.html?contentType=&itemId=/content/chapter/9789264061651-8-en&containerItemId=/content/serial/22214399&accessItemIds=/content/book/9789264075061-en&mimeType=text/html
          The countries you mention as rich are all either tax havens or filled with oil. If you exclude them and focus on OECD countries using either GDP or the UN Development Index, Scandinavian countries come out on top.

          (4) My argument on taxation and democracy is not based on the will of the majority, but rather the view that if the majority voluntarily decide to tax themselves at a certain rate then it cannot be considered theft. (I did a politics module last year on the role of the state so I got all these abstract concepts about the state.)

          (5) Ronaldo gets his money from his football club, Real Madrid, who get their money from advertising, sponsorship, merchandise, buying and selling players and ticket revenue. Its a push to say there was some sort of decision by society to pay him this wage. After all not every (if any) fan who buys a ticket to see Real Madrid may agree with his wage. They may not even like him but want to see the other players or may like but still think he is overpaid.

          You seem to have a Panglossian view of economics, that is, that this is the best of all worlds and that everything happens for a reason. Therefore if Ronaldo plays football it must be because that is the best thing in the world for him to do. His pay must be exactly the right amount, no more or less. This is an apathetic worldview which accepts things as they are because that’s the way things are. It allows no room for mistakes or bad choices. I disagree with this lassiez faire view because just because things are like this does not mean it is right or that things cannot change.

          (Sorry for that philosophical aside, its a bit off a point, but I felt we were heading down that road.)

          (7) While it is true that the left puts a large emphasis on circumstance, the right is overly dismissive of it and overemphasises personal choice. Sometimes powers beyond our control force our actions. For example I may really want to be rich and be prepared to study hard to achieve that goal. However I may be forced to drop out of school and get a job to help my poor family. You cannot ignore the enormous impact of the poverty trap or the lack of social mobility.
          http://robertnielsen21.wordpress.com/2012/09/08/in-the-right-place-at-the-right-time/

          I believe your fate is 80% circumstance and 20% individual action. I have a good chance of becoming rich but a large part of this is that I was born a white, middle class, male in a rich developed country (Ireland). I was born into circumstances where my intellect could be nurtured. Had I been born into any other time or place in terms of history, geography, class, family status, wealth etc I would not have had near as much chance of being wealthy.

          My grandfather was poor. Not from any choice of his but his circumstances. If you or I were born in his place we would probably have ended up the same. He was born in 1912 on a small farm in rural Cavan, an area known for its poor, rocky and hilly soil. He never got an education past the age of 10, but that was normal at the time, not any choice on his behalf. He was a small farmer and had a large family (my mother was the 6th of 7 children). Considering his circumstances and the norms of the time, could he have been anything else?

          (Sorry this reply is so long, but once I get going its hard to stop)

          (8) My reply has gone on far too long and your last point raises an issue that deserves a post in itself. I won’t go into the nature of productive citizens and how much they are entitled too. All I will say is that we are all interdependent and the rich are only rich because they are standing on the shoulders of giants. If you really want to know how I view this then check out this post.
          http://robertnielsen21.wordpress.com/2012/09/04/the-myth-of-the-self-made-millionaire/

          Thank you as always for your detailed and engaging comments. I enjoy discussing and fleshing out these ideas. After all there is nothing worse than a post that gets no response.

          • GM

            Good morning. I won’t answer every point where I think we’ve found agreement or there is nothing major to add!

            (2) Yes, I am familiar with these effects. I have no doubt that they exist.

            Many highly productive people would choose retire when they reach their financial goals. The income effect as a reason why taxing these people might not lower production too much, because the taxes have the result that these people don’t reach their financial goals until much later than life.

            This makes sense in the short-run, absolutely. As I tried to get across to you, however, the problem in the long-run is that there is simply less incentive to bother becoming a productive or highly ambitious person in the first place. The prospect of very early retirement or achieving some other extreme financial goal may have been the incentive to attain high skill or to start a business in the first place.

            There is a theme among Statist interventions that many of them can work in the short-run with the assumption that people continue to behave in a roughly similar fashion to how they behaved before the plans were implemented. In the long-run, however, people learn to adapt and change their behaviour in light of the altered conditions. If, for example, early retirement or being able to feed a very large family is made highly unaffordable by the tax system, then people will lower their expectations accordingly. In the long-run, it will be learned that very few people can ever achieve these goals from their own production, and that trying to do so usually leads to failure. And it goes without saying that may also be a proportional increase in the incentive not to bother producing much of anything at all, and to live off the subsidies of others instead..

            (3) As far as the US-Switzerland comparison goes, you presented numbers which were fine but are now about six years old. These numbers from 2011 suggest that Switzerland’s government spending is significantly lower than America’s:

            http://en.wikipedia.org/wiki/Government_spending#As_a_percentage_of_GDP

            But please note that I don’t presume every country with low government spending is a paradise, or with high government spending is an imminent catastrophe. As we both know, things are much more complicated than that.

            Please note that I also don’t share the mainstream obsession with OECD statistics, or using OECD metrics as a barometer for anything. China, India, Russia, Brazil, south-east Asia, the Persian Gulf… need I say more? The OECD does not represent the future of the global economy.

            (4) It turns out that many of the people who don’t pay very much taxes are also the people who vote for high taxes for others. We live in societies where those who don’t produce much or who live off the taxes of others also get to vote on how much tax those other people will pay. If the franchise was restricted to taxpayers, do you really think that we’d have the same tax policies? I’m sorry to say this but in a world where public sector workers. welfare recipients and the exempt have the same ability to vote as private sector taxpayers, your comment is unfortunately not too relevant. Some taxpayers are happy to pay, the rest are being stolen from (victims of extortion, to be precise).

            (5) It’s a good thing that I enjoy talking about Ronaldo.

            Ronaldo has multiple income streams, not just from Real Madrid, but let’s suppose that Real Madrid was his only source of income.

            Real Madrid is acting as an intermediary between Ronaldo and the consumer – people who pay Real Madrid because Ronaldo plays for them. Real Madrid make a decision on how much to pay Ronaldo based on their analysis of the marginal effect which Ronaldo has on their club. This is how all employee wages are set.

            It’s not a decision by society at large, it’s a decision based on a private valuation according to Real Madrid’s understanding of the demands of their customers.

            You said “if Ronaldo became an aid worker in a third world country or a factory worker, he would produce more and make society better off.” Do you think that maybe you should withdraw this mildly insane remark? ;-)

            I did enjoy your philosophical aside, and I think it is relevant. Thank you. My position is not that this is the best of all worlds; I have tried to stress that the free market is never truly efficient, and to be honest I’m a little disappointed that you would think I believe that Ronaldo’s pay level is exactly right. Ronaldo’s pay is the outcome of valuations by his employer and the man himself, and nobody has perfect information. Knowing the exactly correct price for anything is impossible. However, things do tend to happen for a reason, even when they are mistakes or imperfect. Market outcomes are not completely arbitrary. They are outcomes of people’s best efforts at valuation.

            The great thing about the market is that it allows for people to be rewarded for correcting mistakes. Again, I’m a little disappointed that I haven’t already made my position clear to you, but I fully embrace the existence of mistakes and bad choices. I embrace the permanent need for change. I have described the market as a dynamic process of discovery. It is the government which acts as a sedative against the improvement process, not just by monopolising services and killing competition directly in that way but also by imposing taxes on almost every transaction, putting massive artificial spreads between the bids of consumers and the offers of producers. They actively impede the process of removing mistakes.

            Finally, rejecting the State does not mean I’m apathetic. On the contrary, I reject the State for the precise reason that I see it as an institution which is destructive of human progress. It would be easier in many ways to be apathetic, not bother doing this analysis, and agree with everybody else that the State was necessary.

            (7) With regards to your grandfather, what matters from an economic point of view is only what is possible (as I mentioned above). Again, I accept the role of luck and circumstance. I give to charity. My simple point is that we should accept that some people take action out of a desire to become rich, and some people do not take such action because they do not have such a strong desire. Those who think that every poor person is a victim are living in a fantasy.

            Thank you for taking the time to reply and I hope you enjoy reading my replies, even when I make my points aggressively! I think you are a really clever guy and I hope you don’t waste your youth offering propaganda for the State, only to realise your mistake when it’s too late!

            • On the short and long run, I take the opposite view. I think the long run proves my point due to expectations. You see humans are great at adapting. No matter what the circumstance we will get used to it and think it normal. For example after WW2 marginal taxes were very high on the rich. However, people got used to it and it was considered normal to have tax rates that would be considered Communist today. People got used to it and considered it normal. Nowadays taxes are much lower and people accept the current situation as normal and have adjusted their expectations likewise (I think the psychological terms are framing and anchoring)

              This means that if I sharply raised taxes today it would be very controversial, but after a generation it would be accepted as normal. People would adjust to it. It would be considered very right wing, almost extreme to cut it back to what it was decades ago. This is why even when Scandinavian countries elect conservatives, taxes and spending still remain the highest in Europe. Likewise when Meditteranean countries like Spain elect Socialists, taxes and spending still remain low. In Ireland we have one of the lowest corporation taxes in the world (12.5%) Politicians have gotten used to this so that even left wing parties are committed to keeping it at this rate. Even the Socialist Party doesn’t want to hugely increase it. So I would argue that most incentive effects are in the short run and it evens out in long run.

              “In the long-run, it will be learned that very few people can ever achieve these goals from their own production, and that trying to do so usually leads to failure.”
              I think this is a bit over the top. Flamboyent rhetoric like this is more at home in Atlas Shrugged than in a reasonable debate. All I’ll say is that no matter how high taxes are, they are never 100% so you will always earn something for an extra hour of work. Its a gross exaggeration to argue failure is guaranteed. (It reminds me of a quote from some alien invasion movie)

              I deliberatively choose 2006 as it was before the crash so it can better reflect a preferred state. Since the crash we are not in ordinary times. Instead we are in bizarre world where nothing is as it seems (at least in Ireland). So spending as greatly increased in Ireland contrary to the wishes and plans of the government so countries look more interventionist than they normally are or want to be.

              The reason I choose OECD is that it measures like with like. There is little to be gained from comparing America with China in traditional terms of government spending and taxes considering their economies are so different. How can you compare Ireland with a third world country? One thing I particularly noticed about the table (other than it that it is from Wikipedia so you automatically lose the debate according to internet rules :) is that in many countries taxes are only 5-6% of GDP. This is because they have enormous amounts of oil. So it is not possible to compare them with European countries. Sure OECD only measures a part of the economy, but it allows the comparing of like with like.

              It is true that the rise of democracy coincides with the rise of the welfare state. But what if we restricted the franchise? (I will resist the temptation to call you an elitist fascist out of respect) Would we not have the same thing only in reverse? The rich would pass a law redistributing (or stealing as you call it) wealth from the poor to the rich. As the poor can’t vote they can’t block this. As they say, if you don’t vote you don’t count, so whoever doesn’t vote is a potential victim.

              There is also the point that voter participation is lowest among working class people. When they do vote it is often for conservative parties. If democracy was merely a scam by the poor to rob the rich, then why do Communists do so bad in elections? There is also the point that the rich can use their wealth to influence elections especially in America.

              “You said “if Ronaldo became an aid worker in a third world country or a factory worker, he would produce more and make society better off.” Do you think that maybe you should withdraw this mildly insane remark?”
              What’s insane about saying digging wells is more useful than kicking a football?

              “Ronaldo’s pay is the outcome of valuations by his employer and the man himself, and nobody has perfect information. Knowing the exactly correct price for anything is impossible. However, things do tend to happen for a reason, even when they are mistakes or imperfect. Market outcomes are not completely arbitrary. They are outcomes of people’s best efforts at valuation.”
              So they could be wrong? The market could be inefficient? People could be over/under paid and resources better used? (You can see where I’m going with this)

              I suppose your next point ties in the post on asymmetric information. Basically I believe the market can fail at providing right information and be unable to correct this failure. I believe the government is the solution
              not the cause (though it obviously depends on the situation)

              Thank you for your replies and sticking with my blog for so long. I enjoy these debates and hope they can continue. Your the most intelligent person I have disagreed with on this blog, even when you have the occasional extreme libertarian view. I shall continue my propaganda work for the state but I hope you realise you are being used by big business. Its never too late to become an egalitarian

              • GM

                Hi there… I’ll try to keep this brief. Knowing me, I will probably fail.

                Firstly, I thank you for your points. Reading back through them a couple of times, I don’t see anything substantial against my point that people will most likely learn to adjust their work rates downward in light of the possibilities afforded them by the tax system. I wasn’t arguing about what people would think was normal or acceptable from a political point of view. I didn’t say that failure was fully guaranteed either – I said that achieving ambitious goals such as an early, comfortable retirement would be made far harder and people would learn about the failure rates and be less likely to make the attempt.

                For example, just for the sake of the discussion, it used to be the case that saving money would lead to a pretty comfortable retirement in the UK. Anybody retiring in the UK today is finding that their retirement income has been decimated by the Bank of England’s policies of financial repression (ultra-low interest rates). This, combined with adjustments made over recent years which have adversely affected the tax treatment of private pensions, and the threat of future adjustments, is already affecting the behaviour of younger generations. People are escaping the pension system because they realise that getting a decent income out of it in the end is difficult and uncertain, and it’s probably not worth the effort. So there isn’t much incentive to work hard in the present for the sake of your long-term future. Much of the flashy consumption which has been falsely associated with capitalism is actually the outcome of a statist system which incentivises spending instead of saving.

                In my own case, looking purely at income taxes for a moment, I face a marginal rate of about 50%. Above all else, this is my time which is stolen from me. Without taxes, I would achieve my financial goals many, many years earlier than otherwise. This has a massive effect on the course of a person’s life. Will I work even harder for the chance to achieve my goals at a much later date, because of these taxes? Very unlikely. I’m more likely to migrate to a different country or to give up. I don’t need to achieve my ambitious goals to live; they are simply things that I would be interested in doing if it was reasonably possible to do them. If taxes make it less likely for me to achieve them while I’m still alive, I can just not bother and enjoy less stress in the short-term. Don’t forget also that to the extent that taxes make it harder to achieve goals by working hard, their redistribution also makes it easier to achieve goals by not working.

                In a civilised, low-tax economy, people learn that working hard can lead to a life of comfort. In the economies of the UK and Ireland today, for example, people have learned that working hard is much less likely to lead to the same life that it used to. Productive people emigrate and those who stay learn to engage in much greater levels of short-termist behaviour.

                I take your point that the OECD can be used to compare countries. Within that league, Scandinavia looks fine. I just don’t think that stagnant Europe and the US are all that interesting from an economic point of view these days compared with BRIC and the Far East. The West is in the process of being eclipsed.

                On the point of democracy, your objection to restricting the franchise does not apply to the scenario when all taxpayers are allowed to vote. If people want to receive the taxes of others, they must allow those other people to vote and to have a say in the matter. The entire case for restricting the franchise rests on the objective of ensuring that it is the people who pay money to the State who can dictate the State’s policies. Note that this analysis leads to the conclusion that if there must be a government, a tax system, and elections, then the number of votes available to each person should be in proportion to each person’s net taxes paid.

                As an aside: this does not permit government borrowing. Bonds have to be repaid by future taxpayers, many of whom can’t vote in the present.

                I don’t call democracy simply a scam by the poor to rob the rich. It’s much more complicated than that. Many of those who vote are public-sector workers who are much wealthier than the private-sector counterparts whose taxes they are voting to receive. And as you mentioned, some rich people are quite capable and willing to rig elections in their favour. It’s unfortunate that so many people are blind to this reality. Thanks to democracy, the lines between the rulers and the ruled have been blurred.

                Back to Ronaldo.

                What’s completely insane about your remark is that nobody would pay Ronaldo to dig wells a fraction of what Real Madrid or many other clubs would pay him to play football. The way you phrase the question makes it sound as if you are a victim of the Paradox of Value, thinking that water is more valuable than diamonds purely because water is necessary for survival and diamonds are not. I strongly recommend that you reflect on the marginal utility of manual labour as compared with a less essential for survival and yet extremely rare ability.

                And continuing, I’ve already said that the market is always inefficient. Resources could always be better used. I said that nobody knows the exactly correct price for anything. But there is no argument for government intervention simply because the world is imperfect.

                It’s a bit like when a religious person says to me “but you don’t know where the world came from.” Just because we don’t understand everything about the world does not mean that we need to accept whatever crazy ideas or solutions are offered to us.

  6. Some things should be based on ability to pay, but justice is not one of them.

    A good friend of mine was accused of a crime he did not commit, and had to spend his savings, sell his house and go into debt to pay legal fees. Even then, he would have had to accept a plea bargain, and admit guilt in return for a suspended sentence, if some of us had not chipped in to pay his legal fees. After two years, charges were dismissed. He didn’t even go to trial.

    I favor a public defender system in which the defenders are adequately paid, but the larger problem is an adversarial system in which victory in a contest becomes more important than the search for truth. Unfortunately the incentives are more for the former than the latter. Prosecutors are re-elected based on how many convictions they secure. Judges are re-elected based on their records of being “tough on crime.”

    A system as in France, in which magistrates investigate the criminal cases and do most of the questioning of witnesses, has potential for abuse of power, but it might be preferable to the present U.S. system.

    • I agree. I always worry about if something bad happens to me, what would I do? Even if I was completely in the right, I would never be able to afford to go to court, which could leave me in a bad place.

  7. RWR

    The US government’s position is that there is a right to health care / a doctor so then certainly there is a right to legal representation / a lawyer. Furthermore, a government program for legal representation such as the health care program would drive down the cost of legal representation, be efficient, and give everyone access to a lawyer. Hey, if we all have the right to a doctor than why not a lawyer?

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