Lost Causes: The Retreat from Classical Liberalism

Last month, the IEA co-published Lost Causes by Deepak Lal. The book can be bought from the IEA here. It was interesting to see, in the wake of the 2012 budget, various think tanks and commentators claim that they had influenced this or that policy. Deepak Lal has no such pretensions. Lal’s book is a collection of policy ideas that he has promoted that have been flatly rejected by government after government. They are all sound ideas – though I differ with the author on some of the details – but the ideals that Deepak has promoted for decades have definitely not come to fruition.

The ideas that Lal has written about include: replacing the NHS with a state-funded private health insurance system; largely abolishing foreign aid; ending the crusade against tobacco; and the misconceived fight against terrorism using methods that seriously reduce personal liberty. Indeed, these very four issues have been in the news recently including a very-well-researched House of Lords report criticising government aid policy.

So, why are these issues – and many others – lost causes? Lal refers back to the theme of another recent IEA publication – the Public Choice Primer by Eamonn Butler. The state exists, in the mind of liberals, to protect us from predation. However, that same state has now become the main predator because, through interest groups and the democratic processes, we are able to legally confiscate each other’s property and do so to the tune of 50% of national income (if inter-generational transfers through government borrowing are taken into account). Majorities in a democracy can easily take the property of others (especially of the next generation by building up debt). However, minorities can prey upon majorities as long as they are well organised and bureaucratic interests find it especially easy to prey on others. The mechanisms by which we hold them to account are very imperfect.

What is Lal’s solution?

The first is a radically decentralised state raising (mainly) local taxes on consumption. People could choose where to live including on the basis of the level of tax. All taxes should be flat taxes to reduce predation through redistribution. Tax competition will then operate within countries and this will complement the tax competition between countries that Lal expects to become more effective over time as Asian states grow richer and attract talent from the West.

If this policy is followed, the state will have to focus not on predation but on providing the best possible public goods – in those cases where there is a role for the state – for the lowest cost. This will then lead to solutions, such as those proposed by Lal, being adopted.

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

2 thoughts on “Lost Causes: The Retreat from Classical Liberalism”

  1. Posted 13/04/2012 at 12:18 | Permalink

    Funnily enough, I just started reading this last night.

    Unfortunately, it’s now met some stiff competition from Ronald Coase and Ning Wang’s How China Became Capitalist, which arrived at the office about 30 minutes ago!

  2. Posted 15/04/2012 at 13:45 | Permalink

    Sounds great, but the solution to predation is to convince people to stop doing it. The economic case (government spending is wasteful) doesn’t seem to be getting through. Perhaps you should try making a moral case: e.g., it is morally wrong to forcibly take money from A in order to benefit B. It is morally wrong to force A to pay for and use a monopolistic ‘public service’. It is morally wrong to use force against peaceful people who just don’t want their money taken for these purposes.

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