Friday, September 01, 2006

The language of the welfare state

Many well-meaning advocates of the welfare state, when confronted with arguments about how wasteful, inefficient and authoritarian welfare policies are, resort to an emotive argument based on a common theme.

* In Australia, we should be able to expect that everyone can have a good education

or perhaps

* We should be able to guarantee basic needs

You know, I agree entirely with these sentiments entirely, but because of the success of free markets in the Western world, I don't support state intervention and control as ways of pursuing these outcomes. Replace these goods/services that seem essential with any other goods or services, such as toasters, or movie tickets.

How come nobody in their right mind suggests that government should guarantee every house has a toaster, or that every person has movie tickets at least once a year ? Is it because these are considered luxuries and not needs ? Partly yes. But partly because they also realise that they can't think of a single person who can't access these goods and services through the free market. The free market has succeeded in making these items dirt cheap. Most people can afford these items with the wages they earn in one hour's labour.

It is definately counter-intuitive to those who haven't spent a lot of time looking at economic development and history, but the thing is, once a society has established 2 key factors, it is the best way of developing and improving the lives and opportunities of its people.

Those 2 key factors are individual's rights and freedom.

Adam Smith famously wrote about the invisible hand of free markets. He said that by allowing people to pursue their own selfish goals, it was as if an invisible hand were guiding them to the common good. In other words, the fruits of capitalism spread out through society.

Every innovation, invention, cure for a disease, breakthrough that raised our standards of living came about through enterprise and free trade between people. The bottom line is that if there is any way of improving our lives, any innovation, cure for a disease or whatever, that has some value to people, then there is a natural and built in incentive for markets to provide that good as efficiently as possible.

After several hundred years of enterprise, innovation and development, we see ourselves surrounded by unprecedented wealth and opportunities that would have only been available to emperors and kings centuries ago.

Our success, comfort and high standards of living are evident for all to see. The average person is really well off. The key to this is wealth. Wealth is more than just a big bank balance or lots of cash. Wealth isn't something that only the rich and high-income earners have. Wealth is something that has spread throughout the economy and found its way into the pockets of everyone. 200 years ago, you would have to slave away to put food on the table. Nowadays, through free trade, people have learnt to specialise in areas that provide the greatest value to the economy, and thus give them the highest wage.

As individuals, and as a collective, by allowing free unhampered exchanges between people, we've all become more productive. The millions of individual agents in an economy, who now use prices as signals to each other, are busy exchanging and interacting and influencing each others behaviour. The industrial world can produce and provide more goods and services than ever before. If you can provide something that another person values, there is an incentive to exchange things and generate profit.

Profit is not a bad word. Profit is when I give up something for something I value more. Both parties benefit. If I swap my spare DVD player for concert tickets, both people profit in that transaction. If I willingly exchange thousands of dollars for an automobile which helps me get to work, and earn money, my subjective valuation tells me that I have profited.

These profitable transactions spread, and millions of people buy cars and mobile phones, and thousands of jobs and new opportunities are created in the provision of these valued goods and services.

Ahh, but what about inequality ?

The supporters of the welfare state always fall back on this key word. Well, why don't they go through the history books and find a single example where a society evolved that had no inequality and had wealth and prosperity ?

It simply doesn't exist. Nature creates every individual as different and unique, has different abilities and has different values and goals. What do you value more - freedom, or equality ?

For me, freedom means happiness, success and opportunity for 99%, whilst using the state to fight inequality results in misery, poverty and oppression for everyone. The only examples where people have been equal have been communist revolution that eradicate all wealth, industrial progress and freedom.

The lesson of history OVERWHELMINGLY tells us that a society can only be equal if we are all equally poor.