Sunday, April 19, 2015

Did Christianity invent the individual?

Inventing the Individual by Larry Siedentop, makes an important contribution to available literature on the origins of the individualism and secularism which characterize Western Civilization.

Before I read the book I was aware from reviews that the author claims that, in some sense, Christianity “invented” the individual. How could that be so?

Siedentop summarizes his argument: “in its basic assumptions, liberal thought is the offspring of Christianity” (p 332). What he means by “inventing the individual” is recognition that individuals have natural rights, including the rights to liberty, to equality before the law and to election of representatives. As early as the 13th and 14th centuries, recognition of the important roles of conscience and individual choice even led some philosophers associated with the church to recognize that enforcing moral conduct is a contradiction in terms. The essence of Siedentop’s argument, is that liberal thought became established as a way of thinking “as the moral intuitions generated by Christianity were turned against an authoritarian model of the church” (p 332).

The words, “moral intuitions generated by Christianity”, raise another problem that I might as well consider before moving on to provide some positive comments. The moral intuitions that Siedentop is referring to are intuitions about moral equality and reciprocity – including the ideal of loving others as oneself and the golden rule of doing unto others are you would have them do unto you. My problem is that something like the golden rule is common to the major religions and is expressed in remarkably similar terms in Judaism, Buddhism, Taoism, Confucianism, Hinduism and Brahmanism. More fundamentally, the idea of moral intuitions being generated by religion seems to rule out of consideration the possibility that such intuitions are innate. Perhaps Siedentop means to argue that Christianity has been more successful than other religions in cultivating moral intuitions, but his book contains few references to other religions.

One reviewer, Samuel Moyne, writing in Boston Review, has suggested that there is a major difficulty for anyone who tells a Christian story of liberalism’s origins:
“They must explain how, against its original purposes, the Gospel’s message was brought down to earth, applied right now to radically new aims and institutions that Jesus and Paul would not have accepted. The reversal is stark: from a refusal of the relevance of Christian moral beliefs’ to politics to a revolution in this-worldly assumptions about the subordination of individuals to hierarchy. You need an argument to show how this happened. Siedentop doesn’t really have one. He just knows the reversal occurred”.

Siedentop has probably attracted such criticism because he has been over-ambitious in stating the aim of his book. He has set out to answer a very big question:
“Is it a mere coincidence that liberal secularism developed in the Christian West?”
In my view his book should be viewed as answering a more modest question:
Did Christianity contribute to the advent of liberal secularism in Europe? That is a fairly provocative question in view of the common belief that liberal secularism stems solely from the Renaissance in Italy and the rediscovery of ancient humanism.

This book shows that liberal secularism has some strong moral roots in Christianity. The author also acknowledges that the development of market towns and cities played an important role in the growth of freedom (as have other authors including Adam Smith in Wealth of Nations). 

I found the author’s discussion of St Paul’s contribution to be a powerful reminder that his message was about, among other things, the idea that all humans are children of God and the potential of that idea to liberate individuals from constraining perceptions of their personal identities as defined by social roles - such as father, daughter, official, priest or slave. Siedentop puts it his way:
“Paul overturns the assumption of natural inequality by creating an inner link between the divine will and human agency. He conceives that the two can, at least potentially, be fused within each person, thereby justifying the assumption of the moral equality of humans.  … That fusion marks the birth of a ‘truly’ individual will through the creation of conscience” (p 61).

The book is largely about the development of the concept of ‘moral equality’ within the Christian establishment as well as among heretics. Siedentop points out that the concept of moral equality was evident in the early years of Christianity, and led to recognition of the claims of conscience by some influential Christians. For example, he quotes Tertullian as recognizing that “it is a basic human right that everyone should be free to worship according to his own convictions” (p 78).

It was, of course, many centuries before the implications of moral equality came to be tolerated by Christian churches - the full implications have arguably yet to be accepted by most church leaders. The author takes us through the history, providing a fairly persuasive case that the roots of Western liberalism were firmly established in the arguments of canon lawyers and philosophers by the 14th and early 15th centuries.

One of the most interesting parts of the book is the discussion of the views of John Duns Scotus and William of Ockham. At the end of the 13th century Duns Scotus identified freedom as a necessary condition of moral conduct and argued that “an act is neither praiseworthy nor blameworthy unless it proceeds from the free will” (p 294). In the 14th century Ockham probed the concept of dominium (or lordship) which had hitherto rested on the assumption of natural inequality and involved both a right to govern and a right to own. Thus, the role of the paterfamilias in the ancient family meant that the father not only governed but in a sense owned his family. Ockham insisted that the existence of a right implied moral authority – rightful power – rather than just exercise of de facto power. Discussion of rights brings to bear the concept of moral equality, and with that, recognition of freedom of the will and individual moral agency.

William of Ockham

My mind is unable to comprehend the book’s discussion of the contest between doctrines associated with Aquinas and Ockham on the question of whether references to eternal ideas in the mind of God implies a restriction on God’s freedom. In terms of the book's objectives, however, the important point concerns the role of the individual’s will. Siedentop notes that Ockham associated reason with individual experience and choice, and saw ‘right reason’ as obligated by principles of equality and reciprocity (p 309). 

Incidentally, the discussion of the different approaches of Aquinas and Ockham left me with the impression that the author is claiming that Ockham rejected Aristotle’s teleological reasoning.  However, the entry on Ockham in the Stanford Encyclopedia of Philosophy suggests otherwise. According to that source, Ockham accepted Aristotle’s view that humans have a natural orientation toward pursuit of their own ultimate good (happiness).  The point that Ockham adds is that this inbuilt orientation does not restrict individual choice - individuals are free to choose whether or not to will their ultimate good.

It seems to me that the author has provided people in the West with a timely reminder of the links between liberal secularism and the concepts of moral equality and freedom of conscience. The book reminds us that secularism is not devoid of values. As Larry Siedentop puts it, “secularism identifies the conditions in which authentic beliefs should be formed and defended”.

Sunday, April 12, 2015

What tax and spending reforms might be feasible in Australia?

The government’s recent tax discussion paper contemplates a similar tax reform agenda to that recommended by the Henry tax review in 2010. The general thrust of the proposals is a move away from taxes which hamper efficient allocation of resources (e.g. stamp duties on property transfers) and taxes which impose disincentives on investment (taxes on capital income) or productive effort (high taxes on labour income).

Some commentators, for example Peter Martin in the SMH, have suggested that the discussion paper “has set out the case for an increase in Australia's rate of goods and services tax”.  Perhaps the report hints in that direction, but the Treasury research findings noted in the report do not seem consistent with the view that there are large gains to be had from substituting increases in GST for the taxes that have highest economic costs. The marginal excess burden (MEB) on GST is estimated to be in the medium range (around 20%) along with taxes on labour income, compared with an MEB of around 50% for company tax. As discussed in my recent post on the intergenerational report, the MEB of a tax rises exponentially with increases in the rate of the tax. If the relevant elasticities are such that the MEB on GST is currently around 20% (rather than around 10% as I previously thought) a doubling of the rate would cause the MEB on GST to 50% - as shown below.

It seems that the only way to get large economic gains by substituting one tax for another would be by relying more heavily on land taxes (and municipal rates) which, according to Treasury research, have a slightly negative MEB. The use of land tax to replace stamp duties on property transfers would make a great deal of sense from an economic perspective and should not pose huge political feasibility problems. People who cannot afford up-front payment of the land tax (e.g. old people who often income-poor despite being asset-rich) could be given the option of having payment deferred until after death, with appropriate interest being charged.

However, I find it difficult to imagine that increased revenue from land taxes could do much more than to replace some of the most highly distorting taxes used by state governments. Perhaps I could fire up my imagination by reading what Henry George had to say many years ago about the desirability of funding government by a single tax on land. However, I doubt whether any politician could persuade the electorate to accept substantial losses on the wealth invested in their homes in the hope that they might enjoy the benefits of lower taxes on capital income. Most Australian politicians are not even game to contemplate the merits of subjecting home owners to the same capital gains tax regime as is applied to owners of other assets.

One way in which it might be feasible to obtain benefits from lower taxes on capital income would be to reduce the tax concessions applying to superannuation. It might also be possible to reduce government spending by tightening up the assets means test on aged pensions. The potential for a bi-partisan agreement emerging in these policy directions has recently emerged with the Labor party offering to end superannuation concessions for the wealthy and the Australian Council of Social Services (ACOSS) suggesting that the assets test on aged pension eligibility should be tightened to better target the pension to those who need it.

At first sight these indications of a willingness among some politicians to contemplate a reduction of concessions to the elderly might appear to be attempting to swim against the tide of grey power – the growing proportion of old voters in the electorate. Paradoxically, however, the ability of any group to benefit from redistributions extracted from the rest of the community tends to diminish as it comes to represent a higher proportion of the population.

A big question which groups representing old people need to face is whether they stand to gain more by using their political muscle to increase their share of the economic cake or by using their political muscle to increase the size of the economic cake. As the elderly come to represent a higher proportion of the population, their attempts to obtain a larger slice are eventually likely to reduce the size of the cake by leading to higher tax rates and thus dampening economic incentives. A larger slice of a smaller cake could end up to be very little indeed. The elderly can possibly defer the time of reckoning by encouraging governments to adopt a complacent attitude toward growing government debt, but that strategy runs the risk of great hardship if the welfare system becomes unsustainable and has to be sacrificed to repay debt. 

Perhaps we are now beginning to see the political limits of grey power in Australia. The way ACOSS is using its influence seems likely to produce outcomes along the lines of those I predicted a few years ago when I considered the question of whether the elderly poor tend to fare better under a pensions means test than under universal pension benefits:
“As the increase in proportion of elderly people in the population in Australia reduces the per voter political power of this group, I would expect the per voter political power of the elderly poor to diminish to a smaller extent than that of the much larger group who hope to benefit from the private superannuation tax and pension means test rorts. I expect incentives for early retirement implicit in the superannuation arrangements will be an early casualty as attempts are made to contain government spending on retirees. If a choice has to be made at some time in the future between, say, maintaining the current level of the aged pension in real terms and maintaining superannuation tax concessions, I expect that maintaining the aged pension levels would be likely to win the political debate. Similarly, given a decline in grey power on a per voter basis I doubt whether superannuation tax concession would win the political debate if a choice has to be made at some time in the future between maintaining these tax concessions and an overall lowering in income tax rates to promote economic growth.”

After reading that again, I hope that the government doesn’t forget to obtain a substantial reduction in tax on capital incomes as a quid pro quo for a reduction in superannuation tax concessions.

The conclusion of my last post that young people have good reason to be concerned about their futures is also relevant in considering what tax and spending reforms might be feasible. As young people become more aware of the range of factors that affect their future well-being, more of them can be expected to show interest in the way economic policies are impacting on their own incentives to acquire skills, and on the incentive for investors to take the risks that will need to be taken to ensure the growth of remunerative employment opportunities. Perhaps young people will come to recognize that, as a group, their interests are likely to be best served by lower government spending and lower tax rates.

When a government throws all the pieces of tax and spending policy in the air there is no guarantee that what we will end up with will look any better than the mess we had before. On this occasion, however, there are some grounds for optimism. The political winds seem to be blowing in the right direction .

Sunday, April 5, 2015

Should young Australians be more concerned about their futures?

Young Australians do not seem to be particularly concerned about their futures. The data discussed in a recent post suggests that measures of optimism and pessimism depend a great deal on the specific question that is asked and the context in which it is asked. Nevertheless, it is reasonably clear that young Australians are less pessimistic than young people in many other high-income countries.

Perhaps young Australians should be more concerned about their futures. In considering this question I will rely largely on two reports: 
  • Renewing Australia’sPromise: Will young Australians be better off than their parents? (authorship anonymous) published by the Foundation for Young Australians (FYA) in November 2014; and
  • The Wealth of Generations, by John Daley and Danielle Wood, published by the Grattan Institute in December 2014.

The FYA report attempts to compare the lives of young people today and their future prospects with the lives and prospects of their parents when they were at a similar age. Young people are defined in various ways e.g. between 15-24 years of age, 20-24 and 25-34. The comparisons are largely between relevant data for the present and thirty years ago (1985). The aspects covered by the comparisons are: work and incomes, education, housing, government services, health and environment.

The focus of the Grattan report is somewhat narrower than that of the FYA report. It looks in some depth at change in household wealth, incomes, and government taxes and transfers of people in different age groups.

The environment: 
The FYA report argues that Australia is likely to become a hotter place and to be more at risk of fire and drought as today’s young grow older. Some precautionary measures are desirable even if the FYA report is too pessimistic. From an international relations perspective it is important for Australia’s efforts to control GHG emissions to be defensible in international forums. (Interestingly, the FYA report does not include a discussion of international relations; perhaps the region in which we live is now so peaceful that the potential for international conflict no longer comes readily to mind as an important factor affecting the wellbeing of future generations of Australians.)

If the climate change pessimists are correct, nothing Australian governments can do will make much difference, except for policies supporting adaptation. Technological advances will probably help future generations to cope with any increased risk of fire and drought if appropriate investments are made in research.

The FYA report suggests that young people will live longer and healthier lives than their parents as a result of advances in medical technology and adoption of healthier lifestyles. Between 1985 and 2015 life expectancy of 25 year olds increased by 6.2 years for males (from 74.5 to 84.7) and by 4.5 years for females (from 80.3 to 84.8).

Over the last 30 years there has been a massive increase in the amount of time people spend being educated but the quality of education does not seem to have kept pace with that in other OECD countries.  Data presented by FYA shows Year 12 completion rates have risen from 44% to 77% (20-24 age group) and the percentage of people with university degrees has risen from 26% to 35% (25-34 age group). PISA scores indicate that basic skills in maths and reading have slipped substantially relative to the OECD average.

The Grattan report notes that home ownership is declining, especially among the young. The percentage of 25-34 year olds owning their own home slipped from more than 60% in 1981 to 48% in 2011. FYA notes that the ratio of house price to income rose from 3.2 in 1985 to 6.5 in 2015, while the ratio of housing loan interest to income rose from 3.9 to 7.1. However, the Reserve Bank’s estimates suggest that repayments on new housing loans as a percentage of household disposable income were much the same in recent years as in the mid 1980s.  The relevant percentages are higher than in the early 1980s, but lower than in the late 1980s.

It is also relevant to consider how the price of housing and rents compare with movements in the CPI over the past 30 years. Over the period from December 1984 to December 2014 the CPI All Groups index rose on average by 3.6% per annum, the housing component of the index rose by 4.1% per annum. Over this period, the annual rate of increase in the rental sub-group was 4.9% in Sydney, 4.0% in Melbourne and 3.3% in Hobart. This data is not consistent with a general decline in affordability of rental accommodation over the last 30 years.  The fact that it is costing more to live in Sydney suggests that many people find Sydney to be an attractive place to live.

Government Services and Taxation: 
The FYA report makes the widely-known point that over the next 40 years an increase in the proportion of old people in the population is likely to result in an increase in government spending on programs which benefit older people, while young people are likely to be required to contribute more in taxation and to receive less services in return. Young people are already contributing more than their parents’ generation; this is evident in the increase in average student (HECS) debt on graduation from zero in 1985 to about $24,000 in 2011.

The Grattan report provides a more detailed examination of intergenerational transfers. It notes that since 2003-04 there has been a substantial increase in net transfers per household of $9,400 to the 65+ group - mainly in the form of health spending and cash benefits - which has been funded by increases in government debt.

The Government’s latest intergenerational report has projected that under current legislation net debt per person will rise from $10,400 in 2014-15 to $65,000 mid-century, measured in today’s dollars. It is probably not reasonable to expect old people, children and others on relatively low incomes to make much contribution to servicing that debt, so a middle income earner could be looking at having to service an additional debt approaching $100,000 on top of their home mortgage.

We can expect the open season for crazy tax ideas to continue in Australia until we manage to get government spending under control.

This cartoon by Nicholson was published in “The Australian” newspaper in 2010.

Work, incomes and wealth: 
Data presented in the FYA report indicate that the unemployment rate of 13% for 15-24 year olds is similar to that in 1985. However, there are many young people engaged in casual and part-time employment who would prefer to work more. Over the past three decades the percentage of young people who are not able to get as much work as they would like has more than trebled (rising from 4.7% to 16.6%). 

As to the future, a decline in the proportion of young people in the population will not necessarily bring about a return to the situation where young people will be able to find secure employment more readily. Technological change can be expected to continue to result in displacement of a growing number of occupations and labour market regulation may continue to favour people who have secure employment relative to job-seekers. Technological change will also provide new opportunities, but the FYA report makes the important point that ability to take advantage of such opportunities will depend on skill development to ensure that “technology augments young workers rather than displacing them”. That might be easier said than done in the context of current opposition to labour market deregulation and education reform.

The FYA report notes that there has been a modest increase of 6.8% in median weekly earnings of 15-24 year olds over the last 30 years. That represents a rate of increase five times slower than experienced by people aged 45-54.

The Grattan report shows that older Australians have also captured most of the growth in Australia’s wealth over the past decade. Households in the 65-74 age bracket are on average $200,000 wealthier than households of that age eight years ago, while the wealth of households in the 25-34 age bracket have gone backwards. The main driver of the growth in wealth of older Australians has been an increase in house prices. Young people have missed out on this as a result of their lower home ownership rates.

As an old person it would be easy for me to be complacent about growing intergenerational disparities of wealth. After all, it is reasonable to expect that older people will ultimately pass on much of their accumulated wealth, isn’t it? Data in the Grattan report suggests, however, that inheritances are typically received later in life and primarily benefit people who are already wealthy. Gifts to younger generations are typically small and also primarily of benefit to well-off households.

Concluding comments

In the past I have often tried to dismiss the fears that young people have expressed to me about their future lives with some comforting words about the benefits of ongoing economic growth. I still think the problems discussed above will be manageable if Australia can maintain rates of economic growth comparable to those experienced during the last 30 years. 
However, it will be difficult to maintain economic growth comparable to the past, given projected changes in the age structure of the population. We may not have much economic growth at all if an increasing tax burden is placed on investors and medium to high income earners. Investors can easily find attractive opportunities elsewhere in the world and medium to high income earners are likely to be increasingly attracted by the pleasures of early retirement, particularly if they can look forward to a government-funded pension after their savings are sufficiently depleted.

In my view young Australians have good reasons to be concerned about their futures.

Sunday, March 29, 2015

Does the McClure report provide a basis for sensible welfare reform?

My first impression of the report of the Reference Group on Welfare Reform was not favourable. I couldn’t make sense of it.

The four pillars metaphor got in the way of the story the report was attempting to tell. When I went looking for the structure that the pillars were meant to support I got lost. So I then went looking for four major problems that reforms were intended to address and could only find two.

At that point I realized that the pillars were just a device to tell readers that the material in this report has been organised under four subject headings.  The reason why the material was organized in this way still escapes me, but that probably doesn’t matter. The report was probably not intended to be read by people like me.

One of the major problems that the members of the reference group (Patrick McClure, Sally Sinclair and Wesley Aird) have sought to deal with is the complexity of the existing system of welfare payments. The report is concerned that complexity creates problems for individuals in understanding the system and accessing support, and makes it more difficult to administer the system efficiently. There is also an underlying problem of inequity, with people in similar circumstances being treated differently. The reference group has proposed a simplified payment architecture, with five primary types of payment. It looks like a sensible reform, but I am not well placed to comment.

The other major problem that the reference group has sought to address is long-term dependence on income support by people who have potential to become self-reliant. The report proposes that the problem be tackled with an investment approach along the lines of that adopted in New Zealand. The key features of the proposed approach seem to be:
  • Conducting actuarial calculations annually to estimate the lifetime liability (i.e. contingent liability to government) of the overall income support system and support for specific groups.
  • Identifying those groups at greatest risk of long term income support dependence and those groups with the strongest chance of breaking this reliance with tailored support.
  • Making a broad range of services available to assist at-risk clients to break their reliance on income support. The Federal Government is envisaged to be the driving force behind service delivery.
  • Ensuring that interventions are evidence-based, and “testing and learning” to ensure continuous improvement of support services.

The proposed investment approach seems promising, but it is not obvious that the report has taken into account criticisms of the New Zealand scheme, such as those raised by Simon Chapple in an article published in 2013. Chapple pointed out that the investment approach adopted in New Zealand can produce policy outcomes that are inconsistent with a standard cost benefit framework. For example, the investment approach counts movement of people off welfare for any reason – including movement into the black or grey economy, emigrating and going to prison - as a benefit.  It provides the administering agency with an incentive to focus on reducing government spending rather than achieving more desirable outcomes such as helping welfare beneficiaries gain employment.

In my view Chapple’s objections to the New Zealand scheme should probably not weigh heavily against the adoption of a similar scheme in Australia, but the issue deserves more careful consideration than I can give it here. It would have been desirable for the reference group to have discussed the issues involved in its report. It will be interesting to see how Patrick McClure or other members of the group now deal with the similar criticisms that have been raised against their proposals by Michael Fletcher. They can hardly argue that their report speaks for itself.

If this report had been prepared by the Productivity Commission I am sure it would have provided a more thorough investigation of the fundamental issues that should be considered before the government adopts an investment approach to welfare along New Zealand lines.