By Bron Suchecki, on November 23rd, 2011
The text below was forwarded to me a few years ago and I rediscovered it today. I’ve edited it to take out Australian specific references. The Squirrel and the Grasshopper story really resonated with me when I first heard it as a kid. I thought the squirrel was prudent. I’m sure other kids felt sad for the Grasshopper. I propose everyone can be divided into two groups – those who side with the squirrel and those who side with the grasshopper.
ORIGINAL VERSION
The squirrel works hard in the withering heat all summer long, building and improving his house and laying up supplies for the winter.
The grasshopper thinks he’s a fool, and laughs and dances and plays the summer away.
Come winter, the squirrel is warm and well fed. The shivering grasshopper has no food or shelter, so he dies out in the cold.
MODERN VERSION
The squirrel works hard in the withering heat all summer long, building his house and laying up supplies for the winter.
The grasshopper thinks he’s a fool, and laughs and dances and plays the summer away.
Come winter, the squirrel is warm and well fed.
A social worker finds the shivering grasshopper, calls a press conference and demands to know why the squirrel should be allowed to be warm and well fed while others less fortunate, like the grasshopper, are cold and starving.
The media shows up to provide live coverage of the shivering grasshopper; with cuts to a video of the squirrel in his comfortable warm home with a table laden with food and informs people that they should be ashamed that in a country of such wealth, this poor grasshopper is allowed to suffer so while others have plenty.
Do gooders demonstrate in front of the squirrel’s house. A Lefty Politician rants in an interview that the squirrel got rich off the backs of grasshoppers, and calls for an immediate tax hike on the squirrel to make him pay his ‘fair share’.
In response to pressure from the media, the Government drafts the Economic Equity and Grasshopper Anti Discrimination Act, retroactive to the beginning of the summer, and creates The Grasshopper Housing Department. The squirrel’s taxes are reassessed. He is taken to court and fined for failing to hire grasshoppers as builders, for the work he was doing on his home, and an additional fine for contempt when he told the court the grasshopper did not want to work.
The grasshopper is provided with a Grasshopper Housing Department house, financial aid to furnish it and an account with a local taxi firm to ensure he can be socially mobile. The squirrel’s food is seized and re-distributed to the more needy members of society – in this case the grasshopper.
Without enough money to buy more food, to pay the fine and his newly imposed retroactive taxes, the squirrel has to downsize his home.
A 60 Minutes special shows the grasshopper finishing up the last of the squirrel’s food, though spring is still months away, while the Grasshopper Housing Department house he is in, crumbles around him because he hasn’t bothered to maintain it. He is shown to be taking drugs.
Inadequate government funding is blamed for the grasshopper’s drug ‘Illness’.
The grasshopper gets arrested for stabbing an old dog during a burglary to get money for his drugs habit. He is imprisoned but released immediately because he has been in custody for a few weeks. He is placed in the care of the probation service to monitor and supervise him.
Within a few weeks he has killed a guinea pig in a botched robbery.
A commission of enquiry, that will eventually cost $10 million and state the obvious, is set up.
Additional money is put into funding a drug rehabilitation scheme for grasshoppers.
The grasshopper dies of a drug overdose.
The usual sections of the press blame it on the obvious failure of government to address the root causes of despair arising from social inequity and his traumatic experience of prison.
The squirrel’s taxes are increased to pay for law and order, and they are told that they will have to work beyond 65 because of a shortfall in government funds.
By Simon Grey, on October 12th, 2011
I wonder if there is any way to get Americans to shed their lazy mindset: Another Times article published this week, however, challenges the idea of “perfect substitutes” advanced by the NBER study and paints an alternate picture of the economic reasoning behind Alabama’s legislation. John Harold, a Colorado farmer profiled by the Times, tried to hire some unemployed Americans to work on his ranch and paid them a wage of $10.50 an hour, like the migrant workers he usually employs from the federal H-2A program (Colorado’s regular minimum wage is $7.36). The American workers quit, citing the labor as too hard – something that didn’t happen with the Mexican laborers Harold traditionally used. [Emphasis added.]
I’m sure there are plenty of socio-cultural reasons why Americans view this sort of manual labor as too tedious for them.Americans are, by and large, a rather soft people, at least these days.
Personally, I blame video games for a good part of this* (all of the psychological rewards of work with none of the sweat!). But, I’m guessing that the social safety net plays a role in this as well. How many people would quit their jobs at the ranch if they knew that there was no guarantee of money if they quit (i.e. no welfare)? I’m guessing that number would be a little bit lower. It’s easy to quit because the work’s too demanding when you can live off of welfare until you find an opening at Target. It’s not so easy when quitting means that you lose your house and go hungry.Since it’s hard to tell how big a role state and federal social safety net programs have played in all this, it’s correspondingly difficult to figure how much blame the respective governments bear for this current mindset. At any rate, though, I think it’s safe to say that the government has certainly been complicit in sowing the seeds to America’s destruction.
* I kid, I kid.
By Simon Grey, on September 23rd, 2011
“Of jobs created in Texas since 2007, 81 percent were taken by newly arrived immigrant workers (legal and illegal),” says the report from the Center for Immigration Studies, a group that advocates reduced levels of both legal and illegal immigration. The report estimates that about 40 percent of the new jobs were taken by illegal immigrants, while 40 percent were taken by legal immigrants. The vast majority of both groups, legal and illegal, were not American citizens. (Hat tip: Vox Day.)
Native-born Americans filled just 20 percent of the new jobs in Texas, the report says, even though “the native born accounted for 69 percent of the growth in Texas’ working-age population.” “Thus, even though natives made up most of the growth in potential workers, most of the job growth went to immigrants,” the report concludes.
If you want to fix the unemployment mess America currently faces, do four things:
One, round up all illegal immigrants and guest workers and deport them. I am unable to comprehend how a government that claims to represent the interests of its people even tolerates any foreign workers when the unemployment rate is hovering around 16%. Why is this allowed when citizens are jobless and looking for work? Citizens should be given preference when it comes to domestic policy, and labor is no exception.
Two, deregulate labor. Get rid of the minimum wage, the minimum age, and mandatory overtime pay laws. Price floors always, without fail, create a surplus. Again, labor is no exception.
Three, get rid of government-sponsored welfare, unemployment compensation, and all other forms of paying people to not work. This will give the currently unemployed a very powerful incentive to find and/or create a job. Note, however, that one should not end the dole without first having eliminated minimum wage.
Four, get rid of payroll taxes. Milton Friedman’s monstrously stupid idea to have taxes withheld from one’s paycheck places compliance costs on businesses that they do not face when hiring illegal workers.This, in turn, makes it more difficult for legal workers to compete with illegal workers. As such, ending payroll taxes will reduce the costs of employment, and make it easier for citizens to compete for jobs.
By Simon Grey, on September 22nd, 2011
Aside from these lies, Social Security is a Ponzi scheme. The major difference between Social Security and Bernie Madoff’s Ponzi scheme is his was illegal. Three Nobel laureate economists have testified that Social Security is a Ponzi scheme. Dr. Paul Samuelson called it “the greatest Ponzi game ever contrived.” Dr. Milton Friedman said it was “the biggest Ponzi scheme on earth.” Dr. Paul Krugman predicted that “the Ponzi game will soon be over.”
The media and government need to take a hint here. When two Nobel-prize-winning Keynesians say that Social Security is a Ponzi scheme, it’s safe that Social Security is a Ponzi scheme.(Because if there’s anyone who knows Ponzi schemes, it’s going to be a Keynesian.)Incidentally, I was also ahead of the game in demonstrating that Social Security is a lie, at least in terms of guaranteed benefits. While I only focused on Flemming v. Nestor, it is important to also look at Helvering V. Davis: Another lie in the Social Security pamphlet is: “Beginning November 24, 1936, the United States government will set up a Social Security account for you. … The checks will come to you as a right.” Therefore, Americans were sold on the belief that Social Security is like a retirement account and money placed in it is our property. The fact of the matter is you have no property right whatsoever to your Social Security “contributions.”
You say, “Williams, you’re wrong! We have a right to Social Security payments.” In a U.S. Supreme Court case, Helvering v. Davis (1937), the court held that Social Security is not an insurance program, saying, “The proceeds of both (employee and employer) taxes are to be paid into the Treasury like internal revenue taxes generally, and are not earmarked in any way.” In a later Supreme Court case, Flemming v. Nestor (1960), the court said, “To engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands.” [Emphasis added.]
Of course, Social Security is not technically a Ponzi scheme because one is not forced to pay taxes contribute to a true Ponzi scheme: It’s true that Ponzi engaged in fraud; his victims never would have “invested” with him, had he accurately explained the business model. Libertarians therefore agree with everybody else that Charles Ponzi was a criminal and would have to face legal consequences in any just legal order.
However, so far as we know Ponzi never threatened anybody. He didn’t tell struggling young workers, “Give me 15 percent of your paycheck every week, so that I can make you a fantastic return — or else I’ll send goons to kidnap you.”
In this respect, Social Security isn’t a Ponzi scheme after all. It’s more analogous to mobsters shaking down people for protection money, because otherwise “bad things could happen.”
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By Ajay Shah, on June 27th, 2011
Suppose we go back to 1870 and think of four interesting and promising countries.
Britain was the incumbent, the pioneer of the industrial revolution, home of Newton and Darwin, with a head start on building institutions, with sound economic policy and deep integration with a global empire.
Germany, the rising power of Europe, rapidly catching up with the frontier (and ahead of Britain in some fields). More centralisation of power, which perhaps gave an edge in certain things.
The US, a vast country blessed with a great constitution, inhabited by a cast of characters made up of the mavericks, misfits, nutcases and adventurers of Europe.
Argentina, a vast country with boundless prospects, sound policies after 1852, and tightly integrated into the London capital market.
Today we think `Argentina?’. But in the middle of the 19th century, there were many people who thought that Argentina had better prospects than the US. From 1850 to 1930, Argentina did astonishingly well. In particular, from 1880 to 1905, GDP growth averaged 8 per cent over 25 years, which was unheard of in those years.
With the benefit of hindsight, we know what happened. We know that Argentina collapsed into illiberal populism (first into socialism/fascism (1930) and then into Peronism (1946)), that Germany collapsed into militarism, and that the US and the UK managed to build liberal democracies.
So with this framing, let’s ask about how India and China will go.
Will India make it to good institutions, like the UK or the US? Or will India collapse into illiberal populism, much like Argentina did?
All too often, the Indian elite tends to take good outcomes in the deep future for granted, but I am not so sure and it is worth worrying about the foundations of liberal democracy and a market economy. Given the weak foundations of liberal ideas in India, political freedom is not something to take for granted. Given the weak foundations of market economics in India, economic freedom is not something to take for granted. Argentina’s binge of welfare programs and populism is uncomfortably close to the instincts of most Indian politicians.
Will China make it into good institutions, like the UK or the US? Or will China descend into chauvinism and militarism, much like
Germany did?
The story of Argentina and Germany, from 1870 to 1914, reminds us that what works in a country for a few decades is often not enough to carry the country through to a happy ending. Germany did very well from 1870 to 1914 (44 years). Argentina did very well from 1850 to 1930 (80 years) of which 50 years were really high growth. To many people, sustained success (a la India) has generated complacence: we have started trusting in our governance DNA, thinking that it has delivered results. This hinders the process of identifying incipient problems, criticising the status quo, and changing course.
But the fact that a economic/political recipe worked well for a few decades does not mean that this recipe will continue to deliver. For a country to work out in the long run, it has to constantly renew the foundations of liberal democracy and the market economy, and
repeatedly reinvent itself.
In the late 19th century, growth rates were low in absolute terms, other than outlandish episodes like Argentina (1880-1905). Germany was the star performer of Europe over 1870-1914, with GDP growth of 2.9 per cent. The UK did just 1.9 per cent in this period. At 2.9 per cent growth, GDP doubles each 24 years. In other words, the economy and the political system need to be reinvented in each generation.
At 7 per cent growth, in India, we are getting a doubling of GDP every decade. This requires a reinvention of the economy and the
political system every decade. We have a stark contrast where we have grossly failed on modifying laws, government agencies, policy
frameworks and world views at a rapid pace.
By Simon Grey, on June 3rd, 2011
Scott Adams notes the problem with an increasing number of people who don’t pay taxes:
We all understand that no entity can survive for long if it gives away its resources while asking nothing in return. And this leads me to my point: In the United States, 51% of adults pay zero federal income tax, and yet they have the right to vote. That’s the very definition of a system that can’t last.
I’m not sure where the tipping point is. So far, the power of the non-tax-paying majority has been blunted by the influence of political parties and the misdirection of the media. If the majority ever figures out that they can legally confiscate the wealth of the minority, tax rates will double overnight. My best guess is that the United States will go into a death spiral at about the point that 55% of adults pay no federal income taxes. We’ll probably get to that point as baby boomers continue to retire in large numbers.
As Vox has noted, “It’s not quite a legitimate analysis, in that many of those who don’t pay any income tax do pay payroll taxes.” I would also add that everyone pays certain federal taxes indirectly, like the taxes on automotive fuel, so even those living off government largesse don’t escape all taxes. At any rate, Adam’s sentiment is largely correct, and is a sentiment shared by economists Thomas Sowell and Walter Williams, among a host of others. Furthermore, the United States is definitely trending towards becoming a nation that has more taxtakers than taxpayers. Consider the following chart from Zero Hedge:
If this trend keeps up, we will definitely be in trouble.
By B.P.T., on April 18th, 2011
From whitehouse.gov:
In his State of the Union Address, President Obama promised that this year, for the first time ever, American taxpayers would be able to go online and see exactly how their federal tax dollars are spent. Just enter a few pieces of information about your taxes, and the taxpayer receipt will give you a breakdown of how your tax dollars are spent on priorities like education, veterans benefits, or health care.
I think this is a great idea, since it will clearly show the priorities of our federal government, so I went to the site and entered my information. Once I had done that, I entered information for several other common scenarios, and found a problem:
Oops! Given that over 40% of American households pay negative income tax, it seems unfair that they wouldn’t be able to use this calculator. Someone should tell the White House about this accessibility error, since I am sure they would like every person in the nation to be able to use this handy tool, and not only those with a positive income tax bill.
By Ajay Shah, on February 21st, 2011
My collection of links on the transition at SEBI from C. B. Bhave to U. K. Sinha.
How India’s banks killed the future of commerce on the Cleartrip blog.
The defining problem of the Indian State is the tension between spending on program that benefit the few (e.g. the typical UPA
welfare program) versus programs that benefit all (i.e. public goods). This problem even extends to skimping on resources for the
judiciary. See Dhananjay Mahapatra in the Times of India.
Greasing our shock absorbers by Ila Patnaik in the Indian Express, 3 February 2011. And watch her talk about the economy.
There is quite a bit of debate in India about big government versus small government. On this subject, Blanca Moreno-Dodson and Nihal Bayraktar have a note How Public Spending Can Help You Grow: An Empirical Analysis for Developing Countries. They compare a set of fast-growing developing countries to a mix of developing countries with different growth patterns. Considering the full government budget constraint, the empirical analysis shows that public spending, especially its `core’ components, contributes to economic growth only in countries that are capable of using funds for productive purposes. In addition, those countries must have an adequate economic policy environment with macroeconomic stability, openness, and private
sector investments that are conducive to growth. Unfortunately, their definition of `productive and core sectors’ reflects World
Bank ideology, and does not focus on public goods.
IT strategy for the Goods and Services Tax.
A great article on Saudi Arabia by Laurence Wright.
Tunisia and Egypt continue to be incredibly important and riveting. I really enjoy the thought, however fatuous, about every
strongman across the world sleeping a little less easy. See Why Egypt should worry China by Barry Eichengreen on Project
Syndicate. On the East Asia Forum, Peter Beck tells the story about how the dictatorship collapsed in Korea. Robert
L. Tignor on Project Syndicate locates the present discussion in Egyptian history.
Read this interview with Andreas Wesemann.
The wonderful world of Android: link, link.
Is Your Job an Endangered Species? by Andy Kessler in the Wall Street Journal.
Abrupt change in authoritarian regimes: Gary Becker, Richard Posner.
By Winton Bates, on February 10th, 2011
In a recent post ‘Does big government weaken the social fabric?’ I presented a table showing the percentages of the population in various countries who say that falsely claiming government benefits, cheating on taxes and accepting a bribe are never justifiable. I was using this data as a measure of the strength of the social fabric in different countries.
A commenter (Lorraine) suggested that ‘never’ is a pretty powerful word and that my ‘inner paleoconservative’ was showing. On reflection, I agree that it is difficult to argue that any of these forms of corruption are never justifiable under any circumstances. For example, I would find it difficult to argue that a person living in a society where corruption is the norm has as strong a moral obligation to refrain from corrupt activities as a person living in a society where there is little corruption. That is why corruption is so insidious – the more prevalent it is, the more difficult it becomes for anyone to resist it. (I suppose that kind of reasoning must make me some kind of moral relativist, but I don’t think I will lose too much sleep worrying about that!)
Survey respondents are asked to give a rating from 1 to 10, depending on whether they consider each behaviour is never justifiable (1) or always justifiable (10). In the following tables I have labelled ratings of 1 and 2 as ‘very rarely or never justifiable’ and ratings of from 1 to 3 as ‘rarely or never justifiable’.
The relaxation in degree of opposition to welfare fraud, tax evasion and bribery does make some difference to the rankings. The general picture remains broadly the same, however. There is generally more red at the bottom of the tables than at the top, suggesting greater opposition to corruption among people in the countries with smaller governments.
By Winton Bates, on February 1st, 2011
The concept of a welfare pedestal has been popularized by Noel Pearson. As a lawyer and passionate advocate for the interests of aboriginal people who live on the Cape York Peninsula of North Queensland, some readers might expect that he would spend his time arguing for more government hand-outs to remedy social problems in aboriginal communities. However, Pearson recognizes that the welfare programs are actually a major cause of the social problems in those communities and his main focus is on finding ways to stop hand-outs from harming his clients. He is not against government help for his clients, he just wants to ensure that it does them more good than harm.
The insight behind the welfare pedestal is that welfare payments can provide perverse incentives by encouraging some people to remain on welfare rather than to seek paid employment. Over the last decade or so, concern about an emerging problem of inter-generational welfare dependency (in non-indigenous communities as well as indigenous communities) has led to some tightening up in the provisions attached to unemployment benefits. It is too soon to claim that the problems associated with unemployment benefits and pretend work schemes have all been resolved, but the problems are now widely recognized and some appropriate remedial action is being taken.
The example of a government program contributing to the welfare pedestal that Pearson gives in his recent lecture, ‘Pathways to Prosperity for Indigenous People’, is family benefits. He suggests:
‘Life on the welfare pedestal in a country that distributes money through a generous family tax benefit system is quite a rational choice’ (The Sir Ronald Trotter Lecture, New Zealand Business Roundtable, 2010).
I had not previously thought of the family tax benefit in that way. I have tended to view the family tax benefit as a kind of negative income tax, providing net benefits for families with low and modest incomes. I was previously aware of adverse incentives resulting from fairly high effective marginal tax rates for people on fairly modest family incomes above the point where the means test begins to cut in (about $45,000). According to the way economists usually look at these things, however, a family with four children obtaining $19,600 per annum from family benefits has no disincentive to obtaining additional income from work of more than $25,000.
In another paper Pearson acknowledges that the absence of punitive marginal tax rates is probably not an important consideration when people in Cape York Peninsula make their decisions about how many hours of the week they allocate to work or leisure. He writes:
‘Indigenous parents are having large families at an earlier age. Their welfare payments add up to a significant yearly wage. This income is received without them ever having to make any active decisions about education or work. When they have started receiving family payments, they face this choice: have an income which they are prepared to exist on for minimal work obligations or work longer hours for a limited increase in income and significantly less leisure time.
The behaviour of people in our communities indicates that many of our people do not intend to increase their income by increasing their labour supply. In some remote communities, it has been difficult to find applicants for the real jobs that do exist, despite the fact that the vast majority of people are unemployed’.
Pearson argues that ‘conditions and incentives to make active and beneficial life choices should apply to family payments’ even though he acknowledges that problems arise because such payments ‘are not indigenous-specific schemes’.
That poses a question: If people make the choice to live on generally available family benefits rather than to earn higher incomes, why should we view this as a problem? I see no problem in individuals choosing to live on low incomes. We should respect the choices that some individuals make to live a life of poverty (and of chastity too, if that is their choice). I can’t see why anyone should have a problem with individuals making whatever income/leisure choice that they desire.
I can see a problem, however, in governments providing family benefits to people who do not have adequate regard for the well-being of their children. I think we (taxpayers/voters) should insist that family assistance should only be provided to parents when they meet conditions such as ensuring that their children attend school regularly. Perhaps it would not be too difficult for a prime minister who has a special interest in educational opportunity to find a simple way for such a condition to be applied to family tax benefits across all sections of the community.
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