From: fofp@castle.ed.ac.uk (M Holmes)
Newsgroups: soc.culture.british
Subject: Re: Currency problems
Date: 12 Oct 92 12:18:04 GMT
Organization: Edinburgh University

riaedwards@halls1.cc.monash.edu.au (AUDREY EDWARDS) writes:

>Apart from winging on about inappropriate benefits, you have not 
>answered my question (re. where does the 'free market' end?). 

OK, I plead guilty to that. I hust wanted to point out wherever the free
market/ welfare state boundary ought to be, the line is certainly drawn
in some rather stupid places at the moment.

>The great difficulty with the welfare state only providing assistance to "
>those folks who are, beyond the doubt of everyone, actually poor" is that if 
>one tried to do a survey of who people think this type actually is there 
>would be remarkably little concensus. Just to give you two examples - 

>1) Should the state provide assistance to substance abusers?

>The antis say 
>that it is the abusers' own faults, that it's maintaining their addition, 
>and that it does not encourage them to change. The pros say it is an illness 
>like the socially acceptable (like lung cancer) ones; it helps keep them out 
>of crime (thus reducing costs of imprisonment); and it can keep families 
>together (again reducing potential costs to state).

I'm not a medic so the technical arguments as to whether addiction is or
is not an illness pretty much pass me by.  Uncharacteristically, I'll
leave comment to the experts.  I personally suspect that such a
definition would be, in essence, political anyway. 

The state interferes in the drug markets in many more ways than
providing support to people who have problems. I'd contend that many of
these interventions are counterproductive to even the aims claimed by
the state. Note also that much of the help provided to substance
misusers who have problems, is provided privately. It is therefore
fairly obvious that such help can be provided by charity. As you point
out, there are people who oppose helping drug misusers. In a state
scheme, these people are forced to contribute, through taxes, against
their will to something that they oppose. If the schemes were run
privately, the choice of contribution would be up to the individual and
this problem would disappear.

>2) More contraversially, mortgage interest relief (a subject I know 
>something of, as a solicitor acting for building societies in the UK). 

Ok, I'll respect your expertise.

>MIR at present is paid on interest only after 6 months of claiming 
>benefits.

Wrong. MIR is at present contributed to anyone with a mortgage on their
primary home. It is paid as tax relief on the interest costs on 30,000
or the whole mortgage, whichever is the lesser figure. For most people
this currently amounts to a subsidy of 63 Pounds per month. This is paid
regardless of income and total costs are 7,000,000,000 Pounds per annum.


> At that stage, it is likely arrears have built up to sufficient 
>levels to justify an application by the mortgage lender for repossession (
>the courts have discretion only to delay it for a short period). BS's are 
>at present content to accept the interest payment only, as there is no 
>market for the repossessed houses,

There's a market for almost anything if the price is low enough to
attract buyers. 

> and it is looked on favourably by the 
>government. If MIR was abolished, then considerably more repossessions 
>would occur

unless some of the 7 billion Pounds saved by this action were targetted
at reducing repossessions.

>( the BS's own view based on the statistic that at present it is 
>calculated that over 10% of mortgages are in significant arrears due mostly 
>to redundancy, the drop in house values preventing sale, and the break-up of 
>families.) As there is little council housing left, and very little 
>private renting (especially for families) there is the very real possibility 
>that the abolition of MIR would lead to an great increase in homelessness 

Wrong. The MIR advantage for home ownership is one of the reasons that
the market is distorted towards ownership and away from private renting.

Also, if MIR were abolished, house prices would drop to closer to a free
market value and thus would be affordable to more people. You may have
forgotten that it is not only the repossessed who can be homeless, those
that can't afford the MIR-subsidised inflated house prices are also, in
some cases homeless.

>and the consequent social problems. So perhaps MIR is a very cost effective 
>insurance!

It insures nothing except that house values remain higher than they
would in a free market. It has several disadvantages:

1) Higher house prices mean that the original deposit for a house
(usually being some percentage of value) is harder for some people to
obtain. MIR, being a subsidy on mortgage payments, artificially raises
house prices. the result is more homelessness.

2) The tax advantage for ownership caused by MIR has reduced the private
rented sector which receives no similar subsidy. This reduces labour
mobility and harms the economy.

3) because of the MIR tax advantage for people who invest in their own
homes, much of people's savings are tied up there. Since houses produce
precisely nothing, and industry is denied this cash for investment, the
economy is damaged. There have been several papers of this in the last
30 years. One memorable one was titled "Are the British feathering their
own nests at the expense of industry?"

4) The 7 billion pounds in tax money used for MIR could surely be more
effectively used elsewhere?

>The point I'm making is that few people  (if any) are sufficiently 
>educated as to whom the recipients of benefit are, and of the 
>consequence of removal to make sensible decisions. Thus your initial 
>comment that we should target benefits to those we all agree are "poor" 
>is a dangerous one.    

Well, I was assuming the government, who are collecting the tax money
after all, are sufficiently educated. If they aren't then let's quit
giving them the money. I suspect that it is much more dangerous to keep
extending the definition of poor. The result of this has been that the
consensus supporting the welfare state has broken down. Taking less tax
from people, and targetting that tax towards people who are really poor
would go some way to rebuilding that consensus.

>Anyway, if we take your initial thread, is not all welfare payment wrong (
>in free market terms)?

Not at all. In free market terms, the *compulsory* contribution to
welfare is wrong. There are no free market arguments against charity, or
against groups of people organising to help others. Such groups need not
consist of "government". Matthew has even pointed out, in his "Rampaging
Yobboes and Police Costs" argument that it is clearly in folks rational
self-interest to ensure that some charities are adequately funded.

>Audrey.

FoFP
Newsgroups: soc.culture.british