Monday, April 30, 2007

Pol. Ideology 7: Individualism, Entitlement and Freedom

This is one of the exchanges in MG yahoogroups more than six years ago. From welfare, entitlement and taxes, to individualism, personal responsibility and freedom. This is 9 pages long.

Hello Nonoy

I think the welfare system in NZ is more generous than that of Australia's. Here, for instance, there is "no effective" limit on unemployment benefits. A single mother with 2 or more dependents may actually receive more in benefits (net of taxes) than if the single mother were to work in a minimum wage-paying job. And this is one reason why the marginal income tax rates in NZ are also among the highest in the OECD and the problem too is that the top income tax rate of 39% cuts at a rather low income threshold - NZ$60,000. This is roughly US$39,000 only. So to compare, in New York, the top tax rate (state) is only 7.7% for incomes of US$500,000 (married or single). Am not sure kung how much ang federal income taxes (kung meron man). So, if you're earning an equivalent of US$39,000 in NZ, you're subject to 39% tax, kung nasa New York ka, a little over 4% lang ang tax mo. Also, here in NZ, there are no income tax exemptions. Whether you're single or married, with or without children, you're subject to the same tax rates.

Now, about your comment of 5 workers per person on welfare. This is roughly the same for NZ. Looking at that ratio on its own, it may appear like a high ratio, but if you take into consideration other factors, this ratio isn't high at all. Consider for instance the ageing population in Australia, which is one of their main problems, same with many other European countries and Japan. The ratio of workers to the elderly continues to grow at an alarming rate as the population ages and birth/fertility rates decline. Mawawalan ka ng replacement workers as some of the current workers retire. Ganyan din ang problema dito ... kawawa ang workers aged 30-45, by the time they retire, and if birth rates continue to decline (and immigration policies continue to be quite strict) there won't be enough workers to support their retirement - unfair! Kaya dito, government is trying to promote various retirement schemes to encourage people to save for their own retirement. But how can you sell this idea when people here have always been used to the idea and belief that it is the government's responsibility to take care of them when they retire - kasi they're so used to the welfare system!

This is only one angle, am trying to work on a research paper kasi about the consequences nga of the ageing population of NZ.

- Arlene

Hi Arlene,

these are very enlightening data and views. here in the Phils., tax system for me is stupid and confiscatory.

7-tiers, from 5% to 32%; middle rates are 10%, 15%, 20%, 25%, 30%.
lowest rate: below P10,000/year annual taxable income, govt. will get 5%.
at P56.3/US$, that's only US$178 annual income and government will tax it? stupid, right?
it's good that this is not properly implemented.

top rate: above P500,000/year annual taxable income, govt. will get 32%.
at the same exchange rate, that's only US$8,880 annual income and govt. will get 1/3!
if this is not confiscatory, i dont know what is.

my indonesian friend says top rate in indonesia is 40%, but for taxable income of around US$25,000/year -- more sense than the phils'.

- nonoy

i'm really not sold to the welfare system idea. when i worked as a tutor noon sa australia, at least at the end of the tax year, i could expect my tax rebate because i was earning a low income (at part time pa). dito, when i first arrived, i did tutoring for 6 months before the end of the tax year, earned less than NZ$6,000, i thought i'll get a hefty tax rebate (as in ibabalik ang lahat ng withholding tax ko). boy was i surprised - no tax rebate at all!

up to NZ$38,000: 20.7%
NZ$38,001 to $60,000 (inclusive): 34.2%
NZ$60,0001 and over: 40.2%

so, as you can see nga, even if you earn $1, 20.7 cents eh tax, wala man lang minimum income na tax exempt.

nakakainis pa kasi i know a lot of people here who refuse to work and just live on unemployment benefits kasi nga, there's hardly any difference between the minimum wage and unemployment benefit. eh when you work: you'll pay a minimum of 21% tax on your income, gagastos ka sa gasolina, parking fees, tapos day care ng anak kung meron kang anak, bibili ka pa nga pagkain during the day, eh di halos wala ng matira sa take home pay mo. eh bakit ka pa nga magtratarbaho kung may unemployment benefit naman - nakaupo ka lang sa bahay at nanonood ng tv maghapon at weekly eh me matatanggap na benefit! pwede ka pang mag-apply ng community card so bawat visit mo sa doctor or medicine na bibilhin eh heavily discounted. eh kung may trabaho ka (depende sa income), di ka entitled sa community card at minimum visit to the doctor eh NZ$45 (30 mins consultation). kung ayaw mong magbayad maghintay ka ng 5 oras sa public hospital (unless emergency, 3 hours ka lang maghihintay!)

- Arlene

* Quick english translation for non-Filipino friends:

why would you work if you can receive unemployment benefit; just watch tv the whole day.
you can even apply for community card and get heavily discounted physician consultation and medicine.
if you work you're not entitled to the community card, depending on your income.
if you want to avail of free, public hospital, you qeue/wait for 5 hours.
3 hours only if emergency!

Dear Nonoy,

It's interesting how individualism is being re-defined somewhat. But I have a sneaky suspicion that it's a mere intellectualization of the subject in its defense, portraying it more as a philosophy, without a spiritual basis. While Catholics believe man was made in God's image and likeness, that doesn't make him (or her) God. Sadly, individualism negates such concepts in the belief that man can be, or worse, is the center of the universe. That for me, is the height of bss (bilib sa sarili) which even the highest form of intellectualization cannot justify. The Nash equilibrium is the mathematical proof that individualism will only lead to suboptimal welfare equilibria, where the trade off is between man and society. Hence, individualism per se, cannot and should not, be the objective of social philosophy. Moreover, the reading makes huge assumptions about the goodness of an individual, which is ideal, but hardly true. The irony here is that in order to be a true individualist, some kind of moral catharsis is necessary--an experience that cannot be achieved without reaching nirvana (as the buddhists say). And to think Buddha did not become bss after his catharsis...he became a man not just for other men, but for all creatures great and small. Sad to say, but I think the West is far behind the East when it comes to spiritual philosophy being the basis for morality, guiding in the process, all social interaction. You can define and re-define the individual all you want, but without a spriritual philosophy, there can be no meaning in life, and it all ends when you die. So why bother making the world a better place? If you think about it, objectivism is a scarry state of mind.
Sorry if I've offended you or anyone else.

- Frieda

He he he, nice critique, Frieda.
nope, you're not offending me or anyone for that matter. Individualism/objectivism is strong on the ayn rand philosophy and her followers.

Myself not totally solved to the idea. But my agreement with the philosophy is the freedom of the individual from too much state intervention -- from high and multiple taxes removed from the individual's original and disposable income, to various rules and regulations that hamper individual freedom and entrepreneurship (think of the maze of regulations in starting a business). also, freedom of the individual from state paternalism -- the state providing a universal, even monotonous quality, of public education, health care, pension, etc.

- Nonoy

Minimal government is fine, ideal even. Being London educated, however, I have a deeper appreciation for the Keynesian theories, and tend to treat markets just as they are, imperfections and all. Remember the great depression? Black Tuesday in 87? The tequila crisis? The asian crisis? Many major economic faux paux were because of heavy reliance on market theories. Sure it brings efficiency and everything clears in the long run, but as JM Keynes said, "By then, we could all be dead". I don't want to start a debate on this, but the reality of it is that there is nothing certain about the future. Today is all that we have really. Even in finance, unless you're evaluating an infra project, you don't look beyond 10 years. Normally, you wanna IPO in 3 years, 5 at most, 7 if all systemic risks work against you (malas in other words). The beauty of Keynesian theories is precisely in the fact that it is short-term. It forces you to gather all your wits and creativity within that time frame.And that's something I can resonate with. Pressure, necessity--the mother of invention.

- Frieda

Yo Frieda,

market imperfections become prominent often after government has intervened.
observe food: from production (rice farmers, bangus farmers, fisherfolks, vegetable growers, etc.) to transportation to marketing (public markets, supermarkets, talipapa) to processing to restaurants/carinderia/hotels, food comes in and out almost seamlessly with little govt. role (road infrastructure, oher minor functions).

the moment government becomes more serious in its intervention, say sending thousands of BIR collectors to the barrios to charge those rice and vegetable farmers, those municipal fisherfolks and aquaculture growers, with income tax, VAT, other fees, lots of economic distortions would result. ordinary folks haggling with BIR collectors, filling up forms, reduction of their take-home pay which will affect household consumption pattern, etc.

The Asian crisis was a necessity, a necessary correction to market abuses.
Real estate developers who keep on building condo bldgs. even if there's no clear proof that those units will be sold need to be reminded that they will lose their shirts someday.
bankers who lent to those developers need to be reminded that they will lose their pants someday. Once you're done with a crisis, it's back to normal -- with hard lessons learned: competition will slash your pockets if you don't watch out yourself and your competitors.

- Nonoy

Hi Nonoy,
I'm beginning to enjoy email chatting with you. Correct me if I'm wrong but I get the impression that you (and maybe the rest of MG) really want less if not no government at all. Ingat kayo, you might be misinterpreted by rightists as subversive. Sa infra, ok lang ang BOT because market-driven, but the reality is that it's really hard to price roads, etc., because they are public goods. I've done project finance myself and the most that you can do is guess. Think about it--it's not like it's feasible to make 5 roads to makati for us to choose from and the one with the lowest toll wins. Sa power, why do you think WESM failed in California? The market priced power too low that it discouraged future generating capacity from being installed. In the end, blackout, and they had to import power from Texas. Siguro its a case by case, but markets in everything? That's not realistic.Even in economic theory, your assumptions have a lot to do with the equilibria you produce. Many assumptions are not true in the real world.

As for taxes, I still need to fathom the extreme tax-less society for me to make a comment. Eh di wala ng gobyerno! Not a bad idea really, except that the market will not take care of the poor and needy. If you think about it, the market is anti-poor, anti-weak, anti-stupid...the last one is not a bad idea, but hey, that doesn't make it good! If you look at the history of mankind, great revolutions, ideologies were formed precisely to topple the rich, strong and smart. Unfortunately, the market is not sensitive to this kind of human drama and you have to factor that into the equation. Since it's too variable, statistics is not able to come up with a suitable explanation beyond a standard deviation or an error term. Bakit error? Yan ang hirap minsan sa math and has an acute sense of objectivity that it forgets who conceived what. Man is the creator of science. Man is what makes numbers matter. Oh well...just pointing out anti-human factor biases...
For me, ok lang ang markets, but let's not glorify it too much.

- Frieda

Hi Frieda,

The exchanges below posted in PF last August re. distinctions between market and state functions. Cynthia agreed to post her comment in MG website (which I haven't uploaded yet, next week...)

Meanwhile, some quick clarifications.

(1) MG is not advocating a zero government; just a small/limited government -- particularly in the protection of human rights, enforcement of property rights and contracts, foreign affairs.

(2) MG does not advocate zero taxes (that's equivalent to zero govt.).
Rather, drastic cut in income tax, even abolition of income tax in the long-run, once the bureaucracy and other state functions have been pared down. Various forms of consumption tax -- VAT, sin tax, petrol tax, motor vehicle tax, travel tax, etc. -- can be retained to finance the small govt.

below are additional points for consideration. thanks.


August 2004

Hi Noy

While I am a true believer in smaller government, I also have my reservations about turning everything over to private enterprise as well as the overuse of “buzzwords” and catch phrases that have become so commonplace in regard to government provided services. Is there any “rule” that government provided services are less efficient and more expensive than services provided by the private sector? Absolutely not.

I charge that we in the Philippines have become so complacent in our low (or negative) expectations of government provided services that we do not sufficiently try to force these agencies to perform the services that they are charged to in an efficient manner. We have allowed government services and agencies to become so bloated and inefficient that the numbers of government workers alone have become such a powerful voting block that most politicians will hesitate to take the serious measures that are necessary to bring it under control.

I know there are good minds and dedicated government employees out there… many even are members here in the PF. There are many who take the title of ‘civil servants’ as more than just a phrase and truly regard themselves as such. The problem is that those of you who are consciencious workers only have to look around in your offices to see the vast majority of government employees who are simply taking a salary and waiting for retirement.

But, to simply pass off bad service or poor performance as being somehow “acceptable” simply because it is provided by the government is just intolerable. That mindset is part of the problem.

There are good examples out there of government agencies and government owned companies which prove that the lame expectation of poor service does not have to be that way. Abu Samy pointed out last week a small government agency which performed magnificently to provide service to private Filipino manufacturers. In airlines, which are my primary line of business, two of the most aggressive, profitable and respected airlines in the world are Singapore Airlines and Emirates Airlines – both of which are majority government owned companies. Yes, government owned…

These are not the only examples of government owned agencies or companies that exist out there, but the problem is that we so rarely see or hear about any of them since they are more interested in doing their jobs than in grabbing headlines (or being the subject of negative media coverage due to corruption or huge financial losses). Perhaps we need to take a more serious look at these positive case studies and find out why some government agencies or government owned companies are successful and make the others perform likewise.

Privatization of many of the services that are currently being provided by government is definitely a good idea but it is no sinecure for better services. In the end we have to remember that private sector companies have profit as their primary reason for being. If there is profit in an equation, that means that more is being paid for the service than the cost of performing the service, otherwise why would a shareholder be willing to put his money into it? Aren’t we all shareholders in our government and shouldn’t we also expect the people we are hiring to perform government service to provide good and efficient service? While we don’t expect a cash profit for services provided by government agencies we should demand the same level of service that we expect from private companies. This happens in many other countries so should we expect less simply because we are from the Philippines?

-- Cynthia Diaz

Lots of good points you raised there. Good opportunity to make these clarifications.

1) On "turning everything over to private enterprise..."

--> In a small/limited/minimal government philosophy, not everything will be turned over to the private sector. The zero govt. philosophy advocates that.

2) On "Is there any “rule” that government provided services are less
efficient and more expensive than services provided by the private
sector? Absolutely not."

--> Right there. Having credible courts to decide on disputes and conflicts on definition and protection of various property rights among private individuals, corporations and groups, is a service that should remain in the hands of government.

3) On "We have allowed government services and agencies to become so
bloated and inefficient that the numbers of government workers alone have
become such a powerful voting block..."

--> Somehow correct. Some lonely souls have been advocating the shrinking of the bureaucracy since 2 or 3 decades ago, but their voices were defeated. Until now, the voices of "don't shrink bureaucracy, don't merge or abolish agencies; you will worsen unemployment in this country" are still much much louder than the "shrink the bureaucracy, cut taxes" voices.

4) On "there are good minds and dedicated government employees out
there… many even are members here in the PF."

--> Oh yes, correct. Let me take this opportunity to say that i'm NOT saying that ALL govt. employees are inefficient and don't deserve our tax money. Have a number of friends in govt. doing their job well; some are even bold to advocate the shrinking of their own agencies through merger and consolidation with other agencies.

5) On "Abu Samy pointed out last week a small government agency which
performed magnificently to provide service to private Filipino

--> Yes. But Sam said, "those govt. agencies are one and the same, all pain in the ass, EXCEPT ONE." That was actually a harsh assessment, but it's a perception of one businessman-citizen of this country.

6) On "we need to take a more serious look at these positive case studies and find out why some government agencies or government owned companies are successful and make the others perform likewise."

--> Right there again. In fact the reverse of those well-run govt. corporations are badly-run private corporations but don't go bankrupt because of govt. protection and bail-outs. As I have posted earlier, capitalism is both corporate expansion and bankruptcy.

7. On "private sector companies have profit as their primary reason for
being. If there is profit in an equation, that means that more is
being paid for the service than the cost of performing the service".

--> Profit is good. In the pursuit of profit, companies and entrepreneurs provide welfare to society. If people cannot make profit on providing transportation, we shall have no jeepneys, buslines, taxis, airlines, shipping lines, chartered choppers, etc. If people cannot make profit on cooking and selling food, we shall have no restaurants, carinderias, food shops, ambulant food vendors, hotels. Look also at yahoo, in the pursuit of profit, it gives 100 MB storage box for free to its email users; in the pursuit of profit, it gives us free discussion egroups like PF.

Of course, some companies maim and kill people in the pursuit of profit, the same way that there are governments that maim and kill people in the pursuit of their own brand of "social order". The latter can be remedied by more democracy and competition, both politically and economically.

8) Finally, on "Aren’t we all shareholders in our government and shouldn’t we also expect the people we are hiring to perform government service to provide good and efficient service?"

--> Yes, we are shareholders in government. There are just too many hired govt. personnel and politicians to watch and monitor. We're already working our butts hard, then govt. simply deducts our take-home pay, leaving us with little disposable income. If we spend our time watching those bureaucrats in congress, in DA, in DPWH, in DepEd, in DOTC, in Malacanang, hetsetera, we'll end up doing no work, we go hungry and poor.

So, the better alternative is -- we keep our income through a drastic cut in income tax, if not abolition of individual income altogether. Government can retain, even hike consumption tax as compromise. We keep just a small bureaucracy, fewer agencies and politicians to watch and monitor, more time for ourselves, our family and friends, more individual freedom.

- Nonoy

Reading over the old post and the responses to it (not reproduced below) I am struck by the lack of one word -- Freedom. Small government for me is not about what is most efficient or cheaper, though that is important. Small government is about being free to pursue my own dreams. I should not need government bureaucrats, or any bureaucrats, looking over my shoulder, restricting and trying to control my human creativity. I met a Californian who had opened a pizza restaurant. He wanted to open one in the next town over but was told that he couldn't. He couldn't get a license in a town that he did not live in. Why did he need a license? A smaller government would allow him to be free, to be fully human and open try to build the restaurant that he wants. Instead, his dreams have been artificially curtailed. Freedom is what small government is all about. It is not about just being cheap.

And a second, minor point. The problem with the California electricity deregulation effort is that it was not really a market. The wholesale price was not regulated while the retail price was severely restricted by the government. This meant that the utilities could be forced to pay extremely high prices from electricity provided by generators such as Enron and yet could not pass along those costs to their customers. They had to eat those costs and went bankrupt. Meanwhile, the generators cut off the utilities because they were unsure that they would be paid.

Add to this the fact that the government further forbid the utilities from signing long-term contracts and thereby locking in lower prices. The utilities had to pay short-term fluctuating prices. Now add government restrictions to the building of new power plants and new transmission lines in environmentalist-dominated California, and you get a mess. You get a "deregulation" plan that was not a free market.

No other state outside of liberal, statist California has had the problem with electricity deregulation that California has had because no other state followed California's screwed up half-deregulation. This is a case study of how half-hearted market reforms are flawed, and how a federal system -- allowing 50 states to adopt 50 different experiments -- works. Imagine if the California system was forced upon the entire US by a large, bloated national government headquartered in Manila, whoops, sorry, Washington.

- Bruce

Hi Bruce,

That's why i always told Nonoy that the equation of minimal government equals minimal taxes should transcend itself and further be equated to increase in individual freedom.

And thanks for clarifying the fall of the half-WESM in California. I hope Frieda would be able to read your post and be enlightened about it as it squarely responds to a point she raised about "the market priced power too low".

- Ozone

Pareng Oz, Bruce, guys,

you're right there, small government would lead to greater individual freedom and greater individual responsibility.
A friend, Ricky, wrote me, asking what's MG's advocacies on the huge education bureacracy. He wrote,

"I was computing kasi (wala lang akong magawa) how much it would take to educate the youth. Assuming a cost of P20,000 per month per class of 17 students (no child left behind standards ko yata nakuha itong ideal class size - this implies that a teacher will "make tutok his/her class talaga), that means the ideal per student cost will be P1,176.00 per month or P11,760 per 10 month school year. If we have 40 million students, then that would be about P471B per year. This means that we need P471B per year to completely educate our students in a privatized setting. Sa US kasi i think, the government gives the people coupons to pay whoever is going to teach. Charter schools yata ang tawag run. What if ganun rin rito? The government wouldnt have to think of building schools, providing school materials and the like di ba? Wala pang bureacracy to think of. Free education pa all the way. What do you think?"

To which I replied, "Actually pre, we think that over the long-term, education, health care, other welfare should be parental responsibility, not state responsibility. it's no good that the state will heavily tax people with no or few children and give the money to some less responsible parents who have more children than they can feed and educate.

"in addition, there should be diversity in education. people love diversity -- note the tens of thousands of designs of rubber shoes alone, tens of thousands of designs of jeans, tens of thousands of designs of t-shirts alone, etc. some parents want schools for their children which emphasize catholic religion, or baptist/protestant or other religions, some prefer schools strong in science and math, or arts and culture, or music and theater, or Chinese/Arabic/European languages, etc. public education is monotonous, the curriculum dictated by politicians and Deped bureaucrats."

A transition scheme can be worked out -- like the coupon or voucher system. The state to give vouchers to parents, all schools are private, and parents will choose which school they'll send their kids. If they want high-priced schools, they'll have to fork out additional expenses.
Re. California power problem, I already forwarded Bruce's comments to Frieda. The same problem here -- pricing of power rates is heavily politicized, meaning Malacanang, the legislators, other politicians always intervene how much power rates should be sold to the public, and it's always below production cost. The price difference accummulated is now what we have as Napocor debts and losses. In addition, many power producers are not coming in to put up new power plants because of this politicized pricing environment.

- Nonoy

See also:
Pol. Ideology 5: Have Movements for Liberty Progressed? June 26, 2006
Pol. Ideology 6: Quotes from Adam Smith, February 04, 2007

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