Feb 01

Robin Hood Economics

A serious concern to me, and undoubtedly many, is that the words “I can’t find work” or “The Government needs to help us more,” are much too often heard from people living in developing countries like South Africa and Mozambique in Africa and India in Asia, and to lesser extent in developed countries.These words in particular, come from those in the lower income bracket and by those living in Poverty. I believe that there is a major false premise here. The false premise being, that Government and Government Programs are designed to benefit the imagespoor, at the expense of the wealthy. These programs are often wrongly sold on those lines, to the public. The reality is that the Government programs benefit the Middle class, at the expense of the poor. Why is this so?

The answer is that in a Democracy, political candidates seek a majority. Therefore they target the Middle class, and not the poor. This is because the, Middle class  in all cases, represents the largest Tax Base. More so, the Middle class are often educated and are easily reachable through newspapers, the internet and TV. This multitude of information means that the Middle class are often also the most politically active group. President Barack Obama, Prime Minister David Cameron and Chancellor Angela Merkel  political campaigns, more than most, were aimed at the Middle class.

Let us take a look at the Empirical research:
Government financing of education

South Africa has one of the highest public investments in education, at 7% of GDP or 20% of state expenditure. Yet only a small percentage of the population have higher education Degrees or Diplomas , all of whom fall into the upper and middle class income bracket. So, who is financing that 20% expenditure? That’s right, every single taxpayer including the person who has never been educated at all. This is a huge example of wealth been transferred from the poor to the rich. Government financing of education is the most regressive program undertaken.

Social and Welfare programs

A welfare program in the UK, unwittingly,has destroyed the independence of individuals. In the UK at least,  it is easier for an individual to remain unemployed and collect a welfare cheque each month. The benefits of welfare outweigh the benefits of working at the minimum wage level. Particularly as the UK offers additional benefits, such as weekly nursing services for the aged and food programs for children. Having a minimum wage job will place the obligation on the individual to pay for those services. What would happen if welfare stopped? People would find work. What if there’s no work? Well governments will have added revenue , and it can easily use this revenue to build or update infrastructure , this will create jobs. And if it doesn’t? Than people will find other ways of surviving, they will have to it’s human nature to. South Africa had this situation where government spending was low , jobs were not being created. What happened, well it sparked a boom in “micro” businesses, and it really boomed to the extent that large business generate a sizable portion of their revenue’s from ”micro” business.It forced people to be Economically Active

Social security or Government pensions unnecessarily impose a tax burden on the poor, while benefiting the Middle class.

Let me explain:

An uneducated/unskilled person would, on average, enter the labour market between ages 17 and 20 years old.

An educated/skilled person would, on average, enter the labour market between ages 25 and 29 years old.

It is clear that the Middle class are paying taxes for fewer years. Added to that, studies show that the average life expectancy of those living in poverty is far lower, than those in the Middle/Upper income bracket. So, those in a Lower income bracket are paying more tax but receiving less of the benefit than those in the Middle/Upper income bracket.

It is all too easy to judge Government programs by their intentions and not their results, isn’t it?

So what should be done?

I believe that there is a great case here, for letting people pursue their own individual interests. This, I believe, would eventually promote the greater social interest.

This is because conditions that are mutually beneficial to either side, would be created. That is the vision founded by Adam Smith. It is pleasing to see that although the non-profit industry is struggling in some countries, worldwide rf_welfare_work_earnthey are responding to the growing demand for service by constantly finding new ways to attract donor’s funding. This shows that people are becoming less reliant on Governments. In turn, Nonprofits are in a position where they can acquire necessary funding from private individuals and businesses, in addition to the Government. How?
Well if these programs were scraped, then government revenue would increase, or if government were to lower taxes than private individuals and business would have more money for nonprofit’s services. Understand that all you are doing is changing the transmission mechanism from Government to the nonprofit and private sector. It is cheaper for the private and nonprofit sector to carry out these activities than it is for government.

The late great economist Milton Friedman cited “The only Government program to work was Child Care.” In that particular program, cash was given to the Mothers of the children in poverty.

Now finally a Government has committed itself to trying the same concept. India has vowed to scrap 36 programs and give that money, in the form of cash, directly to the people. I certainly commend this. Give the people the money and let them go about pursuing their own interests. The program is at a smaller experimental stage, but I believe it will work. Don’t you?

Share

4 comments

Skip to comment form

    • Viral on 20 February, 2013 at 2:13 am
    • Reply

    Another Nice blog Raj..@ Jason>>>>The experiment will be benificiary to people if the cash goes to needed people so the challange is to identify the needed people & About government Programs,I think they also work but due to corruption it not works 100% but it works likeless than 50%.

    But i think insteadof giving cash, its better to build infrastructure & create jobs so people will work & earn money otherwise people can take benifit of cash scheme & become more lazy as its happening in UK due to social & welfare program

    1. Hello Viral, And thank you for your comments. Yes corruption is negative to effective government projects.
      We will have to see about the success of the project , indeed. Thank you again and keep reading our great post’s
      here at notenoughgood.

  1. Hello Jason , Thank you for your comment, yes it would be very interesting to see if the “experiment “as you put it works, It does look promising in my view. Thanks again and also have a look at other great posts here at notenoughgood

    • Jason Naidoo on 11 February, 2013 at 5:53 am
    • Reply

    though provoking article , Government spending indeed goes along way in boosting the economy but giving it to the people in the form of cash i;m not sure about, but we wait and see what the Indian experiment tells us.

Leave a Reply

Your email address will not be published.

*