The Law and the Profits: Part 4

Finishing up Chapter 1. This is such a rich chapter that I don't mind having spent four posts getting through it and the preface.

To summarize all that went before, "the public revenue is regarded as limitless[,] and expenditure rises eternally to meet it, and the various devices which are supposed to check expenditure fail to do so, being wrongly conceived and imperfectly motivated."

What to do? "[R]e-motivate the people actually concerned, penalizing the extravagance we now reward and rewarding the economy we now penalize."

The crux of it is this: "Ministers should not begin by ascertaining what the departments need. They should begin by asking what the country can afford to spend." Much like household budgeting.

Without specifying a value for the ideal tax revenue to GDP ratio (more in chapter 6), he identifies this as a critical metric. "What proportion of the national income should the government demand? What proportion of the individual's income can the government safely take? And what happens when that proportion is exceeded?" He asserts that economists have been actively shying away from this problem, which has the unfortunate side effect of letting government believe that "where government expenditure is concerned, the sky is the limit." I have read many news articles recently where the ratio problem is accepted as true and bearing real adverse consequences. Perhaps this is a sign that economists are not shy about this problem any longer.

The natural advantage of this method of tax revenue budgeting is that it necessarily limits expenditure. This makes it easier for the legislature to allocate funds, under ideal circumstances. This is a consistent grain of salt that must be applied while reading this book: Prof. Parkinson sounds a lot like an idealist, and may very well have been. This can undermine his suggestions on grounds of impracticality, although he often anticipates this response (especially from the civil service) and offers advice on how to get round the opposition.

The second advantage is that expenditure can (should?) become flexible within each department and sub-unit. The reason for this is as follows: Ministers are responsible for achieving goals; more goals can be accomplished on a fixed budget if ministers economize; if promotions are based jointly on economy and goal achievement, then ministers (and subordinates) are competitively prodded in the direction of less inefficiency and waste.

To oversee the ministers, the Treasury department, instead of "divided control", can employ the "strong leash of account and audit." (This creates an efficiency in and of itself by eliminating a lot of overhead.) The minister is then "compelled to accept responsibility, free to display initiative[,] and forced to recognize that cost and value are but two aspects of the same idea."

As mentioned in an earlier post, enlisting the public (as the ultimate overseer of government) is vital in the prevention of waste. He suggests an official tribunal, composed of private citizens and at least one government representative, to receive all proposals for saving money. Upon detailed review of each proposal, including hearings with the public and with the affected departments, they can conclude the feasibility. Each favorable decision would lead to a "ministerial order to the department concerned to reduce its future allocation by the amount to be saved." The tribunal would also reward each successful applicant, such as through tax credits proportionally related to the amount of the saving. He also suggests that all savings be used to repay the national debt. It seems clear that the savings that would go through the tribunal are sizeable compared to the savings that each minister might find within their own department as part of the goal achievement competition.

To combat the "formidable opposition"-- "a closed phalanx of civil servants representing one of the strongest vested interests in the world"--there is not yet in the book a suggestion for victory. There is a history of rebuffed reform attempts from 1570 onward, a brief chronicle of the rise of "esoterrorism" (a blend of "esoterics" and "terrorism"). "Let no one imagine that this citadel will yield to the first assault. Let no one doubt, however, that it will yield to the last."

Next time, the types of taxes through history.