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Friday, 8 November 2013

Milton Friedman, Bad Laws and Tax Evasion

In this video, entitled "Incentives for Immoral Behavior", the American economist Professor Milton Friedman explains how there are fundamentally two types of law: those that are regarded as moral and just by the vast majority of people, and those which are not.

The former group of laws are generally obeyed because they speak to the inner moral sense of the population, the latter have a high rate of violations.

Obviously, the greater the number of laws and regulations, the higher the number of them that will be considered as superfluous and will not carry moral value among the citizens, and in turn the more numerous the laws that will be broken.

This generates a psychological and social climate of lawlessness, which is clearly bad for society.

For a long time now I've thought that laws are like medicines: they both almost invariably have side effects, unwanted consequences. Therefore, they should be used extremely sparingly, only as the last resort.

Unfortunately, left unchecked, governments have a tendency to create an enormous amount of unnecessary laws and regulations, that just complicate life, make it more expensive, and often contradict each other so new laws have to be passed to solve those contradictions or to solve the problems produced by the previous laws.

Very interesting, for the current political environment of Britain and in fact all the West, is Friedman's reference in the video to how people who wouldn't steal a penny from another person have no moral qualms about finding ways to evade tax, which is illegal.

It's relevant to the current climate because in the UK tax evasion has recently increased, and Prime Minister David Cameron, for one, has been chastising this practice, while the press has brought to public attention cases involving corporations and entertainment famous figures ("celebs") alike.

The rise in tax evasion is undoubtedly due to the profligate, dissipated and frankly cretin way in which successive British governments, particularly during the interminably long 13 years of the previous Labour tenure, have squandered taxpayers' money to create the third highest national debt in the world.

The vast disillusion with the welfare state - by far the main culprit of this waste - in which taxpayers, namely its donors and funders, have lost any trust, is clearly largely responsible for the tax evasion hike. Knowing how the welfare system of benefits is easily exploited and is replete with fraud cases must provide a huge inspiration and incentive for fiddling with tax returns.

Basically, the law-makers should not pass laws and impose taxes that appeal to themselves for ideological - like redistribution of wealth - or other reasons, but have no or little resonance with the people they are supposed to represent.

To give citizens, as Milton put it, "incentives for immoral behavior", specifically for law-breaking, should be avoided because, once people start thinking of themselves in those terms, psychologically it has a domino effect and contributes to the spreading of an attitude of mistrust and eventually corruption.

As the US economist says, the endemic corruption in the British civil service was eliminated by getting rid of the laws that were giving rise to bribes.

Hat tip to Erwin

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