In economics, the theory of ‘revealed preference’ asserts that the best of way of telling what consumers prefer (given a choice) is to observe what they actually buy. This seems reasonable enough, so reasonable, in fact, that we should apply the same analysis to governments.
Politicians say all sorts of things about the kind of choices they’d like the rest of us to make – sometimes in a moralising way, more usually in merely urging us to be productive, responsible citizens. But once they’ve done with their pep talks, their real preferences for our behaviour are revealed by the economic incentives – and disincentives – that governments create through the tax system and other policy frameworks.
Writing for the Harvard Business Review, Justin Fox takes at what the American system effectively wants of its people. These are some of his conclusions:
- “We don't want our fellow citizens to have kids. It's not just the high cost of childbirth. In general, U.S. families get less help with the cost of child-rearing (in the form of tax breaks, government services, and cash handouts) than those in almost any other affluent nation. On the OECD's list, only Mexico and South Korea devote a smaller percentage of GDP to family benefits… the financial incentives are beginning to win — the U.S. fertility rate is now barely above the OECD average, and some surprising countries — Sweden, Norway, France, Great Britain — are now producing more babies per capita than we are.”
- “We want our fellow citizens to get their health care through their employers… The country's single biggest 'tax expenditure,' by far, is the exclusion for employer-sponsored health insurance. If your employer subsidizes your health insurance, all that spending is tax deductible (for your employer). If you pay for your own, the tax breaks are much more limited. The result is a subsidy that delivers the bulk of its benefits to high-paid workers, incentivizes high spending on health care, discourages self-employment, and encourages companies to get themselves into trouble (GM was the most dramatic example of this) by overpromising on health benefits.”
- “We want our fellow citizens to be fat. Corn is the most heavily subsidized crop in the U.S. It's of limited nutritional value. It's used to fatten up cattle, in the process making their meat far less healthy to eat. And it's used to sweeten soft drinks, a big contributor to America's skyrocketing obesity rates… U.S. farm policy is geared toward encouraging the production of grains, soybeans, cotton, meat, and dairy — not the fruits and vegetables we're supposed to be eating more of.
So what about Britain? Weighing up the incentives, is there anything that our system obviously does or doesn’t want us to do? Well, there’s one thing that stands out. Our government doesn’t want us to be married. Unlike many other countries, there’s little recognition of marriage in the tax system (at least, not until you’re dead). Furthermore, the benefits system, not to mention housing policy, provides various disincentives to getting married or forming stable cohabiting relationships. And if you’re a married couple where one spouse stays at home to look after young children, then you’ll have your child benefit withdrawn long before a two-earner couple with a higher household income.
Of course, British politicians protest that they want stable families (David Cameron even promised to make Britain the “most family friendly country in Europe”). But if they really mean it, why do they punish people for doing the right thing?