Archive for January, 2008
Government as insurance on a grand scale
There are many reasons that we need and have taxation and government.
The most obvious and necessary reason for taxation is the need to reduce the production and consumption of goods that have negative external effects. The most obvious and necessary reason for government expenditure is to provide the necessary underpinnings of the market – rule of law, property rights and so on – and to ensure the provision of necessary public goods.
Then there is taxation to enable the appropriation of national resources by corrupt rulers. And of course the taxation and government spending required to enable the redistribution of resources from the rich to the poor, which rather than being an economic necessity is a social or moral or ethical choice.
But what if you replace the words, “rich and poor” with the words, “lucky and unlucky”? Is that still a social or moral or ethical choice, or is it an economically efficient public provision of insurance for a risk averse population?