Val the pernicious anarchist

I am inspired on how to shorten the Latvian male name Valdis by my old friend Valdis in the US, who calls himself Val. But the Val I am referring to is Latvia's Prime Minister Valdis Dombrovskis. There has been some media comment, yet again, on the PM's remark some weeks ago that, in an economic crisis, the principle of legal reliance could be suspended.

He was referring to the principle that taxpayers, having been legally required (in effect, forced) to pay taxes, could claim entitlement to certain government and social services. Specifically, the issue at hand was the government's threats (since carried out) to cut pensions that had already vested, in effect reducing the income of pensioners whose employers had paid taxes in anticipation of a certain level of pension payment.

More than 1000 persons have already filed suits with Latvia's Constitutional Court asking that pension cuts be annuled as violations of the principle of legal reliance.

How does this make Dombrovskis Val the pernicious anarchist? If we analyze the situation from a "realist" libertarian viewpoint (big government can only go away slowly), what Val the Anarchist has done is to destroy the kind of grudging compromise that keeps democratic coercive states legitimate in they eyes of most of their citizens. In other words, the promise of services and entitlements for coercively taken taxes is largely kept. People get government pensions in Sweden, Germany, other EU countries. The police and other services are adequately staffed and respond when needed. Sure, there are inefficiencies and irrationalities in the system, but at least your child will not stand in front of a half-staffed school on the first day of school. That will probably be the case on September 1, when school starts in Latvia.

Val the Anarchist has certainly (though not deliberately) exposed the myth of the Latvian state as benevolent robber. In fact, it is a vicious robber, first taking a rather high social tax from employers, then taking away 10 % (70 % if you are working after retirement age) of the confiscated money you were supposed to be getting back. He has destroyed even the grudging legitimacy of the state, feeding a (perhaps primitive) anarchist analysis of state power. And people are acting on it, with anecdotal evidence as well as statistics indicating that tax evasion is flowering again. And why not? If you get nothing after paying two or three "handling fees" to Nigerians offering a slice of USD 50 million from a tycoon or minister who was eaten by crocodiles, you stop paying the Nigerians because they are and always have been a fraud. So why should you finance the state when it gives nothing in return (on a value for money basis) and when it breaks all implicit prior promises, some in a shocking manner -- like the cut-off of state funded elective surgery? It makes perfect logical and moral sense to dodge taxes in Latvia for the simple reason that paying tax is the same as tossing money into the sea.

So Val has inspired all of us to be anarchists. But why is this pernicious? As I have written before in earlier posts, dismantling the state apparatus in a haphazard, head over heels and desperate will leave hundreds of thousands of people bereft of their entitlements. From a purist viewpoint, these were the fruits of productive labor (money) confiscated from them and everyone else, but within the system, they were legitimately expected and cutting them off will cause a painful social disaster and possibly real "anarchy" in the streets.

This is why it is pernicious. If the goal (and, actually, the Latvian government is acting, but not saying that it wants to be a minarchy) is to reduce the state to a minimum, this must be done step by step, allowing a devolution of institutions to the private (both commercial, cooperative and voluntary) sector and deep cuts in taxes to leave private citizens the money needed to buy health, education and security on the market. In realistic terms, this could take a generation or more. Val the Anarchist is making it happen between 2009 - 2011, formally slashing LVL 1.5 billion in expenditures and, unwittingly destroying state revenues by much, much more, which in turn will force huge spending cuts.

The revenue reduction will result from a combination of tax evasion and refusal, as well as the deterioration of the tax base due to falling salaries and minimal corporate profits and the continuing plunge of Latvia's GDP. If GDP falls by 25 %, how can tax revenues, even where taxes are paid with robotic faithfullness, not decline by roughly the same amount.