Social care for the elderly

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It was reported yesterday that the government is considering the introduction of an additional death tax to fund their aspiration to create a 'National Care Service', which would provide universal, free-at-the-point of use care for the elderly. It would be levied at 10% of the deceased's estate, up to a maximum of £50,000. According to The Times:

All three parties agree that the current system of means-tested care is unfair, and have promised to introduce legislation in the next Parliament to ensure that in future people will not have to remortgage or sell their homes or spend their savings to fund the costs of residential care or other services.

Surprisingly enough, I don't agree with any of the parties. Their position amounts to saying that even if you have the cash to pay your own way, or even if you have assets that could be liquidated to allow you to do the same, someone else should be forced to pay for you. And what is 'fair' about that?

You'd think they would have learned something from the failings of the NHS, and that rather than creating a social care equivalent, they might think about doing something to promote private saving and insurance, and above all personal responsibility. People need to get the message that cradle-to-grave welfare is not sustainable, and that increasingly people are going to have to provide for themselves.

I'm sure there are people out there who will read this and accuse me of not caring about the elderly. In reality, however, I think the lack of respect and dignity accorded to the aged is one of the most depressing aspects of British society. I just don't think more collectivism is the answer.

People should save for their retirement while they are earning, and not expect current workers to pay their bills. Families should be far more prepared to look after their own, rather than passing the buck to the rest of us. Those who care about the elderly should be far more willing to fund voluntary care organizations. And the state should only step in as a last resort, to help those who really have no other options.

And the old shall become new again

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Much noise is being made about how absolutely awful people are being in their insistence that those out of work should, if they are capable of work, at least try to find some. It's even possible that some people are being absolutely awful about it. However, there's a very important point that those complaining seem not to have quite grasped. Not insisting upon that trying to find work makes both the unemployed and the rest of us poorer. A new paper from the US:

This paper provides new evidence on job search intensity of the unemployed in the U.S., modeling job search intensity as time allocated to job search activities. The major findings are: 1) the average U.S. unemployed worker devotes about 41 min to job search on weekdays, which is substantially more than their European counterparts; 2) workers who expect to be recalled by their previous employer search substantially less than the average unemployed worker; 3) across the 50 states and D.C., job search is inversely related to the generosity of unemployment benefits, with an elasticity between −1.6 and −2.2; 4) job search intensity for those eligible for Unemployment Insurance (UI) increases prior to benefit exhaustion; and 5) time devoted to job search is fairly constant regardless of unemployment duration for those who are ineligible for UI.

While this specific information is new the basic idea isn't. Richard Layard has been saying much the same thing for decades:

If you pay people to be inactive, there will be more inactivity. ....  Europe has a notorious unemployment problem. But if you break down unemployment into shortterm (under a year) and long-term, you find that short-term unemployment is almost the same in Europe as in the U.S. – around 4% of the workforce. But in Europe there are another 4% who have been out of work for over a year, compared with almost none in the United States. The most obvious explanation for this is that in the U.S. unemployment benefits run out after 6 months, while in most of Europe they continue for many years or indefinitely.

People really do respond to incentives and generous and long lasting unemployment benefits really do provide an incentive  not to look for work all that hard (to put it at its mildest).

No, we don't want to punish those who cannot work: but we most certainly do want to encourage those who can and thus we really do need to reform the welfare system. Even if not perhaps be absolutely awful while doing so.

Dismantling the pensions pyramid

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Others here at the ASI have written at some length about the need to dismantle the government's Madoff-style pension fraud before it unravels and plunges us all into fiscal disaster. However, the dire warnings have usually been countered by fears that current retirees will not be protected, or that the younger generations will have to pay an unfair amount to cover them during the transition from state to private – in effect, paying twice.

I propose that both of these difficulties in privatizing the state pension scheme can be overcome by adapting a plan developed for the American Social Security system by the Cato Institute. This plan can spread the costs of ensuring cover for older people, without unnecessarily burdening one generation with debt. Crucially, it phases in the reform slowly, and gives people a rational choice of whether or not to participate.

At the moment, the government dishonestly promises young people that they will be entitled to a state pension when they retire, but has no means of guaranteeing it. If the government were honest about the predictable future shortfalls, young people could act rationally; saving nearly half of their National Insurance Contributions privately to provide for their own retirement, whilst relinquishing their right to a state pension that will likely not materialise anyway. Thus they could still support the older generations who rely on state aid, whilst being allowed the freedom to secure their own futures.

A more detailed look at the proposal can be seen in the Think Pieces Section here.

Policies for 2010: Workfare

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Workfare is another policy idea whose time finally seems to have come, with both Labour and the Conservatives signed up to its basic principles, which are largely derived from the United States’ welfare reforms of the 1990s. Our 2007 report Working Welfare by Katharine Hirst provides an excellent guide to these reforms, and the lessons the UK can learn from them.

The primary feature of ‘workfare’ is that all unemployed people seeking state support should face immediate work requirements – no work, no benefits. Subsidized jobs and compulsory work experience should be the preferred options, but if no such employment can be found then welfare claimants should have to do community service. Those with severe education deficiencies may undergo training, while claimants with alcohol and drug problems would be expected to undergo treatment. The key here is to make taxpayer support something which must be earned – not something to which one is simply entitled. The point is to prevent dependency becoming pathological, and to get unemployed Britons working again.

The other main feature of workfare is that it involves contracting out welfare provision to competing private and voluntary agencies, who would be paid according to their results. In other words, for each individual claimant they would receive part of their payment only when that claimant has found work and kept a job for a specified period of time. The longer someone had previously been without work, the greater the performance bonus for the provider would be. Thus there would be a strong incentive towards active, individually-tailored welfare provision that focused on re-entry into the labour market.

This much seems to be well-understood among policymakers. There is also an appreciation of the importance of simplifying the benefits system – perhaps replacing the current 50-or-so separate benefits with just two or three basic ones – while paying particular attention to marginal tax rates for those moving from welfare to work, to ensure that work always pays. But one thing which has largely been overlooked, and which played an important role in the success of the American reforms, is decentralization. Since the cost of living varies across the country, so too should benefit levels (and, indeed, the minimum wage, if we must have one). Over time, this ought to become one of the functions of local councils.

Pondering inequality

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I think we're all aware of how the poverty debate has changed in recent decades, yes? That it's relative poverty (or inequality, to give it its proper name) which is the true horror, not poverty itself. That the world would be a better place if we were all more equal, even if we were all poorer?

I don't agree here, of course: there's far too much real and absolute poverty around the world for us to be ready to slip and slide on the wealth creation which alone can alleviate it. But I've been wondering is there was any simple or single point that could be used to enlighten those who worry about relative poverty. I've found one snippet that, well, perhaps you can help me refine it, see if it can be turned into something useful.

The usual measure of inequality (ie, a close analogue of relative poverty) is the Gini. Don't worry about what it is. The Gini for the UK now, based upon market incomes (ie, before we do the tax and redistribution bit) is around 0.5. That's higher than the US by the way, although it's lower than many developing countries. From Angus Maddison's research into economic history we can also see that the Gini for the UK just prior to the industrial revolution was also around 0.5. Which means that if it is relative poverty, inequality, which is actually the problem then we've the same poverty that we had before the Industrial Revolution.

But that's simply absurd, to state that poverty today is just as it was in 1750. No one could with a straight face actually argue that the standard of living of the poor then and the poor today is in any real sense comparable.

So how do we make the absurdity of the concentration upon relative poverty visible to people? Any ideas?

Nonsense on poverty

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The Joseph Rowntree Trust released its report on the state of poverty in the UK and brought forth the usual howls of outrage about, well, pretty much everything really. I was actually rather enjoying the howls of how we now have Dickensian, Victorian, levels of poverty for I always do enjoy hysterical hyperbole. But it set me thinking, do we actually have such levels?

Of course, we simply do not have, absent a very few families blighted by mental illness, drugs or drink, anything like the physical poverty of those days. Absent those entirely non-financial problems all are clothed, housed and fed. Perhaps not as much as some would like, but we simply do not have cholera sticken children starving to death in the gutters. So "real" poverty is no where near such levels. But of course this isn't the detailed claim, although the language used attempts to equate the two. The real claim today is that we have similar levels of inequality: and inequality these days is referred to as relative poverty....although that "relative" gets dropped pretty quickly so as to underline the similarity between the two concepts of poverty.

But thinking through it all a little more we don't in fact have Victorian levels of inequality either. The measure used is market income plus or minus taxes and benefits. But we only use money, we don't in fact include benefits offered in kind.

Think through what the modern state offers to its poorer citizens, over and above any money they get. Council or housing association places are markedly cheaper than the market rents. That difference should be added to the incomes of the poor if we are trying to measure inequality or their incomes. Education is provided free at the point of use yet it costs taxpyers what, £6,000 per child? £7,000? That again should be added to the incomes of the poor (and we can of course add all these sums to everyone's incomes if we wish, but they will raise the incomes of the poor much more than those of the rich thus closing any inequality gap to some extent)....The NHS is around £2,000 for every man woman and child in the country: that would add £8,000 to the income of the mythical Mum, Dad and two kids.

None of these things existed in 1860: so to claim that we have the same levels of inequality with them as we had without them is nonsense: it's simply not counting properly.

So no, we don't have Victorian poverty: and we don't have Victorian levels of inequality either.

Generations of benefits

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In the Centre for Market and Public Organisation's Research in Public Policy Winter 2009 edition there is an article concerning research that was conducted which examined the link between fathers and sons and worklessness. Lindsey Macmillan analysed the rates from two data sets, one from 1958 and the other from 1970 (the former being the National Child Development Study and the latter was the British Cohort Study) and found the probability of a son being out of work for a year or more between leaving full time education and the age of 30.

For the first data set the probability of the son being unemployed for a year or more was 20% if their father had been out of work during the latter part of their sons childhood years. For the second set the rate increased to 25%. The results compare to a probability of only 14% for sons whose father was in work for the duration of their childhood. This increase could be used as an indicator as to who may need the most assistance in the future. Ms Macmillan also looked at data from the recession of the 1980s, and hard hit industries and found that unless the period of joblessness was long then the effect on the child was lessened.

The conclusion is that there is a 'correlation between workless experiences between fathers and sons in the UK.' How then do policy makers break this bond? Perhaps one way would be to make benefits generational within a family: if your parents were in receipt of benefits then you can't claim, you must work and you must purchase employment insurance while also paying back your parents debt via national insurance. Or benefits could actually be made to last only for a limited period. Our current system of benefits does little more than addict people to the political teat which of course is what politicians want: a supplicant mass that votes solely based on who awards them the most benefits. This bond is one that needs to be broken.

Life is dole

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£64.30 a week to live off. Or £278.63 a month. And you don't pay any tax on your take home pay at the end of the month. Now most of us would rather not attempt to live off that amount of money a week, especially if you live in London. Yet those without a job and family have to. That's a single person's allowance a week or month if they are job seeking. An indebted Daily Mail journalist attempted to do this recently. She's in debt to the tune of £150 000, and managed to spend £330 per week when attempting to spend £64.30. (I think this gives an insight into why she's in that much debt).

The article raises the question as to whether you can live off that small amount. Ultimately the question would be: is it difficult to go without? Do you have the self control to limit your spending? Using DirectGov to input a fictitious 25 year old who lived alone it's fairly easy to find out that living on benefits should be pretty straight forward when 'all' entitled benefits are taken into account. Presuming they live on their own, in an average single bed flat, in an average Band D property, in an average part of the world (rent £400 per month, council tax c.£1200 per year) the results are surprising. On top of the Jobseeker's allowance, there is housing benefit of £92.06 and council tax benefit of £23.02 per week. A total of £179.38 per week.

So you don't have to worry about who's paying your council tax and rent? Fuel and food are the next essentials. Life in a single bed flat or studio shouldn't consume much of either of those and it's quite feasible to eek out a sustainable life on the remainder. You could even stretch to purchasing the internet/phone for £6.73 a week and a TV Licence costs £2.74 a week. You may have to kiss your rollies and beer goodbye, but you can live quite easily without them.

So to those who say it's not enough. Oh it is. It's more than enough.

Welfare without the state

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Earlier this month the Adam Smith Institute hosted a TNG meeting at which Chris Mounsey spoke on the problems and possible solutions to the welfare state in the UK. As part of his speech he highlighted the value of ‘friendly societies’ or co-operatives as one of the possible solutions, collectives that had previously existed in much of Britain and functioned well prior to the National Insurance Act. As he pointed out, amongst the benefits of these organizations are that they are more needs based and are able to prevent many problems such as fraud and lack of accountability in the government run system.

Although the rise of government welfare has had a similar impact on US private welfare as in the UK, the case of the Church of Jesus Christ of Latter-day Saints (the Mormon Church) has survived the onslaught and is insightful in considering how private welfare can function outside of the state. Members of the church fund the program; on the first Sunday of every month everyone skips two meals and donates the saving from those meals. If a member loses income, becomes unemployed, etc. they meet with their local leader and together they determine the needs of that individual or family, and assistance is given accordingly.

Accountability is at the center of the program: if an individual is on Church welfare he must meet with his local leader each week to determine what progress he or she has made and what else might be done to fix the situation – often families are asked to sacrifice items such as cell phones and cable television before financial assistance is rendered. The Mormon Church also has its own employment services that help individuals seek employment through networking and Church run companies and organizations. There are even private markets, referred to as Bishops’ storehouses, in which individuals can purchase food for nearly 90% below market value while they are in the welfare system.

The program that the Mormon Church has developed creates a sense of accountability and helps people improve their circumstances rather than slowly becoming dependent upon the system. Co-operatives are able to do what no government can, by creating true accountability and fostering the importance of self-reliance and accomplishment. Yet religious commonality is not necessary to create the type of ‘friendly society’ the Mormon Church has. Private groups like this could flourish if it wasn’t for one major problem: the government does not allow you to opt-out of the state run system. If the state allowed an opt-out option for those who can confirm enrollment in a private co-operative, things would improve dramatically and private co-operatives would spring up everywhere.

A proposal for solving the pension crisis

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We need to wean people off the state pension. It’s a giant Ponzi scheme that sooner or later will become bankrupt. But we cannot simply scrap it. Too many people have based their future plans on its existence, and it is too late for them to make up for its removal.

In a new Think Piece I have drafted for the ASI, I propose phasing it out in such a way that those over 60 get a full pension, anybody under 20 gets no pension, and the rest of us see our pensions tapered away at a rate relative to the amount of time we have to make alternative arrangements. Mechanisms would be put in place to ensure that the poorest were not left without any support, and that nobody was blindsided by a sudden market collapse. But basically the onus would be on each of us to prepare for our own future.

This is an idea I have been turning over in my head for some time. It seems reasonable to me, and I’ve tried to address the objections that I envisage. But it’s far from a detailed plan, and I would welcome comments from others who may be able to see problems, improvements or opportunities.

Please read the full article here and then feel free to comment below.