As the Resolution Foundation points out, time to blow up the welfare state

Not that this is quite what the Resolution Foundation actually says, but it’s a very strong implication of their analysis. For they complain that British families would find it difficult to survive if their main income were to disappear. No savings, d’ye see?

Newly-available data covering the 24 months leading up to the pandemic confirms this, with Figure 10 showing how long people (over the 2018-20 period) thought their savings would last them if their main income source stopped. Just over one-in-four (26 per cent) of all adults would not be able to manage for a month; and just under four-in-ten of those in the bottom two income deciles.

Now one reaction to this is to shriek in horror - roughly the Resolution Foundation response. Another is to try thinking for a moment.

Government abstracts to itself some 45% of everything. One of the things promised in return is a welfare state, one that includes income replacement if main incomes were to disappear. The Resolution Foundation is clearly stating that this isn’t good enough. That families should - the “should” coming from their obvious concern at the fact that they don’t - have enough savings to weather such outrageous fortune without that welfare state.

At which point, if families should have such savings and the welfare state isn’t good enough then presumably we should eliminate the tax to pay for the welfare so that families have enough to save for themselves.

Another alternative, of course, is that this calculation of who could survive should include the effects of the welfare state that everyone’s paying for - which is why they cannot afford their own savings.

Or even, having paid for the welfare state why should people have savings? Haven’t they already ensured that they’ve got them by paying into the collective insurance schemes?

The Resolution Foundation, by demanding both the welfare state and also the savings necessary in a world without it is guilty of cakeism. Or even anti-cakeism, demanding the absence of consumption by saving and also the absence of consumption by taxation.

About time people made up their damn minds. Should we have collective provision for the bad times or private? If collective then the absence of the private resources is the effect of the existence - and tax to finance - the collective. If the private must exist then we’d better get rid of the tax to pay for the collective then, hadn’t we?

It's what people don't say that fascinates

The Guardian tells us that many children in single parent families are in relative poverty. Well, yes, we think that’s probably likely to be true. The mean, median and modal family in the UK will be two earner - we’d rather expect families with only one even potential earner to have lower incomes.

Yes, we know, relative poverty is adjusted to household size but even so, the above effect will be there.

We do think it interesting what isn’t said, or attention drawn to. For example, current single parent child poverty, by this relative measure, is lower than it was at any time during the Blair years. That’s not an obvious sign that things have been getting worse this past two decades.

We also think this is interesting:

Launched by former chancellor George Osborne as a crackdown on those he claimed were “living a life” on public assistance, the benefits cap restricts total benefits, including for housing costs, to £20,000 a year for families outside London and £23,000 in the capital, regardless of the family’s needs.

Relative poverty is living on less than 60% of median household income. Median household income is £31,400. 60% of that is £18,840. The benefits cap is higher than 60% of median household income - before any contribution from work, absent parents or anything else.

We most certainly don’t think it desirable that people live on little income - we’re all for the economic growth that raises the living standards of all. We’re absolutely certain that the system can be improved too. And yet we just cannot bring ourselves to think that this is all some terror calling out to the very heavens for vengeance.

We do rather worry about Willy Hutton you know

Will Hutton tells us that:

Last week, we learned that in the first three months of this year Britain’s current account deficit was the worst since records began in 1955. It stood at a stunning 8.3% of GDP

He also tells us that:

What cannot be mentioned is Brexit and the obvious depressive impact it is having on UK exports and inward investment flows.

It’s not actually possible for both of those to be true, that the trade deficit soars and that inward investment is depressed. This is a very basic piece of GDP accounting, not some wild neoliberal claim.

The thing about the balance of payments is that it does balance. If there’s a trade deficit - which is very similar to but not exactly the same as a current account deficit - then there must be a capital account surplus to offset it. The very fact of that trade defict blowing out not just implies but absolutely insists that more foreign capital must be coming in on net.

It is not possible for this not to be true.

That Willy, who would plan our economy for us, doesn’t know the accounting basics of the economy would seem to indicate that we shouldn’t pay much attention to Willy’s plans for the economy.

Perhaps that’s the correct solution in fact, we should stop worrying about Willy and simply ignore him. Although perhaps this is news only for those who haven’t rumbled him years ago.

The UN insists that neoliberal globalisation works then

If you think about it what is really being said here by the United Nations chief is that this neoliberal globalisation - the extension of trade and markets to regions previously untouched by their graces - works.

Humanity is facing a “perfect storm” of crises that is widening inequality between the north and south, the UN secretary general has warned. The divide is not only “morally unacceptable” but dangerous, further threatening peace and security in a conflicted world.

The global food, energy and financial crises unleashed by the war in Ukraine have hit countries already reeling from the pandemic and the climate crisis, reversing what had been a growing convergence between developed and developing countries, António Guterres said.

“Inequalities are still growing inside countries, but they are now growing in a morally unacceptable way between north and south and this is creating a divide which can be very dangerous from the point of view of peace and security.”

Any form of economic structure is going to be touched by the arrival of the Four Horsemen: we’ve at least attempted conquest, pestilence, possible famine and Death is, of course, not far behind.

But note what is also said - before that we had a world which was moving in that optimal direction. We had that desired convergence and we were getting it not by the rich becoming poor, but by the poor becoming rich.

That is, the base driving force of the global economy of the past 40 odd years, that neoliberal globalisation, works. Further, it works not just to achieve capitalist glee, it works to produce what the non-capitalists have always insisted only their policies would manage - to make the poor rich and thereby reduce global inequality.

Again, we’re entirely agreed that war and pestilence are undesirable, that they would derail any economic system or structure. But once those are past the claim here is that we should - must, for moral reasons - return to that structure which actually works. Neoliberal globalisation is what makes the poor rich, given that we desire the poor become rich therefore we must return to neoliberal globalisation.

The head of the UN is telling us exactly that.

The question though is, is it worth it?

There’s been much shouting about how Britain’s rivers should be cleaner. Which is slightly odd, given they’re currently cleaner than they have been for a millennium or so. But if that’s what the people want then, of course, that’s what the people should get. Good and hard.

The thing is, this is going to cost:

Households face a jump of up to 20pc in their water bills after Thames Water agreed a major investment deal to prevent sewage leaking into seas and rivers.

Thames Water said its owners have backed a plan to spend an extra £2bn between now and the end of 2025.

This price rise is not, however much people will shout that it is, a function of the structure or ownership of the water system. It’s a simple truth. If more must be spent reducing storm overflow then someone, somewhere, must pay that extra cost. The people who will do that being the producers of the ordure that no longer flows into the rivers. This is true whether it’s paid in the function of taxpayers, water consumers, sewage producers or any other combination we might think up. There’s only us, the population, to pay the bills. If the costs are higher then so will the bills be.

The big question therefore becomes whether it’s worth it? Is the benefit of some few thousands swimming in rivers rather than council pools worth a 20% rise in water bills for all?

No, we do not insist either way, that’s an open question to which all may have their own answer. We do though think that if the question were actually posed - properly and openly, as above - that the answer from the general population would be that the lido is good enough and we’ll keep the money, thanks very much.

Or, as we might put it, folk will say they want all sorts of things but they only really want what they’re willing to pay for.

We call this abjectly missing the point

It all does rather depend upon the definition of necessary - possibly even who is doing the defining:

Green belt land may have been torn up for housing unnecessarily, campaigners believe, after the 2021 census suggested population growth in many areas has been overestimated – in some cases by tens of thousands of people.

But the census also revealed other estimates were far too low – by up to 16% – meaning local politicians now face pressure to allocate more land for homes than previously anticipated.

The mistake here is to believe that those politicians and planners should be allocating the land. For the aim of the British housing system - however we define or manage that - should be to build houses that Britons wish to live in, where Britons wish to live.

The entire point of the green belt system is to prevent this. Therefore it’s the green belt system that must go.

We can get into the grubby details here. For example, note the complaint by these folk that the information used is hopeless at the prediction of demand that the planners then use - meaning the planning system fails. Or we could note that we have the smallest new builds in Europe. Or that house prices are ridiculous as a result of the price of not land, nor houses, but the chitty that allows permission to build.

But the real and true underlying point is that the current planning system actively - was set up to do so - prevents the building of houses that Britons wish to live in where Britons wish to live. Therefore we must tear down that planning system.

Blow up the Town and Country Planning Act 1947 and successors. Properly blow up, bang. Kablooie!

Only from the rubble of that can we construct a system actually fit for purpose. Assuming that the purpose is actually to house us all as we wish to be housed, rather than as the elite would insist we must put up with.

Quick! Quick! A justification for a bad policy, now please!

Placing import tariffs on intermediate goods - things which are then used to make other things - is a foolish policy. For it makes those intermediate goods more expensive for all users and manufacturers whoever is the producer. They raise the price of domestic production as well as imported.

Britain’s defence and nuclear industries are highly reliant on foreign steel, new figures show, as Boris Johnson considers whether to impose new tariffs on imports of the metal.

The UK is buying more than two-thirds of the steel needed for the two key industries from abroad, according to Government figures. The nuclear and defence industries spent £150m on the metal last year, of which just £45m came from British mills.

The disclosures come as Boris Johnson prepares to extend steel tariffs to protect the British industry. The Prime Minister has said the industry needs support as energy bills soar.

This looks like one of those things rolled out as a justification for such a bad policy. For we’re all expected to nod along. Ooooh, yes, isn’t it terrible that nuclear power plants, that the defence vital to the nation, is cheaper. Cheaper by being able to use steel that is cheaper than domestic production.

Two seconds thought of course leads to the opposite conclusion. We get more nuclear, more defence, for the same amount of money meaning that we are all positively anti the very idea of import tariffs on steel.

This before we get to the wider point, that such tariffs will make everything made with steel more expensive. Cars - just as one example - will be more expensive to manufacture in Britain as a result of making both nuclear and defence more expensive.

The only problem that tariffs on intermediate goods solves is the idea that we’re already too rich and therefore must make ourselves poorer. We can imagine the green part of the hair shirt brigade signing on to such a nonsense but what a Tory Government is doing proposing it escapes us. The aim of having a polity is that it enriches us after all.

Surely the Lake Wobegon joke is old enough now that people get it?

Of course, that headline is subject to Venning’s Law, the correct answer to any question including the word “surely” is “No”. As proof of this contention, the latest attempt at economic analysis from IPPR:

In new analysis, Common Wealth and the IPPR, the thinktank of which I’m executive director, have dug into the profit side of this equation. Our findings are stark: up to the end of 2021, half of firms have retained or increased their profit margins compared to pre-pandemic levels.

The Lake Wobegon joke is, for those few who haven’t heard it over the decades, that the Minnesota community is a place where “all the children are above average”.

On a radio show it’s a cute little, joking, observation. When discussing the economy it’s less funny. For what IPPR is really saying there is that fully half of all companies have seen falling profit margins over the time period - yes, for their claim is that 50% have maintained or increased. The modal change in profit margin is, therefore, assuming the three possibilities of lower, same and higher, actually for lower profit margins. It’s also true that the median experience is likely going to be on the edge between falling and static.

That is, if IPPR actually understood how averages work then they’d be worrying about falling profit margins and the ability of capitalism to regenerate itself by covering depreciation and future investment needs. IPPR instead takes this all to mean that companies are making too much profit, despite the actual move being in the other direction.

Ah well, there’s no licence on the use of the phrase “think tank” so we can’t insist that they do, can we?

Questions from Robert Reich that we can answer

Why is the US about to give away $52bn to corporations like Intel?

Robert Reich

The answer being that politicians are all too free with other peoples’ money.

Reich wants to impose conditions upon the handing out of industrial subsidies and tax breaks. But this isn’t a cure for the base problem. Politics will, as with seagulls and their young, feed the one that shrieks loudest. That means that the feeding at the taxpayer trough is not determined by any sort of logic other than that of who gains the ear of those doling out the money. Or, more cynically - we prefer realistically of course - whoever appears best for the re-election prospects of the person making the decision.

That is, we end up with economic decisions being made on electoral grounds - a recipe for bad decisions for inevitably the considerations taken into account aren’t even along the right axis of logic.

There is an answer to this of course. Do not allow the politicians the ability to dole out $50 billion and change to their favourites. Do not, in fact, allow politics to try to run the economy.

That’s not an answer that will find favour with Reich of course, he wants different groups to be favoured at that public expense. But it is still true that the answer to these sorts of economic nonsense is to pull government out of the economy.

Minarchy, it’s the only sensible answer.

Civil Service Strike? Bring it on

Now is the summer of our discontent made wintry by flat-footed government. As the Spectator leading article put it last week: “Johnson has weighed down the economy by presiding over a government that is now 55 per cent larger than it was even in the Blair years.” So he announced 20 per cent cuts in the civil service which prompted Liz Truss to demand a 10 per cent increase in her staff and a majority of cabinet ministers to panic about a civil service strike. That was the end of that idea so far as we have heard since.

When Mrs Thatcher was faced by the near certainty of a coal strike, she stockpiled coal and told Scargill to bring it on. Johnson should learn from that. 

The absence of most parts of the civil service would actually be welcomed by the public: we want the armed forces (who would not strike) and be delighted by the rest of the MoD taking their leave. Likewise a holiday from the Foreign Commonwealth and Development Office, BEIS, HMRC and the rest of the Treasury, DCMS, Department for Education, DHSC (the NHS staff are not civil servants), Department for International Trade etc. etc. would be a welcome relief.  Not paying them during the strike would achieve exactly the savings we need. 

Mrs Thatcher’s lesson is preparation: we need to provide cover for the civil service we would miss–not actually that much. Firstly, we need the law the government has been talking about to allow “agency staff”, i.e. any people prepared to do the work, approved by government, to cover for strikers. We need them actually to pass the law, not just talk about it. 

The good news is that IT systems do not strike and require relatively few staff to operate them.  On some pretext or other, Mr Putin’s threats will do, a Minister should create a very small “National Emergency Service” which would be essentially a Dad’s Army to back up the civil service in the event of a major crisis with enough expertise in each of the key protected areas to keep the show on the road. The “key protected areas” would be the civil service areas the public cares about, i.e. the parts that hand out short-term money (pensions and welfare payments) and security (borders and prisons). Licences would be automatically extended for the duration of the strike. The leading banks would be expected to provide the National Emergency Service for financial matters and the armed forces could be called on for security manpower. 

Johnson’s call for a 20 per cent civil service reduction was too modest. 55 per cent would be better and we are publishing a discussion paper this week showing that the Cabinet Office headcount should be reduced by 90 per cent and be the better for it. Watch this space.