Monday, May 31, 2010

Some thoughts on the welfare state - continued from the FT website

What follows originated as posting to the FT website (see previous post here). It got removed from the FT website, perhaps justifiably in view of its length and remoteness from the FT article that prompted the commentary. The rest of the FT commentary can be seen here:- This posting was a response to one by Thornton on 27 May, 6.18pm.


Yes, my points about giving at Christmas were not directly in response to your point about what some great people have given to the world. Incidentally, I am also something of an admirer of Bill Gates - sometimes grudgingly as I frequently curse Microsoft, perhaps a little unjustly. As for Churchill, by coincidence, the last volume of Martin Gilbert's biography of him is currently my bed-time reading. A fascinating, larger-than-life character.

The welfare system is problematic in all sorts of ways. Most of my working life has been in the field of social housing which is closely related. Though most of my work has been with looking after the financial welfare of housing associations (not entirely with success - one had to be taken over to avoid going bust), I have had occasional forays into national policy.

One major issue is the poverty trap. You can't focus welfare provision on the most needy without also creating a big disincentive to work. I said in an earlier post that I wasn't in favour of very high tax rates - eg 80% - 90% - but taking taxes and benefits together, that is the sort of marginal rate that people on benefits face. Try a gentler taper so that recipients face a lower marginal rate of tax and benefit withdrawal, and a much wider range of people become eligible for benefits and the cost to the public purse becomes prohibitive. The intrinsic problems look intractable.

I remember recently being at a gathering addressed by an ageing former Labour MP. He had known some of the people involved in setting up the post-war welfare state. He said that no-one anticipated then that we would now be finding people who were third-generation welfare-dependent. Another sad case of unintended consequences.

You make an interesting point about how you think the welfare system also saps the generosity of people. I can't say I have personal experience of this. Wilkinson and Pickett's work suggests that in more equal societies people tend to be more generous (as revealed, for instance, by the scale of foreign aid) but that's a separate issue from the generosity of people in supporting those nearest to them. I'm going to have to leave it on one side for the moment while I think about it further.

As you will have gathered by now, as I gradually became aware of the enormity of the threat from global warming, I found myself looking in a fundamental way at how our economy operates. Developed countries are market economies in which, broadly speaking, spending power is distributed to people according to the perceived value of the work they do. I remember looking at the case for the third runway at Heathrow being made by one of the interested parties. Along with claptrap such as "In a competitive world, standing still is not an option", there were some examples of businesses that benefited from their proximity to Heathrow. One was marketing computer games and another was distributing Japanese-made contact lenses.

It occurred to me that we don't really need people flying round the world marketing computer games and contact lenses. This reinforced my feeling that much of the work that people do is work that simply doesn't need to be done. A few people are producing and distributing the goods and services we need. The rest of us work partly because it's generally considered more acceptable to pay people for work done, even if it's useless work, than to dish out money to layabouts. To disguise the uselessness of the work, we spend heavily on marketing and advertising to help create demand for goods and services we don't need.

The system seems to work quite well until we look at environmental costs and risks and natural resource constraints. Briefly, what we are now doing is paying people to help make our planet less capable of supporting us. Arguably we should now be generously dishing out money to layabouts rather than encouraging people to work for a living. However, I don't suppose you relish that idea and neither do I. Work, even if its usefulness is more apparent than real, is psychologically important. I am semi-retired but I get a real kick out of doing paid work. As well as the sheer joy of being able to ply my trade, which these days is mainly financial modelling, I get from the payment a warm feeling that someone, rightly or wrongly, thinks my work is useful. But whether paid or not, purposeful activity is a key to happiness and robust mental health.

In any case, even in a resource-constrained world, there is no reason to encourage anybody to be idle. For a start, limited energy supplies will probably mean that much essential work, such as growing food, will become more labour-intensive and there may be a revival in demand for relatively unskilled labour. I hope we never reach a point when all work needs to be directed to the bare essentials of survival. However, if we did, we would be justified in expecting everyone to do their fair share of work and there would be no need for welfare payments for unemployment alone - though they would still be needed for disability, chronic illness and old age. I am certainly not of the view that these things can be left to the voluntary generosity of individuals.

I would expect there will always be scope for work directed at quality of life rather than mere survival. Now suppose there was a near-complete economic collapse in the developed world that meant widespread bankruptcies and governments defaulting on their obligations. I see this as improbable but eminently possible some time over the next thirty years. We would then have to rebuild our fiscal, monetary and welfare systems from scratch. This could give us a chance to think from first principles about how we want to organise our affairs. What emerged might possibly be something like a social credit system where every citizen received, as of right, an income just big enough to survive on, or perhaps slightly less. Suppose also that only part of the potential labour force was required to provide food and other essential goods and services and that limited supplies of energy and raw materials were available to allow some non-essential goods and services to be provided. There would be no need for a minimum wage because the social credit payment would cover basic living costs. Wages for the easiest or most popular and agreeable work might be close to zero. Given a well-managed money supply, other wages would find their level according to the demand for the work and the supply of willing workers.

This is how I am currently thinking about the conundrum of welfare though I'm not yet convinced that I have a workable answer. Social credit means a very radical restructuring of how we organise our financial affairs, including how money is created and the money supply managed. I think some form of financial (but not necessarily human) catastrophe would be needed to cut through the Gordian knot of sovereign debt, pension commitments, going rates of pay and expectations that the we can go on living the way we live now.

These are not original ideas of mine and I am currently away from the books where I have read about them. I will try and supply some references in a later post.

Wednesday, May 26, 2010

Long time no post

It's a long time since I posted anything to this blog. Lots has happened since. For as start, I've just about finished converting the winter's harvest of coppiced wood to a couple of piles of logs which should be ready for burning the winter after next.

Apart from doing a spot of paid work (my speciality is financial modelling in Excel, should anyone out there be interested in my services) , my writing effort over the past week has been directed to the FT website, where responses by myself and others to an article by Dick Olver, the Chairman of BAE Systems, have developed into an interesting (and perhaps largely private) triologue.

In the interests of making the triologue less private, here is a link to the article and the ensuing correspondence:-