Peter Taylor-Gooby points out that, as inequality has risen, attitudes towards the poor and benefit recipients have hardened. He suggests several longer-term reasons for this, among them the decline of class alignment and rise of individualism. I'd add three other factors:
- A mistaken factual base. The public under-estimate bosses' pay and over-estimate welfare benefits.
- Recessions usually make people more mean-spirited.
- Capitalism generates cognitive biases (ideologies) that result in hostility to welfare recipients.
As Taylor-Goody says, it doesn't need to be this way: "Alternative approaches that emphasise reciprocity, solidarity and inclusion are possible."
This poses the question: how do we get to such approaches from where we are? One possibility is to look to a leftist party to argue for them. But there are good reasons to expect the Labour party not to do this. Just as companies' marketing strategies rarely work by telling potential customers they are stupid, so political campaigns rarely do so. This is why Labour panders to some of the worst aspects of public opinion, on immigration or welfare, rather than outrightly opposes it. The Labour party is a managerialist marketing strategy, not a force for truth and justice.
But if Labour is not an agency for radical change, what is? Sure, there are a few bloggers and columnists who are trying to shift the Overton window, but these tend to preach to smallish groups of the already-converted.
This, of course, is not to deny that social attitudes can change. For example, during my lifetime, attitudes to gays has improved considerably. But I fear that this progress has been like Max Planck's view of scientific advance – it has happened one funeral at a time.
And herein lies a paradox of the left. Whilst we have spent decades advocating social change, we have remarkably few answers to the question: through what mechanisms, exactly, can it be achieved?
In this respect, UKIP's success demonstrates not the weakness of the ruling class, but the exact opposite – its complete victory.
I don't just mean this in the sense that political power is held in the hands of such a narrow group that the Dulwich-educated son of a stockbroker can present himself as an outsider.
- The demand for tougher border controls is a call for an increase in the power of the state.
- Whilst its possible that immigration control might be very slightly positive for low-wage workers, it would be bad for average wage-earners, and there are many better ways of improving the lot of unskilled workers.
- Hostility to gay marriage is fundamentally anti-liberty, as it asserts the power of the state to intervene in private relationships.
- The call for a flat rate 25% tax would be a big tax cut for the rich.
- The demand that welfare recipients do compulsory workfare and not buy cigarettes or alcohol would be a reduction in the welfare state safety net, to the detriment not just of actual recipients but also to those in insecure jobs who fear becoming jobless.
UKIP's policies, then, do not challenge either the power of capital over worker or (what is a similar but distinct thing) the power of managerialists.
This is why I say their support represents the victory of the ruling class, because it demonstrates their complete power. I'm thinking here of Steven Lukes' "third dimension" of power:
Is it not the supreme exercise of power to get another or others to have the desires you want them to have – that is, to secure their compliance by controlling their thoughts and desires?…Is it not the supreme and most insidious use of power to prevent people, to whatever degree, from having grievances by shaping their perceptions, cognitions and preferences in such a way that they accept their role in the existing order of things? (Power: a radical view, 2nd ed, p27, 28)
It's in this sense that the ruling class has triumphed. The discontent that people might reasonably feel against bankers, capitalists and managerialists has been diverted into a hostility towards immigrants and the three main parties, and to the benefit of yet another party with a managerialist and pro-capitalist ideology. In this way, even "protest" votes help sustain existing class and power structures.
In 2010, 140,000 children aged under five died in Bangladesh. If the country had the same mortality rate (pdf) as the UK, only around 15,000 would have done so. This implies that around 125,000 Bangladeshi children die each year from poverty.
This fact, however, does not feature prominently in nightly news bulletins, even though it is equivalent to two Rana Plaza collapses every week.
There is, of course a simple reason for this. The news reports abnormal events, not normal ones; "dog bites man" is not news. Collapsing buildings are abnormal and so newsworthy whilst acute poverty is normal and so isn't news.
This bias is inherent in the nature of news. And yet it can be misleading. You cannot understand why so many Bangladeshis tolerate working in sweatshops until you realize that doing so gives their children not just a better chance in life, but a better chance of life. Thanks in part to the economic development brough by those sweatshops, child mortality in Bangladesh has fallen.
However, news reports which draw attention to the evils of sweatshops but not to those of rural poverty understate the benefits which such sweatshops have brought. Yes, they're hellholes which perhaps could and should be improved upon – but they're better than the alternative.
In this sense, news generates a bias amongst its western consumers; it encourages a hostility to globalization and industrialization even though these are – albeit imperfect – routes out of poverty.
There's a parallel here with attitudes towards crime reporting. It's a commonplace that whilst crime has fallen in recent years, the fear of it hasn't. A big reason for this, I suspect, is that violent crime – being abnormal – gets reported whilst folks living safely, being normal, does not. Ordinary reporting thus warps our perspective.
You cannot reasonably judge a probability distribution merely by looking at the far tail of it. But this is what the news invites us to do.
There's another relevant bias here. Whilst under-reporting deaths from rural poverty the news is full of the doings of the rich and powerful. This too can have pernicious unintended effects. Laboratory experiments (pdf) have found that the mere act of communicating with others can induce them to behave more altruistically towards us. This implies that we are likely to be better-disposed towards the rich and powerful than we otherwise would be, and less well-disposed to the silent poverty-stricken billions. This too generates a bias towards tolerating poverty.
I say all this as a caveat to a common complaint. Everyone complains – with justification – about bad, right-wing, dumbed-down linkbait journalism. But even when journalists are doing their jobs well, they are contributing to some unpleasant biases, by the very nature of what constitutes news. You cannot, rationally, base your political opinions in what your see in the news.
A little thought, however, reveals that such spending is in fact puny. Let's do the numbers.
The DWP says that, in 2011-12, working age people got £52.7bn in benefits. Of this, £16.6bn was housing benefit and £2.7bn council tax benefit, so benefit recipients saw £33.4bn. This is 2.2% of GDP, and 5.2% of total government spending.
What fraction of this £33.4bn is spent on drink and ciggies? We can use table A6 of the latest Family Spending tables as a guide. These show that the poorest decile spend an average of £148,80 per week on non-housing. Of this, £2.70 per week (1.8%) goes on alcohol and £3.90 (2.6%) on tobacco and narcotics. If we apply these proportions to the £33.4bn of benefit income, then £606m of those benefits are spent on alcohol and £875m on tobacco.
But the government gets a lot of this money back in VAT and excise duties – about £689m on tobacco and £190m on alcohol. This implies that benefit recipients' spending on tobacco and alcohol costs taxpayers a net £602m. In fact, not even this much, to the extent that brewers and tobacco manufacturers pay tax on their incomes.
This is a tiny sum. It's 0.09% of public spending and 0.04% of GDP. In making an issue of this, Ms Price is enlarging things out of their proper proportion.How unlike her.
What's going on here? Usually, I'd quote C.B.Macpherson, to the effect that there's still a puritan strand in politics which regard poverty as a moral failing and the poor as objects of condemnation. However, considering Ms Price's career, puritanism is hard to discern.
Instead, I suspect what we see with her and with Ukip – and, one could argue, with some who support press regulation whilst favouring social liberalism in other contexts – is asymmetric libertarianism.
People want freedom for themselves whilst seeking to deny it to others; this is why some Ukippers can claim to be libertarian whilst opposing immigration and gay marriage. This debased and egocentric form of libertarianism is more popular than the real thing.
I rashly promised yesterday to suggest what some supply-side socialist policies might comprise. Here goes.
1. Invest in education, especially in the early years. The demand for unskilled labour has collapsed, and we shouldn't bet in on recovering. Instead, we should try to raise human capital. This requires pre-school interventions, improving the standards of schools in poor areas (pdf) and, perhaps, simply more intensive education. If inequalities of human capital can be reduced, so will one source of income inequality.
2. Shift the tax base. Efforts to tax profits don't work. Better ways of taxing the rich, whilst preserving incentives to work and save would involve taxes on land, inheritances and a progressive consumption tax.
3. A state investment bank. Personally, I'm sceptical of the idea that banks systematically starve promising companies of funds; I suspect the bigger reason for low investment is the lack of innovation. Neverthless, we should ensure that the few good investment ideas there are get funded. And most of the arguments against a state bank are exaggerated.
4. A citizens' basic income. This is normally seen as a redistributive policy, a way of increasing workers' bargaining power. It might raise productivity through at least two routes. First, it would give workers the chance to reject bad jobs, and wait until a better match turns up. Second, the increased wages which would follow from this rise in bargaining power might compel firms to raise productivity in order to maintain profits.
6. Coops. The financial crisis is, in many ways, a crisis of managerialism and ownership. Top-down bank CEOs got overconfident and made terrible decisions; failed to solve principal-agent problems that led to excessive risk-taking; and failed to adapt well to the new macroeconomics of the 2000s.Outside shareholders did nothing to prevent this. This suggests the need for new forms of ownership. The obvious (though not only) candidate is worker ownership. There's good evidence that this increases productivity, and it might have longer-term benefits for growth too, insofar as it helps encourage a culture of trust.
7. Shrink the state. It's possible - I put it no stronger – that a smaller state is conducive to faster economic growth in the long-run. Hopi's proposal for zero-base spending review might therefore make sense. But you cannot cut spending intelligently from the top down. A precondition for intelligent cuts is to empower public sector workers, who are better placed to identify genuine waste.
8. Macro markets. One role for government should be to encourage – perhaps via nationalized banks – markets for insurance in income risks, as Robert Shiller has proposed. Such moves might be egalitarian – insofar as such products are given freely to worse-off workers. But they might also help encourage real innovation by allowing entrepreneurs to insure against the background risks (eg of recession) which can undermine otherwise good investments.
This is not a complete list, and there are countless details to examine. This list should, however, remind us that supply-side economics needn't be the preserve of the right.
Another thing. Some of you might remember my book. Some chapters, however, were not published. This pdf is one of them.
Let's say we wanted to get unemployment down from its current 2.5m to one million. How many jobs would we need to create?
The answer is NOT 1.5m. This is because many jobs would be filled by those out of the labour force – the retired, home-makers, students on marginal courses and, OK, immigrants. For example, in the last year employment (pdf) has risen by 584,000 but unemployment has dropped by just 156,000. This tells us that reducing unemployment by 1.5m would require well in excess of 3m new jobs. That's an increase of over 10%.
This requires a massive expansion in GDP. Once we allow for the possibility that productivity will begin to rise again, we probably need a rise in GDP of over 15%. And we'd need a bigger rise in money GDP to achieve this, simply because a large part of any fiscal or monetary expansion would raise prices rather than real GDP: the Bank of England estimates (pdf) that its first £200bn of QE raised real GDP by 1.5-2 per cent and inflation by up to 1.5 per cent.
Getting unemployment down to one million would therefore require a rise in money GDP of perhaps 30% – over £400bn. Nobody is proposing a fiscal or monetary expansion anything like this.
Instead, the belief seems to be that a small policy stimulus will kick-start the economy, get the normal capitalist engine of growth purring again.
But this is questionable, for at least two reasons.
- There's a dearth of investment opportunities. There are many reasons for this: a (maybe temporary) slowdown (pdf) in technical progress; the migration of low-wage industry to the east; an inability to monetize what new technologies there are; or perhaps a wising up to the fact that innovation never really paid off anyway.
- Inequality has become a barrier to growth. This could be because it reduces the marginal propensity to consume. More likely, I suspect, it's because it has added to debt and because the same institutions that create inequality – managerialism – also give us bad decision-making and rent-seeking.
Policy-making, then, requires more than (very mild) stimulus and the hope of return to business as normal. We must think about ways of increasing trend growth.
It should be obvious to anyone not blinded by ideology that the right's ideas here – of reducing the power of the working class – no longer work. Instead, Duncan Weldon, Stewart Wood and Ha-Joon Chang are right; the left must think about supply-side socialism.
Now, you might object that I've argued that history shows that long-run growth doesn't much change. This fact, though, might not be so hostile to supply-side socialism. For one thing, it shows that "moderate" policies don't work, so perhaps we need something radical.
And for another thing, it shows not just that few policies raise growth, but also that few depress them. And this suggests that perhaps radical leftist policies are a "free hit": they might not be disastrous for the economy. As for what such policies might be, I'll suggest some later.
You can rely on the Labour party to live down to its reputation as a party of capitalism.
First, the fact that it will be compulsory for the long-term unemployed to take up the jobs panders to a mistaken "divide and rule" rhetoric that distinguishes between skivers and strivers. As Neil says, the party is – yet again – "running scared of the Daily Mail".
Secondly, the policy will, as Liam Byrne says, "provide subsidy" to private sector employers to hire the long-term unemployed.Labour will, in effect, give taxpayers' money to Tesco so it can employ more shelf-stackers.
And herein lies the economic problem with the scheme. At the margin, employers will prefer to hire a subsidized long-term unemployed person rather than an unsubsidized short-term unemployed one. In this sense, Labour's plan improves job prospects for the long-term unemployed, at the expense of the short-term unemployed, and has a deadweight cost of paying companies to do what they would have done anyway*.
Labour's plan thus falls far short of more sensible "employer of last resort"-style policies to combat unemployment. It accepts capitalism as it is, and fails to confront the fact that capitalism is unable to provide work for all.
All that said, there is something to be said for the plan. It starts from the sad fact that public opinion about welfare is ill-informed and ignorant. Faced with this, a sensible party should campaign in lies and govern in truth. It should wibble, as Byrne does, about people needing to be "working or training, not claiming" simply because this is the easiest way to get votes from bigots. In office, when the scheme is up and running, the compulsory element can be quietly dropped, on the grounds that it is costly to administer and enforce.
And then, when the evidence shows that subsidized jobs are of poor quality, and are displacing the shorter-term unemployed, the party can switch from subsidizing the private sector to creating new jobs through a programme of public works, in the way a proper job guarantee scheme would.
In this sense, if Labour's plan has any merit, it is as the thin end of a wedge.
* Granted, there might be an income effect; employers getting the subsidy might feel able to hire more people generally, but this effect might not be large.
This raises the question: what if anything can be done to change this?
One possibility is to appeal not merely to the facts, but to the evidence of people's own eyes.
A poll (pdf) by Ipsos Mori has found that although 76% of people think immigration is a big problem in Britain, only 18% think it a big problem in their own area, and twice as many say it is not a problem at all.
However, several things make me fear that an evidence-based approach won't suffice to change people's minds:
» Hostility to immigration does not come merely from the minority who lose out in the labour market. People from higher social classes and the retired are as opposed to immigration as others. And even in the 60s, when we had as full employment as we're likely to get, there was widespread anti-immigration feeling. This suggests we can't rely upon improving labour market conditions to improve attitudes to immigration.
» There's little hope of attitudes changing as older "bigots" die off. The Yougov poll found that 68% of 18-24 year-olds support the Tories' immigration cap.
» Antipathy to immigration has been pretty stable (in terms of polling if not the violence of its expression) since at least the 1960s. This suggests there are deep long-lasting motives for it; I'd call these cognitive biases such as the status quo and ingroup biases.
» There's an echo mechanism which helps stabilize opinion at a hostile level. Politicians and the media, knowing the public are opposed to immigration, tell them what they want to hear and – a few bromides aside – don't challenge their opinion; one of the many appalling features of "Duffygate" was Gordon Brown's abject failure to challenge Mrs Duffy's hostility to immigration. (The BBC is also guilty here: "impartial" debates about immigration often seem to consist of the two main parties arguing about how to control it.)
All this makes me ambivalent about "calls for a debate" about immigration. Part of me thinks: bring it on – let's talk about the facts. But another part of me thinks that rightists just want to raise the salience of an issue on which public opinion is on their side.
There is, though, a deeper issue here. The fact that public opinion is hugely and stably opposed to immigration suggests that there is a tension between liberty – immigration is an issue of freedom – and democracy.
Lord Freud says:
People who are poorer should be prepared to take the biggest risks; they’ve got least to lose.
This seems ignorant of basic economics and psychology. Yes, the poor have less to lose. But the little they have is more important to them. A loss which means you don't eat is more painful than one which means you can't replace the Merc this month. That's the diminishing marginal utility of wealth.
Granted, the poorest 10% spend proportionately more on gambling than the rich – but it accounts for only around 1% of their overall spending compared to less than 0.2% for the better-off (table A6 here). And some of this difference, I suspect, reflects the fact that the rich gamble on better odds (eg spread bets versus the lottery) and so reduce their net spending, and also do some of their gambling by buying shares.
The facts that the City is "rife" with gambling addicts, that horse-racing has traditionally been "the sport of kings" and that Monaco is renowned for its casinos tell us that many of the rich have long been tolerant of risk. Which is consistent with diminishing marginal utility of wealth.
Why, then, is Freud making a claim which has such a suspect empirical basis?
Class, that's why. Take these statements:
The rich should take more risks. They should use their wealth and their so-called skills to set up new businesses and create jobs, rather than stay in cushy rent-seeking jobs in management and finance.
The problem with the rich is their selfish reluctance to pay tax. They should be more responsible citizens with better tax morale.
Such views are not often expressed by the likes of Freud.This is because of a class bias. Rulers often see the attitudes and behaviour of the poor as a problem to be solved by exhortation and policy, whereas the attitudes of the rich are givens, to which governments must adapt. Hence Freud's hectoring of the poor but not the rich.
This asymmetry is an old one; I suspect you could find it in ancient Rome. Here's C.B. Macpherson on the 17th century:
The Puritan doctrine of the poor, treating poverty as a mark of moral shortcoming, added moral obloquy to the political disregard in which the poor had always been held…Objects of solicitude ot pity or scorn and sometimes of fear, the poor were not full members of a moral community…But while the poor were, in this view, less than full members, they were certainly subject to the jurisdictions of the political community. (The Political Theory of Possessive Individualism, p226-27)
There's not been much intellectual progress in these last few centuries.
In the Times yesterday, Danny Finkelstein argued against temporary fiscal loosening:
Summoning up the will and retaining the minimum of political support is incredibly difficult. And fragile…Once we return to a policy of borrow and spend, how will we ever summon up the will to stop again?
I'm not sure about this. If I were a Tory wanting smaller government – and this, rather than concern about the national debt, is the reasonable argument for cutting public spending – I'd have three concerns.
1. Delaying cuts gives us the chance to make more intelligent ones. It gives us the opportunity to consult workers on where best to make efficiency savings; these are better identified from the bottom-up than from the top down. Quick cuts are bad cuts, which risks discrediting the aim of shrinking the state.
2. Cutting spending at a time when the private sector is weak isn't just a bad idea on Keynesian grounds. It's a bad idea politically. Support for cuts could be undermined by guilt by association with a weak economy.
3. History suggests that cuts now are a substitute for cuts in the future. My chart shows the point. It shows five-yearly growth in real total managed expenditure. Since the 70s there have been three periods of significant restraint: the five years to 1981, the late 80s and late 90s. All three were followed by periods of high spending. "Prudence", then, has not been a habit in the past. Quite the opposite.
This poses the danger that spending cuts now will be followed by a splurge later. Not only might this be a bad idea on Keynesian grounds – the splurge might add to strong growth and be potentially inflationary – but it would also unravel any progress towards a smaller state.
What I'm suggesting here is that it's not just Keynesians who should argue for postponing restraint. There's a case for intelligent Conservatives to do so as well. But this is the opposite of what's planned; on current policy, real TME sees its biggest fall this year, and a rise in the years after.
But then, do the Tories want to cut spending out of a genuine desire to see a sustainably smaller state?
Or are they instead motivated by silly fears about the national debt and by a hatred of public sector workers and benefit claimants?
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