Entitlements & ratchets

For Christmas, I got Lucius some cat treats. Which has given me a problem. In an effort to keep his weight below a level that would distort space-time, I’m trying to ration the treats. But this leads to a irate cat meowing to demand them.

Which illustrates a problem with welfare spending. Benefits quickly become regarded as entitlements, and so reductions in them cause far more anger and resentment than we’d have if the benefits were never granted at all.

What I’m seeing with Lucius is just what we see with attempts to reduce the pensions of public sector workers or housing benefits in London, or with opposition to fiscal restraint in Greece and Italy. Payments which would be regarded as quite reasonable if they were promised instead of nothing are regarded as mean if they replace more generous payments.

It’s easy to see the psychology here. There’s a framing and anchoring effect.; £340 a week housing benefit is mean, when the anchor is £438. And there’s the status quo bias and loss aversion; people hate losses more than they like equivalent gains.

All of this means that there is an asymmetry in public spending. It is easy to expand it, but very difficult to significantly cut it, thanks to what Vito Tanzi and Ludger Schuknecht call the “tyranny of past commitments”. 

As Matthew Taylor has written, there is a problem with entitlements.

All of this leads to sympathise with Daniel Sage’s call for a degree of conditionality in welfare payments. My instincts say this should be a bad idea. The state should aim at setting people free from drudge work and increasing their bargaining power. Universal benefits - a basic income - would do this whereas conditional benefits mean the welfare state operates as a human resources department for capitalism.

And yet, despite this, mightn’t there be a case for conditionality, slightly different from what Daniel suggests? The case is this. If governments anticipate that benefits will become entitlements, they will be loath to increase them, for fear of them becoming hard to cut should the perceived need arise. If, however, the benefits are conditional, this reluctance will be smaller; governments could figure that the lack of an entitlement culture will make it easier to reduce future spending. They might, therefore, pay larger benefits. This effect would be augmented by voters’ greater willingness to pay benefits if they believe (rightly or wrongly) that they are not giving handouts to scroungers.

In other words, conditional benefits - flawed as they are in principle - might have the virtue, from a leftist point of view, of leading to more generous provision than unconditional ones.

I say this tentatively, partly because I’m arguing against my own instincts, and partly because so many of those who want more conditionality also seem to want a smaller welfare state too. My point is simply that we should compare the merits of conditionality and entitlements not just in static terms, but in dynamic ones: which would lead to greater redistribution over the long-run?

Comments

[Rob]

The ratcheting effect could also be addressed by a basic income though, provided that increases in the basic income are capped or set in line with some agreed target (average wages, inflation, etc.). Asking for more simply wouldn't have any effect, so ratcheting would be impossible.

The problem* with reducing things like public sector pensions or child benefit is that these are already conditional, and the recipients believe that they've met the conditions necessary to get them. And indeed they did meet exactly the conditions that the government had earlier agreed to and now wishes to renounce.

In contrast, a basic income is impossible to 'cheat' because everyone gets the same amount. We might lament some people's choice to avoid work, but we would not accuse them of 'scrounging'. Better-off members of society should be happier with paying taxes towards a basic income if they know that it's the only benefit in town and that no future government is likely to introduce others. I think a lot of the resentment of 'scroungers' comes from the belief that the conditionality of the existing benefit system is being exploited, e.g. by people claiming to meet conditions of disability, or having children in order to meet conditions for child/housing benefit, however unlikely or marginal those behaviours might be. Doubtless those who seek offence at the existence of those poorer than themselves would find some way of regarding welfare-to-work as a cushy option, paying people to do meaningless non-jobs or participate in political vanity projects (and on these, they might actually have more of a point).

In other words, I think your instincts are correct and that Daniel Sage's ideas are, however well-intentioned, unlikely to do any good.

* For those looking to cut spending, at least

[golookgoread]

I think that the flaw in the system of high rents (in London) from my own experience started when the local councils were told by the government that they were no longer allowed hold tribunals for deciding the maximum rents ALL private landlords were allowed to charge their tenants... (in the early 90s if I remember correctly, shortly before the poll tax).

Landlords after that were free to charge what they wanted, and they did.

Bringing back these tribunals would help to lower the demands for high rents and deposits being demanded by private landlords and the added premiums put on by their agents...

But of course, it is always easier to clobber the tenant! This sort of Feudal behaviour which is typical of London since the end of the 17th Century, and the landlords still have the same surnames as they used to back then....

Another thing which could change is for leaseholds to be made illegal! What a Feudal sorry state of affairs this political-financial-insurance-lease exploitation it all is.

[Roger Thornhill]

If you free people from drudge work, the drudge will not get done unless to pay them more than those not doing the drudge.

This will raise the cost of services, lower spending power, put upward pressure on wages or even result in semi-drudge work not being seen as "worth it".

[aragon]

Perhaps the cat is irate at the unequal power relationship.

Housing Benefit goes to the landlord not the tenant (even if via the tenant), and therefore housing benefit reflects house prices and rents, out of the tenants control. The tenants have the benefit of the shelter but this is independent of price (rent).

Unemployment is not the fault of the unemployed but a failure of the state, to provide opportunities to work at an acceptable standard of living.

If you place responsibility in the correct place: the state, then abuse, then blame attaches to those with the power to effect change and not the poor who are stigmatized, by factors they have no power over.

We are all born naked, but whom we are born to determines our life chances.

Hardly equality of opportunity or merit.

Ed Miliband and Liam Byrne, are not even framing the right debate. Never mind the right solution.

[Recusant]

golookgoread

You don't think it is possible that those clumsy, unwieldy and frequently bypassed tribunals were got rid of because they were constricting the availability of privately rented property? Since they were got rid of private renting has more than doubled. And there is a reason why London rents are so high: everyone and his dog is trying to move there.

[Chris Purnell]

"Unemployment... is a failure of the State"?

What duty is 'Aragon' referring to? Does this mean that the State is an 'employer of last resort' which generates whatever work it deems right and proper? Or as Obama quaintly called it - shovel ready projects. Less pleasantly you could always turn unemployment into a crime as the Soviets did. Unemployment is a fact of life in a capitalist state: job destruction and creation being two sides of the same creative coin.

[Keith]

It seems inconsistent to abolish rent control and then blame tenants ( working or not) for the high level of rents and HB. It would be more efficient for society to build council houses and lower all rents by increasing the supply of affordable accommodation based on need. But Labour and Tory seem fixated on ineffective policies. More generally I don't see a tendency for higher spending as a problem. It is very strange for people who are supposedly left wing to be worried by that! Is not the real problem the decision by Labour to abandon redistribution as a goal of policy. This is what causes difficulty financing the welfare state and it is a political choice on which "New Labour" was based. It was and is the wrong choice. It was and is and will always be wrong. It means that a once left wing party spends all its time embracing right wing policies and making itself repugnant to people who are left wing rather than pretending to be. It is also insulting for chris on 45,000 smackers to compare treats for cats with policies that will impoverish poor people even more, just as it is deplorable to compare cuts for claiments with bank bonus culture. Small cuts to marginal income have a very large impact on those with low incomes and Milliband and co show how out of touch they are when they talk about things they know nothing about like being a single mother or poor or both. Which party is he leader of again the BNP? Oh its Labour! Silly me.

[Phil]

"so many of those who want more conditionality also seem to want a smaller welfare state too."

No shit.

I think you're framing the question wrongly. Introducing (or increasing) conditionality in the current state of affairs can only mean putting more power in the hands of people who are consistently committed to cutting benefit, either out of self-interest or ideology. If you can envisage mechanisms for varying the level of benefit that would genuinely respond to need and entitlement - and *not* to the desire to cut - then I'd be interested to hear about them. The acid test would be whether it would be possible - in any particular case or group of cases - for benefits to rise above their current level and stay there for a month, a year, as long as necessary. Conditionality should logically be a door that swings both ways.

[aragon]

Yes Chris, lets hold the Government, responsible for the failure of it's policies.

And the Government is an employer (or provider of income) of last resort. And as such provides a minimum income, that is under pressure from politicians and employers, wishing to further reduce the cost of labour below the cost of living.

Especially in London, the working poor are in receipt of housing benefit, indirectly subsidising the employers who are not covering, the cost of living, of their low paid employees.

'Long Term Unemployment' is a product of Government policy, that falls unequally on the public, known as the poor, some churn is inevitable, so yes the state should provide a higher income for the unemployed, perhaps through jobs.

The need is available e.g. social care, and the people (and demand for work) are present, we just need to negotiate the price.

A more equal distribution of wealth is justified on both economic and social perspective (The Spirit Level).

Let us end the social welfare for the super rich bankers, and distribute wealth to the broader public, including the poor, who will spend it creating economic activity.

[Jacques René Giguère]

Pensions are a legal contract, promised in exchange for a lower pay now. ( No employer pays a pension, it all comes from the wage bill).
In Canada, I am limited to a lower level of contribution to my RRSP ( a personnal supplemental pension plan) because of my "pension plan". If the gov'ment default, I am allowed to retroactively find 35 years of savings, out of an income I didn't get because I was paid in pension promises...

Chris Purnell: as long as there is a lender of last resort for the 1%, there should be something for the 99.

[golookgoread]

Recusant
Rents are high in London because a great deal of the financial industry is based in London, they set the cost of a mortgage and they do hand out over-inflated mortgages. That is why rent controls had to make way for buy-to-let-landlords, to fabricate profits out of the same number of antique housing that has been standing in the same streets for 150 years, but now converted into two or three dwellings instead of one, each plasterboard conversion costing more than the whole was ever intended to cost.

Everyone and his dog lives in housing that on face value is over-priced and over-mortgaged, poor sound proofing, poor insulation, and often cramped and overcrowded. A house that thirty years ago had only one doorbell, now is likely to have two or three... and each doorbell represents what then used to be one mortgage and one set of council taxes.

The availability has been simply been created falsely by dividing up one substandard dwelling into two or three for the sake of selling three mortgages instead of one. Same number of old houses as 150 years ago.

[Sam]

I'm actually quite attracted to paying a Citizen's Income type payment from a pool whose construction is completely fixed. Something like a 5% income tax, which is put into a ring-fenced pool and divided equally amongst all adults who have lived in the UK for the last 3 years. Maybe kids count as a fraction of an adult - the details don't matter here.

The idea is that your payment would go up and down automatically according to the state of the economy. In the good times, you'd automatically benefit, and in the bad times, your belt would be automatically tightened automatically, without governments having to expend any political capital being mean to poor people.