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August 16, 2016

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Tisats

Excellent post. I'd add that a generous welfare state should allow for freer markets.

Much of the regulation on business is meant to address remedy the disparity in power between employers and their employees - protection of wages and against unfair dismissal is less salient once the employee has an immediate and realistic exit option.

Luis Enrique

some point can be made about fiscal policy more generally (not just transfers) no?

as you imply, Lucas' argument just dreadful. Not sure if you saw this better attempt at some question: http://www.nber.org/papers/w22458

Luis Enrique

doh! I see you have linked to ungated version already.

Cityunslicker

welfare state is paid for by taxes or deficits - these are also regressive. I don't see the magic way forward.

Loose monetary policy is the best simple answer for helping the least well -off by sort of punishing the most well off?

A welfare state answer would be far, far more expensive to administer; all the taxes and redistribution for a start.

Deviation From The Mean

"A welfare state answer would be far, far more expensive to administer"

There is weak evidence for this, in that the most expensive public goods tend to be those that are privatised. The immediate affect of privatising the NHS would be a massive increase in charges, we saw the same with the privatisation of bus services. Private = far far higher costs.

A welfare state, using the most modern means of technology, would be no more or less bureaucratic, whatever that means, than a private system. Unless of course you think Hospitals should take short cuts and not bother with proper procedure? I have often found that what is considered bureaucratic is actually a time saver. I set up an on line system which required users to input onto forms, providing all sort of details. The form was a ball ache to complete and was called bureaucratic but it actually saved time in gathering data. The person filling in the form doesn't see the overall picture.

The ultimate answer is probably not welfare but a deep and profound revolution. But short of that I say welfare, and let those overpaid fuckers pay for the least well off.

Bob

"welfare state is paid for by taxes or deficits"

This particular lie needs to die soon. It is always paid for by creating the money which generates tax and savings for any positive tax rate.

Labour need to reframe the issue of government spending.

Instead of

'what are you going to cut to fund programme X/tax cut Y'

you can have:

'fund programme X/tax cut Y' - which will either pay for itself by expansion in the real economy (in which case inflation will stay steady and there will be no compensatory tax), or it won’t (in which case this tax will change.)

In other words the policy options switch from ‘pre-fund’ to ‘post-fund as required to maintain stable prices’. Taxation is no longer linked rigidly to the amount of government spending, but to the combination of government spending, net private sector nominal saving and the real expansion of the economy.

It is powerful for John McDonnell to be able to say:

“We intend to introduce a Job guarantee scheme funded by the state and we expect that the economy will be able to expand its output to absorb this extra spending.

However we reserve the right to increase Corporation Tax by up to 4% to compensate should it feed through to demand inflation.

Obviously we want to avoid that so over to you Mr Entrepreneurs to create the necessary economic expansion.”.

or

"McDonnell offers strict warning to commerce that I'd expect that to be paid for by increased production and investment, and that any price rises would trigger competition commission investigations and/or additional taxes on profits."

The level of competition considered ‘acceptable’ by regulators is too low. And that’s because of the ‘business confidence’ meme that scares them into inaction.

You can get to that by increasing the heat of competition. Breaking up firms, requiring them to be smaller and there to be many more of them in any particular marketplace.

The natural capitalist approach is to eliminate competition using a variety of techniques – from market niche to oligopoly. The state should spend a lot of its time ‘stirring the pot’ to prevent this happening. And the indication that the pot needs stirring is price rises of any magnitude in any market. That means encouraging and even funding competitors, forcing IP to be shared, etc to break the market power.

In a market with effective competition a business that increases output will out compete businesses that put up prices.
Companies like Whitbread and Wetherspoons use the brand identification trick to create a ‘monopoly of one’ arena. That is what brand management is all about – eliminating competition in the eye of the customer.

If you get firms that abuse the monopoly that brand gives, then they should be *subject to a competition investigation and broken up*. The threat of a break up should be sufficient to get the management of the company to consider investment and productivity improvements.

reason

"Loose monetary policy is the best simple answer for helping the least well -off by sort of punishing the most well off? "

You mean by making their massive mortgages cheaper?

An Alien Visitor

"welfare state is paid for by taxes or deficits"

When I pay for a Kentucky Fried Chicken this is paid for out of taxes, in that I have to pay for it out of my wages and by paying for it I have less to spend on other things. If I didn't spend my money on Kentucky I could give it to the NHS.

Bob

"When I pay for a Kentucky Fried Chicken this is paid for out of taxes"

It is not. All government spending works by creating money. Government accounts have an unlimited intraday overdraft with the Bank of England and they don't have to settle their accounts until the end of the day, and that is only due to a silly rule that requires the government to borrow back its own spending. really we should let interest rates fall to zero.

Similarly if you spend on a credit card at KFC. that's bank created money. the government just spends on its own credit card it issues itself.

See points 18-20 in the Treasury's memorandum in particular. And the diagram at the bottom showing *spending is disconnected from boorowing*:

http://www.publications.parliament.uk/pa/cm200102/cmselect/cmpubacc/349/349ap02.htm

All government spending is creating money and *drives down interest rates.* That's why they borrow back to retain the rate, or pay Interest on Reserves.

"If I didn't spend my money on Kentucky I could give it to the NHS."

When *anyone* buys at Kentucky Fried Chicken not only does the government get a percentage cashback (VAT), but when KFC pays its staff the government gets another percentage, and then when the staff buy beer at the pub the government takes another chunk. And so on, as long as there is no saving in the spending chain, until the initial government spending (or any spending) turns entirely into cashback.

An Alien Visitor

"When *anyone* buys at Kentucky Fried Chicken not only does the government get a percentage cashback (VAT), but when KFC pays its staff the government gets another percentage, and then when the staff buy beer at the pub the government takes another chunk"

But when the government pay a nurse they go to KFC and spend the wages and those KFC workers spend money on other private enterprises and ultimately private spend is cashback!

If I am paying from my wages for someone to be stood behind the counter of KFC then my money is not going to pay for a nurse to stand in a ward.

The distinction between public and private is not so black and white.

If we got rid of KFC tomorrow and put all its workers into the NHS this would be a good thing, right?

Anton

Welfare state is possible as long as you allow full automation which ultimately leads to even more wealth creation than the status quo. Then the welfare state becomes the simplest way of wealth distribution in the absence of a proper work/job market infrastructure. Why would we need savings then? If tech takes over the means of production (both capital and labour) what does an interest rate even mean? All this is possible from a tech point of view but unlikely from a societal point of view. We are not ready yet for this transition.

Bob

"If we got rid of KFC tomorrow and put all its workers into the NHS this would be a good thing, right?"

Yes, if you could do that. People are not as fungible as you think. As I said you have to think in terms of real resources. More likely we need to offer financial incentives to get people to train as nurses. And ban private healthcare.

Bob

"not going to pay for a nurse to stand in a ward."

It never does. The nurses are paid by creating money. Your tax doesn't "go" anywhere. It is destroyed.

Local government us of course a different matter.

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