Benefits for capitalists

A recent Yougov poll found that most people think that people out of work should not be able to afford smartphones, takeaways, visits to the pub or pets. This is not just evidence of their mean-spiritedness, but also of their anti-capitalist attitudes.

I say so because of a basic economic idea - the circular flow of income. Out-of-work benefits are not so much payments to people as payments through them. They are payments to Greggs, Primark and Aldi and other places where recipients spend their money. Just as there's tax incidence, so too is there benefit incidence. The beneficiaries of benefits are those capitalists and employees who sell to the unemployed.

In this way, benefits serve several useful functions.

One is that they help to stabilize demand and cushion us from recessions. Monetary and fiscal policy cannot do this simply because, as Prakash Loungani has shown, recessions are unpredictable. The best such policies can do is hasten the recovery. To moderate the downturn we need automatic stabilizers of which out-of-work benefits are one. This matters, because stability tends to boost investment, as Nick Bloom has shown.

Secondly, such benefits subsidize and hence facilitate the creative destruction which is necessary for higher productivity. When benefits are mean we see more violent opposition to redundancy plans; less geographical mobility because people want to stay close to family and friends who could support them in hard times; and people being loath to move into potentially good but insecure jobs. In all these ways, out-of-work benefits help increase labour mobility.

To see a third benefit, imagine out-of-work benefits were increased. Recipients would probably not spend much of the extra on gas and electricity, but would do so on little treats - better food, a night out and suchlike. More spending on "luxuries" would therefore help increase the size of the competitive sector of the economy relative to the monopoly sector. It would support entrepreneurs against rentiers. That's good not only for allocational efficiency but also for dynamism and growth.

And for something else - the legitimacy of capitalism itself. An economy dominated by rentiers and monopolists is one that will struggle to justify its existence. One that can plausibly claim to give people what they want at reasonable prices has less difficulty.

In all these ways, intelligent capitalists favour reasonable out-of-work benefits. It's no accident that, in many countries, they were introduced not by leftist governments but by pro-capitalist ones.

Of course, against all these advantages must be weighed two potential drawbacks.

One is that when we are near full employment such benefits must be paid for by taxes or cuts in other parts of government spending, and those taxes would curb demand for the outputs of the competitive sector.

I'm not sure this is a grave problem though. If instead benefits were paid from a clampdown on procurement and subcontracting costs, the competitive sector would benefit relative to the extractive rentier sector. You might not like Tim Martin's politics, but a healthy economy has more Wetherspoons and less Capita.

A second possible drawback is that higher out-of-work benefits could reduce work incentives. This, however, is not a knock-down argument. For one thing, we could get people into work by making them fit to do so, for example by reducing NHS waiting lists. For another, work incentives are about the gap between out-of-work and in-work incomes. If both of these rise so that the latter remain well above the former, work incentives remain strong. And for another, a tight labour market should be a good thing as they encourage firms to economize on the use of labour by investing or improving working practices.

My point here is that you don't need to be a bleeding heart lefty to favour decent benefits for the unemployed. In fact, they are in the interests of capitalists (and people in work) themselves.

Which poses the question: why then, as that Yougov survey showed, is there such hostility to them?

One answer is overconfidence; people in work don't expect to lose their jobs, and so regard out-of-work benefits as payments to others rather than as insurance for themselves.

Another answer, I suspect, lies in reference group theory. We compare ourselves (pdf) to those around us, so many people on low incomes resent benefit claimants more than rich bosses - a resentment reinforced by our tendency to hate being thought of as mugs.

Whilst these might help explain popular antipathy to benefits it doesn't explain the Tories' hostility. Instead, this lies in a nasty fact, that there's something the right loves more than capitalism, and certainly more than free markets - hierarchy and inequality. As Corey Robin wrote:

The conservative defends particular orders – hierarchical, often private regimes of rule – on the assumption, in part, that hierarchy is order. (The Reactionary Mind, p24)

Decent welfare benefits undermine hierarchy. And for many on the right, defending inequality is more important than promoting well-functioning market capitalism.

Comments

[P BAKER]

Why the hostility?

Quite simple really, every failing govt needs scapegoats to blame and who better than the poor, who can’t fight back?

With such a biased press and now unrestricted opportunities through social media, it’s easy to generate a climate of mistrust and fear.

[rsm]

Is a strong basic income a less hierarchical way of prioritizing need?

Does yield curve control relax deficit constraints, as indexation relaxes inflation constraints?

Does it upset you that unemployed ppl such as myself spend some benefits on free-lunch win-win options spread trades instead of buying real widgets?

[ltr]

Why the hostility?

Quite simple really, every failing govt needs scapegoats to blame and who better than the poor, who can’t fight back?

[ Really, really discouraging. This essay makes me very sad and fearful for the lack of social empathy. ]

[Blissex]

Our blogger seems to me to continue to be fond that the right-wingers are stupid and don't even know their true interests ("false class consciousness" :->), even if they have been winning big time since Thatcher.

«a tight labour market should be a good thing as they encourage firms to economize on the use of labour»

Politics is really not that complicated, mostly it hinges on two simple questions:

* Should a worker take 6 months to find a job or a boss should take 6 months to fill a vacancy?

* Should a tenant/buyer take 6 months to find a place, or a landlord/seller take 6 months to find a tenant/buyer?

Put another way, are you for lower wage costs and higher asset incomes or vice-versa?

«by investing or improving working practices»

From the point of view of right-wingers investing in productivity is expensive in capital and executive time, plus the investments become hostages to the labour unions. Also in the UK it is far more profitable and secure to invest in trading property and financial assets than in organising production.

[Blissex]

æwho better than the poor, who can’t fight back?»

That's the basis of property-based upwards redistribution: it redistributes from the lower to the middle and upper classes, and the lower classes have little power to oppose it, while tax-based redistribution from the upper to the middle and lower classes gets a lot of push-back from the upper classes, that have lots of power.

[Mike Woodhouse]

The Mail & Express (in particular) seem to be driven by a pathological terror that somebody somewhere might just possibly be Getting Away With Something to which they might not be entitled. Everybody in receipt of "handouts" is potentially Getting Away With Something and to prevent any possibility of somebody GAWS nobody should be given anything. That way, everybody wins and order is restored.

[Jan Wiklund]

Blissex August 13, 2023 at 07:57 PM: It seems that you didn't read Chris' conclusion – that the rich don't care about functioning capitalism, but only about keeping the hierarchies intact.

[Blissex]

«Chris' conclusion – that the rich don't care about functioning capitalism, but only about keeping the hierarchies intact.»

But his argument to me seems to be that ("for many on the right, defending inequality is more important than promoting well-functioning market capitalism") is stupidly pigheaded, because they care more about their evil desire to boss over other people than their material interests.

The tell is the approving reference to Corey Robin's "The reactionary mind" whose main ultra-whig ("woke") thesis is that "the right" is defined by reaction against emancipation from hierarchy because it is made of evil (white, male) people who just enjoy discriminating and abusing women, gays, coloreds, etc. through hierarchy; so it is not a class based material interest group.

The historic role of Corey Robin has been to try to find a "whig" theory for "woke neoliberalism" to replace the "marxist" theory of economic exploitation and alienation.

But the story of the past 40 years is quite different from that: "the right" have become "woke" at the same time as they have achieved a well functioning capitalism, well functioning in that it has redistributed to the upper and upper-middle classes hundreds of billions a year from the lower classes (including "reactionary" white working class men) through massive government intervention in the markets.

[Blissex]

«Everybody in receipt of "handouts" is potentially Getting Away With Something and to prevent any possibility of somebody GAWS nobody should be given anything.»

Unless that "everybody" is home owners, and people working in finance and real estate, in which case as David Cameron said "Money is no object". See recent articles about protecting "decent, deserving" property owners from a fall in property prices, or that after 2008 about protecting "decent, hardworking" finance people from a fall in the markets, which was earnestly and powerfully advocated by ultra-neoliberal "The Economist":

http://www.economist.com/node/21542417
«Britain will one day wake up to discover that it has lost one of the world's most successful business clusters, and the best hope the next generation has of earning a decent living»

It is only the "lazy, uppity, overpaid" lower classes that are "scroungers".

[aragon]

This is the David Cameron of Greensill fame who wanted factoring of NHS wages?

https://www.telegraph.co.uk/business/2023/04/04/ireland-vulnerable-world-shadow-banking-system/

"There are worries about insidious practices within the $1.2 trillion US debt private debt market, where players "mark-to-myth" whole portfolios by arranging bilateral trades with each other to overvalue each leg of the transaction. "You overpay for my rubbish and I’ll overpay for yours," [Professor Philip Turner] he said."

Anyone can make a profit when they make up their own asset prices.

Speaking of the NHS, it seems Tony is in bed with Oracle, so the lack of funds, plus the (less than) steller track record and Palantir's ambitions, the last of the UK silver looks interesting.

A new America's cup Yacht might have to wait Larry?

www.palantir.com

"Palantir Ranked No. 1 in Worldwide Artificial Intelligence Software Study in Market Share and Revenue"

I must read more adult fantasy.

[aragon]

Greensill and Credit Suisse are no more.

https://en.wikipedia.org/wiki/Greensill_Capital

"In 2018, former British Prime Minister David Cameron became an advisor to Greensill. While his position was unpaid, he was given shares that could have been worth £70 million in the case of an initial public offering. According to news sources, Cameron lobbied members of the British government on behalf of Greensill."

"On 14 June 2020, the Financial Times reported that Softbank had invested more than $500 million into Credit Suisse investment funds that financed Greensill's activities. Greensill, in turn, provided supply-chain financing to various companies backed by Softbank, in what reporters called a "circular flow of funding". The funds' exposure to Softbank-backed companies amounted to 15% of its assets, according to marketing documents. In addition, the funds' investments has been solely sourced to Greensill, which was itself backed by Softbank."

Round and round we go...

[Blissex]

David Cameron:

https://www.bbc.co.uk/news/uk-26131515
«UK floods: PM says money 'no object' in relief effort»

https://twitter.com/chakrabortty/status/942373687168249857
«So the old Etonian married to the daughter of a Baronet now appears to be fronting a private equity fund full of Chinese state-capitalist money. Truly, 21st century Britain is Anthony Trollope's daydream.»

https://www.bloomberg.com/news/features/2018-03-01/britain-s-white-collar-cops-are-getting-too-good-at-their-job
«Early in the Q&A portion, Green signaled for a microphone and asked a deceptively straightforward question: What did Cameron think of the anticorruption work of the SFO — an agency set up precisely to investigate and prosecute high-level corporate crime?
Cameron, a genteel Etonian with more than his share of the erudition required for high office in the U.K., was somehow tongue-tied.
“The SFO, yes, I do support its work,” he stammered, pausing for several seconds. But there seemed to be a but, and Cameron began to hedge. “As prime minister, you do feel a responsibility for wanting British business to get out there and win orders and succeed,” he said, adding, “so sometimes there are frustrations and worries and concerns.”
To anyone unversed in the folkways of official Britain, the Green-Cameron exchange would seem strange. It’s hard to imagine a U.S. president, Donald Trump aside, being asked if he supported the FBI — let alone responding that it ought to think about the commercial damage when it goes after suspected criminals.»

[rsm]

What if Keynes's economist-as-dentist means that if my wallet is hurting I go to a money manager to make it better, and are options markets with defined-risk trades the best way to do that, and do proposals of imposing regulatory fees on finance miss the point that finance can be one of the best ways out, certainly better than getting some BS job doing handiwork for the rich?