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Yves here. This question of the effectiveness of the welfare state hit the headlines in the UK with a former Tory MP asserting that the UK will not be able to afford it in 20 years. Richard Murphy below explains how that is false, even assuming a non-economic scenario. However, the weee problem is that employers expect their income to grow, which means an increasing rate of skim. So what might happen and what might happen are two different places.
By Richard Murphy, part-time Professor of Accounting Practice at Sheffield University Management School, director of the Corporate Accountability Network, member of Finance for the Future LLP, and director of Tax Research LLP. Originally published on Fund the Future
Summary
In today’s video, I criticize Steve Baker’s claim that the UK will not be able to afford a welfare state in twenty years. I argue that this assumption ignores the economic growth, migration, and demographic changes that may underpin the welfare system. I also object to Baker’s suggestion that the claims of the wealthy will dominate demands for state services. Instead I suggest that a balanced society can be maintained. Baker’s claim about the sustainability of the welfare state is unfounded, but what is important is that the misleading narrative is addressed, head on.
In this morning’s video I note that Steve Baker – until recently a Tory MP – said that in twenty years – when we will be celebrating the centenary of welfare – we will no longer be able to afford it. Are you right, or are you talking nonsense, as usual?
The audio version is here:
This is the text:
Can we afford a welfare state?
I ask this question because I watched a TV interview recently where Steve Baker, who was recently a Tory MP, asked the same question. And he said that in about 20 years, or about a hundred years from the establishment of the welfare state, we will no longer be able to afford it.
I thought about what he said, and it didn’t make sense to me. So, I want to discuss the question of whether we think we will be able to afford a welfare state in the future when we will obviously have been able to do so for a century when he predicted that we would have to give up?
What are his views? However, the first is about the growth rate between now and 20 years. He did not specify that thought, but there are three options.
Another could be that the economy will grow. In other words, we will be richer as a country than now. And we are already, let’s be clear about this, a rich country.
Or, we could be at the same level of income as we are now. Which still leaves us as a rich country.
Although we may see our income go down, there is no evidence based on past precedent that this is likely to happen yet. And I don’t think it’s very likely, regardless of the challenges we face, because even though we need to go through a green transition I actually believe that would create more economy, not less.
So, let me take a neutral version of those ideas and imagine that we are not much richer in 20 years than we are now, but we are also not much poorer.
So what will change, between now and 20 years, that will give him the right to say we can’t afford a welfare state?
Well, the obvious fact is that I will look much older than I am now. And I won’t be alone. So will you. But in reality, as a proportion of the population, many people will look older than they do now. Because we have, not assuming that there is no change, due to migration, the elderly population of the UK. And the ratio of people at work to dependents will change so, each person at work will have to support more dependents.
Is that going to happen, so it’s one of the ideas that Steve Baker has to ask himself to come up with this claim that we can’t afford the welfare state. It is obvious that he concluded that if we think that we have equal income, we will not be able to allocate more money to those who are dependent than we will do to those who are in work and therefore those people in work will not be able, or will not be willing, to support those who are dependent.
But, note that I have assumed that the net income of the country is stable. If fewer people work to build that stable income, they will all be better off if they don’t fear any more money than their current income because there is less of it for those who depend on them. So, he’s basically saying that we can’t afford a welfare state because people won’t be willing to support the elderly.
It’s an interesting idea. Maybe Steve thinks that’s the way a charity will work. Or rather, it will all be up to us to take care of our elderly relatives. And it’s hard, if you don’t have someone who wants to do so. I don’t know what his reasoning was, but I don’t see why he thinks that this stable situation with few working people should benefit those who work hard but leave those who depend on them in poverty.
There’s another thought that Steve made I think, and he didn’t specify any of these things, so I’m trying to find the basis for his claim that the state can’t be a mediator in this transaction. which withdraws a lot of money from people who are already at work and then pays the dependents because it will have other requests from the money it receives.
What is that other claim? I am sure, on the basis of that he does not think that the other claim will be the payment of interest on government borrowing, which he thinks is out of control. So in other words, what he is saying is, unfortunately those who need government support, the rich need money. That’s the thought he makes. The government will have to pay a lot of money to the owners of government debt, which you think will increase in an unreasonable way, with the result of an increase in the rate of interest paid as well as the costs that will be paid to them, so that there will be nothing left for them to provide. people who need community support.
In other words, he says that in 20 years, our society will be so unequal that the rich will want everything and there will be nothing left to support the wealthy.
Is that a reasonable idea?
Is that how it happened?
Can we do anything to prevent that from happening?
See, of course we could. Steve Baker’s reasoning is quite absurd.
First of all, there are likely to be significant changes in the structure of our society in the next few years. We are seeing significant inward migration to the UK at the moment. And really, we should be celebrating that fact.
Why? Because the people who come are usually young, they tend to be well educated, they tend to be very enthusiastic, they tend to create new things, even businesses. They want to join our staff. That is why they want to come here, in general, to provide a better way of life for themselves, especially, and their families.
And they will have people who will add staff to ensure that there will be enough people to look after the elderly. I have no doubt that this trend will continue. First because, unfortunately, we cannot stop wars around the world, it seems, right now. Second, because climate change will force many people to become refugees, because there will be large parts of the world, some even in southern Europe, where people’s lives will be very difficult. So they will be looking for another place to go and we are one of the possible places.
Our benefit, their cost, their need to migrate, but we will benefit because we will have the people we need to rebalance the working economy we have, which requires enough people to be in work to support our dependents.
Then, let’s look at some ideas. Will we let the debt get too high? No, of course not. Why can’t we? Because there’s no need to, in the sense that if that becomes a part of life, we’re just going to do what Japan has done and the government buys back large portions of the existing debt through a devaluation process to ensure that the government keeps the amount of debt in private hands under control of the amount that can be found as a safe haven, which is what the national debt is. in any case.
As a result, it would be able to control the interest rate, and if it could take over the Bank of England, it would have total control over that interest rate at the same time.
As for the payments to be paid for the reduction of capacity, it can cancel those in terms of net. It pays for itself, so this idea that the debt will end is another, let’s face it, stupid idea put forth by Steve Baker.
So is it possible that his statement that as a wealthy society we cannot afford to feed the elderly and other dependents is true?
No, you are talking nonsense.
What he is saying is that his assumption of a stable society without population growth and increasing incomes for those who work and increasing rewards for those who are rich will produce this result.
All those thoughts he makes are wrong. Therefore, his conclusions are wrong.
So, do we need to worry about not being able to afford our welfare state? No.
We can afford it.
We will pay for it.
There will be a pension for the elderly.
There will be support for those who need it.
There will be government, and it will provide services, including education and the NHS and everything else, but only if we stop people like Steve Baker from talking nonsense and being in government.
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