Hmm

There are very few things in life that are more straightforward than the economics of paying benefits to those who need them.

I’d argue there’s a lot of things that are far more basic and challenged by the Left.

The simple, straightforward, obvious fact that should be known to every politician in this country is that paying benefits can, and often does, pay for itself. The reason is simple.

Which suggests a possibility that by reducing taxation so that low paid people don’t have to pay it you might reduce the inefficiency of having administration that is in effect handing benefits out on one hand and collecting indirect tax on purchases with another?

Almost no benefits are paid to anyone with a high income. The majority of benefits are paid to people on very low incomes. And, what should be glaringly obvious to anyone who thinks for a moment about people on very low incomes is that they will spend almost every single penny they get on meeting their essential needs in life.

Season tickets for Newcastle United or Liverpool? A Sky subscription? The latest mobile phone?

Understanding this really matters. If you listen to the average right-wing politician, you would think that every penny given to a person on benefits is money wasted. Nothing could be further from the truth. Money spent providing people on very low incomes with benefits does, in fact, enhance the wealth of the UK, and most especially, the wealth of the wealthiest in the UK.

I think he’s aiming for the most straw men is a single paragraph.

That needs some explanation, because it is countercultural to make such a claim, and yet it is obviously true. If a person on benefits spends all the income that they get, it is not wasted, but it does, instead, become the income of someone else.

Not sure of the relevance of this to the price of fish but let’s for the moment assume this assumption had some validity.

That someone else might be a carer, paid to provide them with support.

How many people on benefits are charged the price of care??

Or, it might be a supermarket that sells them their basic household needs.

Evil capitalist enterprises getting benefits is a good thing?

Alternatively, it is an energy company, a landlord, or anyone else to whom they have to pay their bills.

The key point is that their spending is someone else’s income. So, if you cut the income of those on benefits, you inevitably cut the incomes of all those people who enjoy the consequences of people on benefits spending whatever it is that they are paid.

So by that logic the entire country should be put onto benefits? Everyone? Is this some kind of plug for UBI?

In fact, this virtuous cycle created by the benefits people receive being spent back into the economy does not just happen once, but it can happen many times. Economists describe this as the multiplier effect. This also needs explanation.

This should be good

Let’s presume that the recipient of a benefit spends it all at a supermarket. Of course, that is not the end of the story. The supermarket will pay over VAT, and potentially corporation tax, as a consequence of receiving the income from the personal benefits. The government gets an immediate cut from the spending of those on benefits, in other words.

But then, the supermarket also pays staff, and as a result, income tax and national insurance are paid. The government gets another cut in that case.

Sounds eerily like Carousel fraud. If the government retains the money rather than paying out benefits it gets to keep 100% of the money.

Another part of the sum spent at the supermarket also goes to the suppliers of goods to that shop. VAT is also paid on that, and of course, the supplier might also pay corporation tax, business rates, and their staff, with yet more income tax and national insurance going as a result to the government.

The government spends £1.2 trillion – usually very badly and it needs more?

But let’s be clear, although tax is paid, everyone will have money left over after those liabilities are settled, and since the bottom 70% of households in the UK have remarkably few savings, this means that most recipients of most wages will also recycle almost all the net income they get back into the economy, meaning that this whole cycle then begins again, with more tax being paid every time the cycle happens.

In fact, the cycle would almost inevitably continue until all sums spent into the economy as benefits were returned to the government as taxes paid, unless it is interrupted, which it is when someone saves the money that they receive. Then, and only then, will the tax payment cycle come to an end. And, ironically, it is the savings of the wealthy that actually prevent the government from collecting as much back by way of tax paid as it might have done by paying benefits in the first place.

The envy oozes from every pore here as Gamecock, Grist and so many others have noted. Because he has failed to save, angling for a parliamentary position in the Lords or some other government sinecure which he hasn’t been able to achieve, anyone who has more than him is ‘undeserving’ of it

If you believe in neoliberal economics, you also, inevitably, believe in what is called trickle-down economics. This theory suggests that if only the wealthy are allowed to accumulate more wealth without limit (in other words, without taxation interfering in that process), their additional wealth will eventually trickle down through the economy, benefiting everyone.

As Tim says – I don’t either. It was fashionable to believe a variant of that in the 1980s but due in large part to oligopolies facilitated by government intervention in the economy. I doubt anyone seriously believes in those theories any more. Another egregious straw man.

In fact, the exact opposite is true. As my example shows, paying benefits into the economy creates a benefit for everyone, which can deliver growth, help balance the government books, and improve well-being right through the economic cycle, except for the fact that the wealthy, who can afford not to spend, prevent this happening to the maximum extent precisely because they do not need to spend all their income, and so save some instead. They do, as a result, stop the virtuous spending out of income from benefits that otherwise happen.

It sounds as though the end point of this logic is there should be a private savings ratio of zero and complete state dependency. It’s good that he is so overt about his desire to confiscate all private resouces I suppose.

There is, however, another important point to draw out of this. Because it is the savings of the wealthy that halt the economic growth that results from benefit payments, they ultimately become the beneficiaries of these payments. In that case, there is no such thing as trickle-down. There is only a case of wealth flooding-up.

If this is the standard of his ‘neoliberal’ video series it might be worth watching it for comedy value alone

That is why we need additional taxes on wealth. With them, we would reduce the amount that the wealthy save, and release more funds into the economy via higher benefit payments, which would improve income and wealth for everyone, including the wealthy, if only they really understood how the economy works.

I think they do understand how the economy works. Pretty much in the exact opposite of the fashion you proclaim with such unmerited confidence

It is the economic ignorance and unenlightened greed of those who promote neoliberal economics that is, then, preventing us from having the benefit system that we need, and also preventing us from having the economy we desire.

It is the economic ignorance of people who believe that having an economy consisting entirely of benefit claimants is one ‘we all desire’ that is causing such long term harm to the country as a whole.

only the wealthy are allowed to accumulate more wealth ………… their additional wealth will eventually trickle down through the economy

It’s an obviously flawed argument as if “only” the wealthy are allowed to accumulate wealth then by definition that trickle down can’t happen as it would result in the less wealthy accumulating wealth.

Everybody is allowed to accumulate wealth. That’s how society has grown richer over time. All but a very very few poor people in the UK enjoy a lifestyle that would have been considered lavish just 200 years ago.

This is well demonstrated with life expectancy which in 1824 England was about 40 years, rising to 46 if the baby managed to survive its first year. That life expectancy was of course an average with the wealthy often living much longer than the poor with 50 and even 60 not being uncommon. The longer average lives we now enjoy is “wealth” that has trickled down and been accumulated by society as a whole, not just the wealthy.

Its the basic splitting up the pie vs growing the pie misconception.

Spud assumes that ‘the wealthy’ get so by climbing on the backs of the ‘the poor’ and its all a zero sum game. And thus any wealth that trickles down cannot replace that already ‘stolen’.

Whereas a sensible person realises that the wealthy get wealthy by creating something that gives far more to society in consumer surplus than they ever manage to retain for themselves. Thus everyone wins from their efforts.

Its an easy misconception to make when you’re an envious, spiteful, grasping and lazy sort of person. Your failure to get on in life must be someone else’s fault, never your own, heaven forbid.

OT for Timmy: More Scandium Magic – Sc makes lower temp fuel cells more practicable (if they can successfully productise it of course). However I doubt it will magically make hydrogen practicable as a fuel – all sorts of other drawbacks. Probably useful in niche areas.