The West will inflate its way out of recession – and punish the poor

Attention on the latest strong offering from the Joseph Rowntree Foundation (JRF) was on its suggestion that the majority of people who are in poverty are in work. Anti-poverty organisations like to seize upon this suggestion as evidence that the current welfare reform agenda is wrong-headed, because its focus on getting people into work may not necessarily get them out of poverty. It is not the welfare reform agenda which is wrong-headed – it is the economic agenda being adhered to right across the Western World.

What is noticeable about the JRF figures is not that benefits payments (either before or after reform) appear low – they don’t; it is that the amount of money required merely to support ourselves appears incredibly high – the notion that £18,400 a year is only a living wage for parents is frightening. Conventional thinking on economic policy is causing this – and it is this, not the thinking around welfare reform, which must be challenged and changed.

Let us first of all dismiss the idea that a welfare reform agenda focused on getting people into work is wrong-headed. It may well be true that the majority of people experiencing relative poverty are in work; however, it is equally true that 99% of those out of work experience poverty. So yes, if you have work it does not guarantee you will not still be in poverty; but if you are out of work, it guarantees you will be. Making work central to welfare reform is necessary for various other reasons too – work is a means creating social networks which provide a route out of social exclusion; work is a means of enhancing self-esteem; work is a means of building a career, which may ultimately result in creating work for others (whereas no one out of work can do so); and so on. My own research on the subject showed that very few people do not want to work. In fact, most people will seek work given fair early years services, fair educational provision, and fair public service provision (e.g. child care). It is also entirely reasonable to ensure work pays – very often, under the current system, a parent reliant on housing support actually loses out financially by taking part-time work – the classic poverty trap, as it disables them from starting a career and thus moving towards not just financial stability but also social inclusion. To be clear, therefore, a welfare system focused on support and encouragement for people to find and get to work is an improvement on the current one.

Fundamentally, the poor are going to be punished not as a result of the welfare system, but as a result of inflation. The Western World has two basic options at this juncture: it can face up to the reality that spending (government, business and personal) has become ludicrously inefficient and reduce it by making reasonable decisions about what spending is or is not efficient; or it can inflate its way out, leaving current levels of spending as they are but increasing the cost of living so that the money spent cannot buy as much as it previously did. This is not a matter of left or right; it is a matter of doing the responsible thing or doing the easy thing. Sadly but predictably, we have opted for the latter.

How do we judge “efficiency”? The book Why England Lose explains that the correlation between a Premier League club’s spending on player wages and its final league position is high, at 92% – in other words, money spent on player wages, even if outrageously high to most of us, is efficient; on the other hand, the correlation between a Premier League club’s spending on transfers and its final league position is low, at just 17% – in other words, money spent on buying players is incredibly inefficient. Clubs do the latter because fans want them to – any club losing three games in a row faces instant demands for a new striker or winger. Yet there is little evidence that meeting these demands will do any good; in fact, if anything, they should be demanding higher wages…

Contrary to popular belief, politicians, like football managers, are only human. Faced by demands for big or new spending on things which are perceived to be easy solutions but are in fact wildly inefficient, they are inclined to yield – only the very best politicians (and football managers) don’t. Therefore, as a society right across the Western world, we have failed to enter into a debate about where spending is absolutely necessary on one hand, and where it could reasonably be reduced on the other. Football managers continue to throw money on transfer fees when it would probably be more efficiently spent on player wages; politicians continue to throw money at large hospitals where it would probably be more efficiently spent on local health centres; people continue to throw money at television subscriptions where it would probably be more efficiently spent on books. Football managers buy players they don’t need just because they are out of contract; politicians build roads where they are not required just because the land is available; people buy food they then throw away just because it is on special offer.

Thus, we will simply allow the price of things to rise while keeping spending where it is. This would be fine, if there were no penalty. But there is – and the outrageous thing is that penalty will be paid by the poorest. The consequence of “inflating our way out” of the problem is that politicians will get away relatively unharmed because they are perceived to have maintained wages and benefits at their current levels; yet those wages and benefits will not go as far as they once did. Those already up the career ladder will be able to find ways to earn more money to make up at least part of the difference; but those on fixed incomes, typically the poorest, will not.

It is outrageous that we are meekly letting this happen, rather than seek to deliver more efficient spending programmes at all levels – in government, in business, even in private households. Collectively, we are punishing the poor – and worst of all, through focusing on false arguments about welfare reform and public spending levels, we are pretending otherwise.

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2 thoughts on “The West will inflate its way out of recession – and punish the poor

  1. I think we even need to question the feasibility of inflating the way out of a recession. We have the greatest friction in our labour market

  2. harryaswell says:

    It has always been so…………….! – “Anyone” earning less than £12000pa IS in poverty, no matter where their money comes from. You are indeed correct, inflation is the main cause. Huge increases in power costs, (mostly due to the putting up of senseless, non-cost-effective wind turbines and the financing of these being passed on directly to the consumer), huge increases in the costs of food, of rates, of living expenses generally. Until our governments get their heads around this we will ALL be in poverty forever more. The problem is not aided by our Banks, who continue to rob us blind at every opportunity and refuse to lend except on totally unacceptable terms. The sooner we see sense and stop funding rediculous,sic., “green” policies and come back to earth, the better. Nuclear power, using modern plant can only be the sensible answer. One nuclear generator in Northern Ireland and we could be selling power to our friendly neighbour! Will we do it? Will we ever consider doing it? No, of course not! Far to many persons who should know better with their hands in the till, or more interested in vote gathering.

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