We need to retake control of the economy

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Figures announced this week show a rise in the level of unemployment, with young people being particularly hard hit. The government has responded in the way that all governments do, by talking about ‘helping more people into work’ (often a euphemism for cutting benefit payments) and inventing more, sometimes dubious, apprenticeships as a back door way of subsidising employers. The opposition has responded in the way that all oppositions do, by blaming government policies, especially those relating to wages, tax and regulation. The assumption underlying both of those positions – even if it drives them to propose different solutions – is that rising unemployment is a cyclical problem, which will be resolved if only we can get that magical growth they keep talking about.

It’s possible that they’re right; but it’s also possible that they’re wrong. What if, rather than growth and innovation solving the issue, that same growth and innovation, powered perhaps by AI, compounds it? There is a certain complacency surrounding that question. In a sense, it’s entirely natural – history shows us that the initial response to innovation and increased productivity is a loss of some jobs, which is usually followed by the appearance of new jobs, sometimes of a type and nature which nobody had foreseen. Maybe the same will be true of AI, and it’s overly pessimistic to believe that the job losses will be more permanent and generalised than we’ve seen in the past. It’s clear that the workers likely to be displaced by AI will include those in more technical and high-paid jobs than previous rounds of innovation, but the fact that the nature of any resultant replacement jobs is not currently clear doesn’t mean that there won’t be any. But the statement that ‘there always have been’ in the past can’t be taken as a certainty for the future either.

One junior minister in the UK government has already suggested that part of the response to the growth of AI might be the introduction of some sort of Universal Basic Income (UBI), although even he seems to be talking abut it as a temporary response, allowing people to retrain for the jobs of the future, whatever they may be. And there’s no doubt that any sort of UBI would be enormously expensive: even an income set at the less than adequate level of Universal Credit would be likely to carry a price tag of some £200 billion per annum. But what is the alternative that those objecting to the cost would propose in a situation where most work is done by automatons or AI? Are those people who have been displaced to be treated as disposable, and left without food or shelter as a result, whilst those lucky enough to still have work continue to live as normal (and those who own the machines and the software continue to accumulate wealth well beyond their capacity to spend it)?

It’s a scenario which raises questions about what an economy is for. Forget ‘invisible hands’ and market spirits – an economy is a social construct, and it’s up to the society in which it operates to determine how it works, who benefits from economic activity, and by how much. If an economy cannot supply at least the basic needs of all the people in that society, than it’s not performing its social function. From that perspective, tax is not some burden placed unfairly on those who own the capital or provide the labour, it is merely the mechanism by which the outputs of economic activity are used for the benefit of all. It is, in its very essence, a mechanism for redistribution. For the last four or five decades, we’ve increasingly lost sight of that and allowed the economy to be captured by a few, and corrupted to serve only their interests. If the resulting gross inequality hasn’t been enough to force a rethink, perhaps the impact of AI will be.

Opposition fear aids government's ideologues

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Between the plans to end the furlough scheme and the proposal that banks should force into bankruptcy any company that is unable to repay its Covid-19 related loans, the estimate that there will be only 3 million unemployed in the UK by the end of the year looks like an increasingly optimistic scenario. The Chancellor is actually right to argue that the government cannot and should not protect all jobs for ever, and even right when he argues that some of the jobs where people have been furloughed no longer exist in any meaningful sense. We have zombie jobs in zombie companies, no doubt at all. What he does not know – and can’t know – is which jobs those are. Neither he nor anyone else can know with any degree of certainty which companies (and therefore jobs) will no longer be viable in a post-Covid world. What that means is that the actions he is taking (or in the case of refusing to extend furlough, not taking) will kill not only those companies which are no longer going to be viable, but many others which could potentially remain viable. Trying to force people back into work before the demand for the goods and services which they provide has recovered is another element of an overall policy which seems designed to maximise rather than minimise the numbers of jobs lost. His insistence that tax rises and/or spending cuts will be necessary because of the size of the deficit – an insistence based on dogma and ideology rather than economic necessity – will also add to the toll of jobs.

In that context, the suggestion gaining some support in Tory ranks that the pension age should be increased to 75 is the complete reverse of what is needed. What the economy needs is for demand to recover, and that means not only that the pandemic is seen to be under control, but also that people have both the confidence and the financial wherewithal to spend. Increasing the rate of bankruptcies and joblessness and delaying the pay out of pensions all have precisely the reverse effect. If, on the other hand, the state pension were to be doubled (which would bring it up from the bottom of the world’s developed economies and closer to the average) and the pension age reduced to 60 at the same time, the effects would be very different. Nobody would (or should) be forced to retire at 60, but many of those about to lose their jobs would then have the financial security to be able to make that choice if they wished. That would reduce the number of people seeking jobs (and therefore improve the chances that those looking for jobs might find them), and give more people the confidence to spend, thereby boosting demand and potentially creating more jobs.

It won’t happen, of course. Not because it can’t happen; the government could implement such a policy tomorrow if it wished to do so. One thing that the pandemic has demonstrated is that a government which enjoys a sufficient degree of monetary sovereignty can do almost anything up to the point at which its spending causes inflation. No, it won’t happen because too many politicians, from multiple parties, have invested too much effort and credibility over too long a period promoting the myth that deficits are inherently bad and that governments must balance the books, just like households. What that means is that the scale of the recession, the level of corporate bankruptcy, the numbers of unemployed people, and the level of relative poverty are all deliberate political choices being made by the UK government. Worse, they are being implicitly supported by the official opposition which lacks the courage or ability to point out the fallacy in the household analogy. Opposition politicians who are afraid to challenge because they fear the ‘how will you pay for it?’ question are almost as much to blame as those implementing the policies, because they are perpetuating a myth which serves only the wealthy and powerful.

Worrying about the wrong things

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Whilst they obviously differ in the fine detail and the timing, the plans by the four governments within the UK to ease the lockdown restrictions all nominally start from a common principle, which is that the rate of easing of restrictions, and which restrictions can be eased when, are determined by the prevalence and rate of spread of the virus at any one time. It’s a sensible approach and tailoring it around the margins for differing needs and priorities in the different areas is also eminently sensible. The big difference in approach, though, is that while three of the governments are working to the plans which they produced, the fourth – England – is not. Moving between levels when the conditions have not been met and releasing restrictions at level 4 which they previously said could only be removed at level 1 is not what the plan said. And whilst setting indicative dates based on current knowledge at any point in time is sensible, turning them into firm target dates which must be achieved regardless is reckless folly. Yet that is exactly what the English government is doing.

Why the PM is behaving in such an arbitrary fashion is an interesting question. Some of it, no doubt, stems from his belief that the state should not be restricting liberties in the first place, a principle which he has been reluctant to breach from the outset, even if breaching it is in the greater public interest. Some of it stems from his assessment of what might be popular even if that popularity might turn out to be short-lived if the result is an increasing death rate. Some of it probably results from his well-known lack of attention to detail, and apparent belief that events can be bent to his will, even if his will changes more or less daily. But a lot of it seems to be coming from his – or rather the Treasury’s – assessment of the economic impact.

That certainly was the burden of this article in the Times yesterday (paywall). The Treasury seem to be still clinging to the outdated and fundamentally flawed view of the national finances as being like a household where ‘debts’ have to be repaid, as well as a very isolationist view of the world in which borrowing by the UK government will somehow uniquely ‘spook the markets’ here, even whilst other governments the world over are doing exactly the same thing. They worry that the extra money being created by the government will somehow spark inflation, despite the fact that the bigger danger at present is deflation.

They are right, though, to worry about the level of unemployment which is about to hit us. Many of the jobs which have been furloughed are likely not to exist at all after the lockdown ends, and many other companies are likely to fail as they fail to adapt to the new post-pandemic environment. Some of the decisions being taken by government, however, are making that worse not better. Expecting companies which have barely been trading (or even not been trading at all) for months to be able to start paying wages and NI at a higher level in August will force many over the edge. And setting an arbitrary and universal date for that change without any certainty that the companies will be able to restart trading will add many more to the list of casualties. Unemployment is likely to rise to at least 5 million as a result, and some are predicting an even higher figure. In that context, one of the findings in the recent YouGov/ITV Welsh opinion poll (analysed here by Dafydd Trystan) really surprised me – apparently, 67% of people in Wales are not worried about their job as a result of the crisis and 60% are not worried about their finances. I wonder if they understand the direction in which the London government is taking us. And if we have mass unemployment, with huge numbers of people reduced to the income levels associated with Universal Credit, inflation is the last thing we should be worried about.

Earlier on in the crisis, whilst announcing some of his half-baked measures to ease the economic impact on companies and families (I can’t remember which of his budgets it was – there have been so many of them by now), the Chancellor said that this was not a time for ideology. Yet ideology is exactly what is driving the government – an ideology based on the utterly wrong-headed idea that the government ‘cannot afford’ to run a deficit on the scale required to tackle the problem, and an ideology which puts the interests of capital ahead of those of ordinary people. Because of the limited fiscal and economic powers of the Welsh government, the opportunity to do something different amounts to little more than tinkering around the edges, even if we had a government with sufficient determination to want to take a different approach. If we want to put people first in Wales, we first need to break free of the crazy ideologues running the UK.

The Minister for Silly Statements

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The cost of supporting salaries of staff furloughed is apparently higher than the government had expected; they may be surprised by that, although I and many others are not. Despite the obvious inadequacies of the scheme and the problems which the government has made for itself in introducing it, it has been a ‘success’ in the sense that most of the staff affected (almost a quarter of total UK employees) would probably have been made redundant otherwise, and any potential return to whatever will pass for normality in future would have been made very much harder. But the Chancellor is now making noises about winding the scheme down because of its steep cost.

I suppose it’s about par for the course with this government that they’d try and stop doing one of the few things which had been at least a partial success but in the course of an interview with ITV, Sunak managed to justify it with the brilliantly silly non-sequitur that “…as some scenarios have suggested we are potentially spending as much on the furlough scheme as we do on the NHS for example. Now clearly that is not a sustainable situation.” What exactly is it about expenditure on a scheme reaching the same level as the NHS which suddenly makes it ‘unsustainable’? What on earth makes him think that’s even a sensible comparison? The question to be asked is not ‘how does this expenditure compare with what we spend on other things?’ – that’s utterly irrelevant. The right questions to ask are whether it is achieving its objective and what the alternatives might be. The answer to the first is undoubtedly ‘yes’ (albeit a conditional ‘yes’ given some of the scheme’s failings). And the answer to the second is that around 23% of all employees would probably be made redundant and around 800,000 businesses would probably fold. Economic recovery would be postponed as a result.

From a purely economic point of view (ignoring the human hardships which would be caused) there is a certain type of rationality in comparing the cost of paying to keep staff and businesses afloat with the cost of allowing them to fail. Perhaps that’s the comparison that he’s actually making (it’s certainly the sort of attitude one might expect from a former banker used to monetising everything) but that has nothing to do with the cost of anything else. I can see why he might have balked at presenting it that way to the public but hiding behind vacuous statements isn’t exactly the best way to divert attention.

Economists and predictions

Tweet When the latest set of unemployment figures was published, government ministers rushed to claim all the credit for the improvement, whilst opposition politicians tried to find other avenues of attack.  It’s a sight we can expect on a monthly basis from now until the election in 2015 at least, although in any given month when the figures go the other way, the government will blame factors outside their control, whilst the opposition will shout “told you so”.

Will there really be months when the figures go the other way?  I’d bet on it; variation is a normal part of economic outcomes.  Hard and precise prediction, when it comes to economics, is a bit of a mug’s game.

I thought that one of the most revealing comments in the reporting of the latest figures was the almost throwaway comment on the BBC News that many economists were surprised by the figures.  I thought that deserved rather more attention than it got.

It could just be of course that the government figures for unemployment are actually no more reliable than those for hospital waiting lists or crime, both of which have been found to be, shall we say, “wanting” when it comes to the minor matter of accuracy.  It’s more likely though that it reveals an inconvenient fact about economic forecasting – that the term is an oxymoron.

If economic forecasts made by some economists turn out to be right, it’s more likely to be a result of the sheer number of people making predictions and the range of predictions being made, than of some economists being better than others.  It’s a bit like the hypothetical infinite number of monkeys and typewriters producing the complete works of Shakespeare.

Economics, like any other discipline dealing with human behaviour, is of its nature better at analysing the past than at predicting the future.  There are all sorts of reasons for that, not the least of which is that humans hearing any predictions can, and often do, change their behaviour as a result if they actually believe the predictions, thereby invalidating them.

But if there’s one thing that is less reliable than a prediction made by an economist, it’s a prediction made by a politician based on a prediction made by an economist.  It’s unlikely to stop them though…

Sharing out the work

Tweet Some of the big battles of the past between capital and labour were about working hours, as much as about pay.  These days, 37 hours or thereabouts is generally accepted as the standard length of a five-day working week.  But 40 was more usual when I started work, and I remember my father working a six-day week, which was still fairly normal in the 1950s.

As a general rule, reductions in the working week have been the result of demands from the workforce – conceded only reluctantly by employers – and have come about in periods of increasing affluence.

Periods of economic hardship can also lead to a reduction in hours, however.  One of the controversial proposals put forward by Rhondda Cynon Tâf Council recently was that new staff should be employed on 35 hour contracts, (with the salary amended to reflect that fact).  Were it not for the salary sting in the tail, one would generally expect such a proposal to be broadly welcomed by staff and unions alike.

It isn’t the only sting in the tail, though.  There are three ways in which reduced hours for employees can be “paid for”.  The first is by reducing the amount of work done; the second by is by employing more people to do the work; and the third is by increasing the productivity of those being employed – getting more work out of the same people.  And there are two ways of delivering the last of those three options – the first is through better tools and processes, and the second is by increasing the pressure on employees by simply demanding – insisting even – that they work harder and faster.  In recent years this has tended to be the default option, and it's no coincidence that the incidence of stress-related illness has increased.

As far as I have seen, the council did not spell out which option they were planning to use; my suspicion is that it is simply a question of following the default option – buying bigger whips.

Now there will be those, of course, who see local government as something of a cushy option – Max Boyce’s song about “keeping their billy cans brewing” comes to mind.  Perhaps there are still corners of local government somewhere where this is a true picture, but I doubt that they’re widespread.  In effect, the council is suggesting that it should behave just like the worst capitalist employers, who believe that bigger whips solve problems.

In principle however, we should welcome any moves to reduce working hours and allow people more leisure time.  And the best way of paying for it is my option two above – employing more people to do the work.   

Much of what passes for economic policy these days seems to assume that unemployment is both temporary and the fault of the unemployed themselves.  But what if it’s neither?

In that case we would have only two economic options – recognising that those choosing not to work are doing the rest of us a favour by reducing competition for jobs (and then rewarding them appropriately for their altruism), or sharing what work there is more fairly between those available to do it.  In theory, the reduced salaries which we’d all receive should be matched by reducing the taxes we pay for benefits for the altruists whose choice not to work would disappear.

Of course there are issues about whether people have the right skills, abilities and experience.  And of course there are questions about how we make sure that the benefit of reduced taxes goes to those whose wages are reduced rather than to the richest.  But these are, at root, practical problems to be overcome.

What’s wrong with sharing work more fairly and sharing the rewards of work more fairly as a consequence? It's surely preferable to accepting that some of us will never have the opportunity to make a meaningful contribution to the economic life of our country.

One swallow...

Tweet I can understand why Plaid's political opponents are making so much fuss about this month's rise in unemployment in Wales, given that a number of my colleagues were so quick to seize on the good figures for the previous two months.

It was, perhaps, a bit premature for people to read too much into one month's figures, or even two months' figures, and I held back from doing so. Not because I don't think that Re-Act and Pro-Act are good schemes, nor because I don't think that the One Wales Government is, on the whole, doing a good job during the recession. In fact, there's a general consensus that One Wales is doing pretty well, within the limited economic powers available to it, and Plaid can take some pride in the performance of Ieuan Wyn Jones on the issue.

But a recession, and the recovery from it, is a complex business. Progress will never be smooth and even, and we should expect bad months as well as good ones. Those seizing on one month's bad figures as are misguided as those seizing on one month's good figures. The real test is in overall performance, and how well Wales fares over the whole period compared to the rest of the UK.

On that score, so far, One Wales seems to me to be successfully tackling the issue.

Jobs and Benefits

Tweet It is hard to argue with the basic premise behind Labour's proposed changes to the benefit system for the unemployed, namely that it was never the intention of the architects of our system of benefits that people should be able to choose to live on benefits rather than to work. And that remains as true today as ever. But it doesn't mean that the proposed reforms are right or fair, or even that they address the basic point.

I think that there would be almost universal agreement that there should be a proper system of decent benefits for those who are unable to work, and one aspect of the proposed changes which I welcome is the increase in the level of benefits for those in greatest need. I think that there is probably also agreement across the spectrum that it is right and proper for the government to be actively encouraging those who can work to seek and find employment, and even to make it clear that 'choosing' to stay on benefits is not an option. Although the tabloids significantly overplay this aspect, I think we all know that there are a minority of people who just don't want to work, and are happy to live on the benefits paid for by the rest of us.

Having said all that, I am deeply unhappy with some aspects of the proposed changes. It seems to me that, on the back of an attempt to be seen to be tackling the workshy, the government are in danger of transferring the blame for unemployment entirely onto the backs of the unemployed themselves.

I have some direct experience of the unemployment benefits system. A few years ago, after being gainfully employed continuously for over 30 years, I was made redundant, and looking for a new job. I found the so-called Jobcentres less than helpful. They weren't in the least interested in what experience I had or whether any job was relevant or suitable; only in why I hadn't applied for any and every vacancy advertised in the Jobcentre. It was clear that they were target-driven - and that their targets were more to do with reducing benefits paid than with matching people to jobs.

There is a valid question to be raised, of course, as to what extent people receiving benefits should be allowed to pick and choose which jobs they do – and I'm well aware that there are some who will find the flimsiest reason for rejecting any and every job. But surely we should at least make some sort of effort to put round pegs into round holes, rather than drawing a simplistic straight line between an unemployed person and a vacancy?

The idea that people should be forced to do 'useful community work' to earn their benefits sounds oh so logical; but it leaves me more than a little uncomfortable, especially since it seems that the government is planning to contract this aspect out and allow private companies to make a profit from this unpaid work. If this is work that needs to be done, why not call it a job and pay a wage, rather than paying private companies to manage people doing what looks like some sort of 'compulsory voluntary work'?

Another specific proposal which leaves me cold is the idea that lone parents should be forced back to work when their children reach the age of seven. Given all the government emphasis on the issues arising from alienated youth, is this really a sensible thing to be doing at so young an age?

So, should the government do nothing at all? No, of course not – but I think that there are other things that could and should be looked at.

We could end the scandal by which unscrupulous employers hide behind 'agencies' who supply them with workers, usually from overseas, who, when their 'rent', 'fees' and other charges are deducted, end up working for less than the minimum wage. For all the government denials, I have no doubt that, as well as exploiting the 'agency' staff, this has directly reduced the number of jobs available to local people in a number of areas.

Let's look at the reasons which keep those who want to work out of work – lack of availability of jobs, mismatch between skills and jobs, poor public transport to get them there and back, wages which, after paying for transport (and possibly childcare), leave them worse off than they are on benefits.

And we could implement the 'living wage' concept which Plaid have argued for in the past, rather than depending on the minimum wage legislation.

I accept that we need to change the culture of benefit-dependency into which some have fallen. It was a mistake for the government, a few years ago, to actively encourage people onto Incapacity Benefit, sometimes needlessly, in order to 'hide' them from the unemployment figures. Stigmatising all those who are out of work – including those on Incapacity Benefit – by implying that they are all workshy may buy a few headlines in the Daily Mail, but it doesn't solve the deep problems faced in some of our communities.