...because nearly all the metrics and reportage are designed not to show the number of people helped, but to report the smallest possible number of successful claimants...
Ay, this is the rub of it - thing is, the design of these metrics is not some oversight, but a product of the political climate, whereby claimants as a group (or groups) are weak, unorganised, isolated and looked down upon.
It has apparently not occurred to them that every single penny they pay in benefits goes straight back into the economy...
Hmm. This one's a bit complicated. Brief economics treatise follows...
There's two separate but related issues here - one is the effect on the government's surplus or deficit, the other is on the flow of income through the economy as a whole, that is the level of economic activity. The latter is what determines whether the economy is overheating (inflation) or, as now, in recession, or 'just right'.
As you say, some of what they pay out comes back in tax. That portion therefore has no effect either on the government balance or on the flow of income - it goes into the economy and then comes straight back out.
The rest increases the flow of income but worsens the government's balance, i.e. increases borrowing (or reduces a surplus). Alternatively, the government can raise taxes to cover it. In that case, the net result is neutral on both the government balance and the flow of income. This would be my preferred option, as it reduces inequality. It is also actually slightly positive for the flow of income, as poorer people spend a higher proportion of their income. But this is against both major parties' political philosophy.
If taxes are not raised, then any extra benefits come from borrowing; but if you're borrowing, which requires a future payment with interest, it is in principle preferable to do so to fund things that will produce a productive return later; benefits will mostly go on current consumption. It is sometimes a good idea to borrow for consumption spending in the short term to stimulate economic activity in a recession, but in the long run it is better for current spending (as opposed to investment) to be funded through taxation.
Which brings us back to the question of how much the government is willing to tax those at higher incomes to enable redistribution. And unfortunately the answer for the past few decades has been not very much.
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branchandroot
no subject
Date: 2009-09-08 10:48 pm (UTC)Ay, this is the rub of it - thing is, the design of these metrics is not some oversight, but a product of the political climate, whereby claimants as a group (or groups) are weak, unorganised, isolated and looked down upon.
It has apparently not occurred to them that every single penny they pay in benefits goes straight back into the economy...
Hmm. This one's a bit complicated. Brief economics treatise follows...
There's two separate but related issues here - one is the effect on the government's surplus or deficit, the other is on the flow of income through the economy as a whole, that is the level of economic activity. The latter is what determines whether the economy is overheating (inflation) or, as now, in recession, or 'just right'.
As you say, some of what they pay out comes back in tax. That portion therefore has no effect either on the government balance or on the flow of income - it goes into the economy and then comes straight back out.
The rest increases the flow of income but worsens the government's balance, i.e. increases borrowing (or reduces a surplus). Alternatively, the government can raise taxes to cover it. In that case, the net result is neutral on both the government balance and the flow of income. This would be my preferred option, as it reduces inequality. It is also actually slightly positive for the flow of income, as poorer people spend a higher proportion of their income. But this is against both major parties' political philosophy.
If taxes are not raised, then any extra benefits come from borrowing; but if you're borrowing, which requires a future payment with interest, it is in principle preferable to do so to fund things that will produce a productive return later; benefits will mostly go on current consumption. It is sometimes a good idea to borrow for consumption spending in the short term to stimulate economic activity in a recession, but in the long run it is better for current spending (as opposed to investment) to be funded through taxation.
Which brings us back to the question of how much the government is willing to tax those at higher incomes to enable redistribution. And unfortunately the answer for the past few decades has been not very much.