Pegging benefits to wage inflation fails Macroeconomics 101

It's all about countercyclical spending.

As Gavin Kelly has written, it's unlikely that benefits increases will be linked to earnings in the way Newsnight's Allegra Stratton claimed last week. To do so would be short-termist in the extreme, and, given the role the OBR has in the budgetary process these days, practically illegal.

The reason is that, although wages are rising more slowly than the CPI, that's an unusual state of affairs. For most of the last decade, average weekly earnings have risen faster than inflation, usually by a considerable margin:

Overlay from Timetric

 

So one of the problems with hooking the uprating of benefits to pay is that it would be terribly short-term. It will save money until the economy recovers, and then cost far, far more than it would if there were no change at all. And if you want to borrow against the future, a better way to do it would be to just borrow against the future – using our ridiculously low interest rates.

That's the reason why it won't happen. But there's another reason why it shouldn't: The rating of benefits to inflation is one of the few fiscal stabilisers we have that works in boom times as well as bust.

Fiscal stabilisers are a key aspect of moving Keynesian economics from theory to practice. Acting counter-cyclically requires saving in a boom and spending in a bust, but that's generally rather tricky to do politically. As the election of the coalition proved, the fallacy that "there's no money left" is a powerful political motivator, and it's similarly tricky to argue for savings to be made and budgets to be cut if the economy is running at a surplus.

Fiscal stabilisers are aspects of the economy which do part of the job for us. The archetypal stabiliser is unemployment benefit. As more people lose their jobs in a recession, so we spend more money paying them Jobseeker's Allowance. When they gain employment again, as the recovery begins, the spending drops. Provided governments don't do anything stupid like end JSA, a small proportion of their spending is guaranteed to be counter-cyclical.

If benefits were to be pegged to wages, rather than inflation then some of that counter-cyclicality would be scrapped. The benefits bill would shrink in recessions and increase in boom times, compared to where it would be without the change. That would mean prolonged depressions, and a magnification of the boom-and-bust cycle. Macroeconomically, its one of the worst things you could do.

Unless, of course, it's all just a ploy to balance the books on the back of the poor, and the plan is to reverse the change once start wages increasing above inflation again. But no-one would be so cynical as to suggest that.

Piggy banks wait to be filled in a shop in San Francisco. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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OK, let's do this: who REALLY won Legs-It? An exclusive investigation

Look, some of you just aren't treating this question with the seriousness it deserves. 

This morning, the Daily Mail front page dared to look past the minutiae of Brexit - can my EU partner still live here? Why is my holiday so expensive? Should we be worried that David Davis looks like a man who's ended up a minister because he lost a bet? - to ask the really big question. 

Yes, indeed. Who is Top of the Tibia? Who shines in the shin department? Which of these impressive, powerful women has lower limbs which best conform to our arbitrary beauty standards? 

In the accompanying article, Sarah Vine (herself the owner of not one, but TWO lower limbs) wrote that the women put on a show of unity with "two sets of hands clasped calmly on the arms of their respective chairs", disdaining the usual diplomatic practice of accompanying discussions about Article 50 with a solemn, silent re-enactment of the Macarena.

Vine adds: "But what stands out here are the legs – and the vast expanse on show. There is no doubt that both women consider their pins to be the finest weapon in their physical arsenal. Consequently, both have been unsheathed." That's right, people: Theresa May has been unafraid to wear a skirt, rather than a pair of trousers with one leg rolled up like LL Cool J. A departure for Mrs May, to be sure, but these are uncertain times and showing off just one calf might see the stock markets plunge.

The prime minister has come to the bold decision that her legs are the "finest weapons in her physical armoury", when others might argue it's the sharp, retractable venom-filled spurs on her fore-limbs. (Oh wait, my mistake. That's the duck-billed platypus.)

As ever, the bien-pensant left is squawking about sexism and avoiding the real issue: who really won Legs-it? Well, there will be no handwringing over how this is a belittling way to treat two female politicians here, thank you very much. We shall not dwell on the fact that wearing a skirt while doing politics is not really remarkable enough to merit a front page, oh no. Instead, we shall bravely attempt to answer that Very Important Question. 

Who really won Legs-it? 

1. David Cameron

We might not know who won Legs-It, but let's be honest - we all know who lost. David Cameron here has clearly concluded that, much like Andrew Cooper's pre-referendum polling results, his legs are best hidden away while everyone politely pretends they don't exist. 

Legs-It Rating: 2/10

2. Michael Gove

Fun fact: Michael Gove's upper thighs are equipped with sharp, retractable claws, which aid him in knifing political rivals in the back.

Legs-It Rating: 8/10

3. David Davis

Mr Davis's unusually wide stance here suggests that one leg doesn't know what the other is doing. His expression says: this walking business is more difficult than anyone let on, but I mustn't let it show. Bad legs are better than no legs.  

Legs-It Rating: 6/10

4. Boris Johnson

Real talk: these legs don't really support Boris Johnson, they're just pretending they do to advance their career. 

Legs-It Rating: 6/10

5. George Osborne

Take in these long, cool pins. These are just two out of George Osborne's six legs. 

Legs-It Rating: 9/10

6. Liam Fox

In the past, Liam Fox has faced criticism for the way his left leg follows his right leg around on taxpayer-funded foreign trips. But those days are behind him now.

Legs-It Rating: 10/10

7. Nigel Farage

So great are the demands on the former Ukip leader's time these days, that his crotch now has a thriving media career of its own, independent from his trunk and calves. Catch it on Question Time from Huddersfield next month. 

Legs-It Rating: 7/10

Conclusion

After fearlessly looking at nine billion photos of legs in navy trousers, we can emphatically conclude that THEY ARE ALL BASICALLY THE SAME LEG. Life is great as a male politician, isn't it?

I'm a mole, innit.