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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I can’t follow Marie Kondo's advice – even an empty Wotsits packet “sparks joy” in me

I thought I’d give her loopy, OCD theories a go, but when I held up an empty Wotsits bag I was suffused with so many happy memories of the time we’d spent together that I couldn’t bear to throw it away.

I have been brooding lately on the Japanese tidying freak Marie Kondo. (I forgot her name so I typed “Japanese tidying freak” into Google, and it was a great help.) The “Japanese” bit is excusable in this context, and explains a bit, as I gather Japan is more on the case with the whole “being tidy” thing than Britain, but still.

Apart from telling us that we need to take an enormous amount of care, to the point where we perform origami when we fold our underpants, which is pretty much where she lost me, she advises us to throw away anything that does not, when you hold it, “spark joy”. Perhaps I have too much joy in my life. I thought I’d give her loopy, OCD theories a go, but when I held up an empty Wotsits bag I was suffused with so many happy memories of the time we’d spent together that I couldn’t bear to throw it away.

After a while I gave up on this because I was getting a bit too happy with all the memories, so then I thought to myself, about her: “This is someone who isn’t getting laid enough,” and then I decided that was a crude and ungallant thought, and besides, who am I to wag the finger? At least if she invites someone to her bedroom no one is going to run screaming from it, as they would if I invited anyone to my boudoir. (Etym: from the French “bouder”, to sulk. How very apt in my case.) Marie Kondo – should bizarre circumstance ever conspire to bring her to the threshold – would run screaming from the Hovel before she’d even alighted the stairs from the front door.

I contemplate my bedroom. As I write, the cleaning lady is in it. To say that I have to spend half an hour cleaning out empty Wotsits packets, and indeed wotnot, before I let her in there should give you some idea of how shameful it has got. And even then I have to pay her to do so.

A girlfriend who used to be referred to often in these pages, though I think the term should be a rather less flippant one than “girlfriend”, managed to get round my natural messiness problem by inventing a game called “keep or chuck”.

She even made up a theme song for it, to the tune from the old Spiderman TV show. She would show me some object, which was not really rubbish, but usually a book (it may not surprise you to learn that it is the piles of books that cause most of the clutter here), and say, “Keep or chuck?” in the manner of a high-speed game show host. At one point I vacillated and so she then pointed at herself and said, “Keep or chuck?” I got the message.

These days the chances of a woman getting into the bedroom are remote. For one thing, you can’t just walk down the street and whistle for one much as one would hail a cab, although my daughter is often baffled by my ability to attract females, and suspects I have some kind of “mind ray”. Well, if I ever did it’s on the blink now, and not only that – right now, I’m not even particularly bothered that it’s on the blink. Because, for another thing, I would frankly not care to inflict myself upon anyone else at the moment.

It was all a bit of a giggle eight years ago, when I was wheeled out of the family home and left to my own devices. Of course, when I say “a bit of a giggle”, I mean “terrifying and miserable”, but I had rather fewer miles on the clock than I do now, and a man can, I think, get away with a little bit more scampish behaviour, and entertain a few more illusions about the future and his own plausibility as a character, when he is squarely in his mid-forties than when he is approaching, at speed, his middle fifties.

Death has rather a lot to do with it, I suppose. I had not actually seen, or touched, a dead body until I saw, and touched, my own father’s a few weeks ago. That’s what turns an abstract into a concrete reality. You finally put that to one side and gird up your loins – and then bloody David Bowie snuffs it, and you find yourself watching the videos for “Blackstar” and “Lazarus” over and over again, and reach the inescapable conclusion that death is not only incredibly unpleasant, it is also remorseless and very much nearer than you think.

And would you, dear reader, want to be involved with anyone who kept thinking along those lines? I mean, even if he learned how to fold his undercrackers into an upright cylinder, like a napkin at a fancy restaurant, before putting them in his drawer? When he doesn’t even have a drawer?

Nicholas Lezard is a literary critic for the Guardian and also writes for the Independent. He writes the Down and Out in London column for the New Statesman.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war