Saturday, November 05, 2011

How can Government create work given the budget deficit?

There is a discussion running on a green party e-list about the Green Wage Subsidy - a plan to stimulate work in the green sector of the economy in order to tackle unemployment directly.

One disputant argues that it is not cost-free
My answer: GWS permits the claimant to take her benefit money into green work.
The money would be paid in any case, but on condition that the recipient /does no work/ (beyone the 16 hours allowed under Earnings Disregard).
Therefore there is no extra cost to the Benefits Agency.
I will repeat that, for avoidance of doubt:
The money would be paid in any case. there is no extra cost to the Benefits Agency in the short term.

In fact, in that the recipient will not be taking the time of the benefits agency employees in filling forms, having interviews and making futile applications for non-existent jobs, there would be a saving, but this would be offset by the cost of the tribunals. Depending on how these costs balance out, there might be a small net cost at this stage.

However, this net cost would be offset by the advantages to the economy from the GWS:

1. Increased tax revenue from the green operations that are benefiting
from GWS.
2. Increased money in the local economy resulting from extra spending
power of those provided with a job by GWS.
3. Increased money in the local economy resulting from extra spending
power families lifted out of fuel poverty by insulation projects
4. Balance of payments improvements arising from less imports of carbon
energy sources
5. Qualitative improvements in health and social well-being arising
from GWS - not least in improved visual amenity from community
tidy-ups, litter picking and street furniture decoration.

The truly significant cost of GWS would come at the end of the recession, when it would be expected that the dole queues would start to shrink and social security payments to fall.
At that point, conventional economists would argue for GWS to be withdrawn.
The Green Party on the other hand would argue for retention and extension of the scheme, since that is what Citizen's Income is. We would be arguing for retention of a scheme that is already in place (pole position in other words) and one that moreover is well regarded by citizens who have benefited directly and indirectly from GWS.

I am genuinely puzzled at the opposition from within the Green Party against a scheme that:

1. Saves people from the unpleasantness and poverty implicit in
2. Provides a cost-free stimulus to drag people out of poverty
3. Stimulates the green sector of the economy
4. saves energy and CO2 emissions
5. prepares the ground for the introduction of a full CI
6. Gives our speakers a specific and uniquely green party policy to
introduce into the national debate, a policy that helps people and
directly addresses inequality, poverty, recession, and the #Occupy
movement's concern with the totally unacceptable levels of youth
7. Generates a feel-good feeling in our natural allies in the green
sector of the economy.

If anyone can clear up my puzzlement, I would be very grateful.

If you are reading this, and find yourself in agreement, please respond even if only to say "I agree", since these e-list discussions often give a platform to people who oppose specific proposals, while those who may be in agreement often say nowt.


Matt said...

Dear Doc Richard,

Just to let you know, I wholeheartedly agree and am very impressed with your coherent argument.


DocRichard said...

Thanks Matt.
A little encouragement goes a long way in the blogging business, as you know.

It means even more coming from someone in the accountancy business.

Matt said...

Happy to speak as I find things and I find your posts to be thoughtfully written. They articulate good new ideas, and frame existing ones in ways that would appeal to all points on the political compass. I am at this stage a bookkeeper, not an accountant, but I am studying ACCA modules. I use Richard Murphy of Tax Research as an inspiration because he is an accountant who believes in social justice and does not cheat on his taxes or other people's taxes, believing that they are a dividend to society, which provided security, stability and an educated and healthy workforce and market for your goods and/or services

DocRichard said...

Hi Matt
You may possibly be able to help with a genuine question that I have.

European banks have made big loans to greece and italy. Would they not hav "insured" these loans against default with hedge funds? and if so, will they not be able to cover their losses against sovereign default by calling in this insurance, thus avoiding huge public bailouts? the derivatives market was valued at 10x greater than the global GDP before the crash, so they should be able to cover the losses.

I ask you because this is your general line of business, and you might be able to fight your way through the undergrowth of jargon that is impenetrable to the likes of me.

Matt said...

Hi Doc Richard,

I cannot answer the question regarding derivatives I am afraid as I have not studied them, but I get the feeling that with certain players in the financial sector, it's a case of 'heads I win, tails you lose' and they would threaten to bring down the world's economy, as I am sure RBS and their ilk threatened to do in October 2008, according to Alistair Darling in his autobiography. The solution here surely points to a one off wealth tax and/or financial transaction/Tobin/Robin Hood tax. In my view these could be construed as Pigovian taxes as per my recent blog post.

A good author regarding derivatives and the banking sector issues is John Lanchester, author of Whoops! Why Everyone Owes Everyone Else, and No-one Can Pay