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Hi, Yves. This question about the viability of the welfare state was made big in the UK when a former Conservative MP claimed it would be unsustainable within 20 years. Richard Murphy explains how even assuming a scenario with no economic problems is wrong: But the slight problem is that interest earners expect capital to grow, which leads to increased skimming. So what can happen and what is likely are in two different worlds.
By Richard Murphy, Adjunct Professor of Accounting Practice at the School of Management, University of Sheffield, Director of the Corporate Accountability Network, Member of Finance for the Future LLP, and Director of Tax Research LLP. Originally published in Funding the Future
summary
In today’s video, I criticize Steve Baker’s claim that the UK will not be able to sustain its welfare state in 20 years’ time. I argue that this assumption ignores the economic growth, immigration and demographic changes that may actually support the welfare system. I also refute Baker’s claim that the demands of the wealthy dictate demands on the state’s resources. Instead, I suggest that we can maintain a balanced society. Baker’s claims about the sustainability of the welfare state are unfounded, but it is important to address misleading claims head on.
I noticed a video this morning in which Steve Baker, until recently a Conservative MP, claimed that in 20 years’ time we will be celebrating the 100th anniversary of the welfare state, but we can no longer sustain it. Is he right, or is he just talking nonsense as usual?
Here’s the audio version:
Here is the transcript:
Can we sustain a welfare state?
The reason I ask this question is that in a recent television interview, Steve Baker, who was until recently a Conservative MP, asked exactly this question, and he argued that in about 20 years’ time – about 100 years after the creation of the welfare state – we will no longer be able to afford it.
I’ve thought about what he said and it doesn’t make sense to me, so I want to debate the question of whether we think that by the time he predicts we’ll have to abandon the welfare state, we’ll be unable to sustain it in the future, when apparently we’ve been able to sustain it for a century.
What are his assumptions? Well, the first assumption is about the growth rate from now until 20 years from now, and it has to be that way. He didn’t specify what the assumptions are, but there are three options he can choose from.
One is that our economy will grow. In other words, our country will become richer than it is now. And frankly, we are already a rich country.
Or, our incomes could stay at the same level as they are now, and we would still be a wealthy country.
Or incomes could decline, but judging by history, there is no evidence at this point that this is likely, and I think that is unlikely, whatever the challenges we face, because I believe that even though we will have to go through a green transition, it is likely to increase economic activity, not decrease it.
So let’s take a neutral version of these assumptions and assume that in 20 years we will be no richer than we are now, but we won’t be poorer either.
So what will change 20 years from now that will give him the right to claim that we cannot afford the welfare state?
Well, the obvious fact is that I will look a lot older than I do now. And I’m not the only one. You will too. But the fact is that, as a proportion of the population, more people will look older than they do now. Because, as a result of immigration, assuming no change, the UK population is ageing. And the ratio of workers to dependents will change, and therefore each working person will need to support more dependents.
Whether this is possible is one of the assumptions Steve Baker asks himself in arriving at his argument that we cannot afford the welfare state. He clearly concludes that, assuming we all have the same income, we will not be able to give as much to our dependents as working people, and therefore working people will be unable or unwilling to support their dependents.
But note that I am assuming stable incomes across the country. If fewer people worked to generate stable incomes, they would all be better off unless they redistributed the surplus income they currently have to those who depend on them. So, he is basically saying that we cannot afford to maintain a welfare state because people are unwilling to support the elderly.
That’s an interesting idea. Maybe Steve thinks that that’s how charity works. I mean, it’s all about taking care of our own elderly relatives. And it’s tough if no one wants to do that. I don’t know what he assumes, but I don’t see why he thinks this stable state of fewer people working should reward those who work more and impoverish their dependents.
I think there’s another assumption that Steve makes, but he doesn’t really specify any of these things, so I’m trying to unravel the basis for his assertion that states can’t act as middlemen in deals that take away more funding. money The government would have other claims on that income, so it would collect taxes from those who worked and pay them to their dependents.
What is that other claim? Judging from what he says, there is no doubt that he thinks that the other claim is interest payments on government borrowing. He thinks it’s out of control. So what he’s saying is that it’s bad luck for those who need state support, the wealthy who need money. That’s his assumption. He thinks that the state will have to make large payments to the holders of government debt that will increase disproportionately, and as a result, the interest rates that will have to be paid and the costs that will be incurred by them will increase, so that there will be nothing left to give to those who need support from society.
In other words, he is saying that in 20 years our society will be so unequal that the rich will have everything and there will be nothing left to support the poor.
Is that a reasonable assumption?
Is that so?
Can we do anything to stop it from happening?
Of course that’s possible; Steve Baker’s assumption is totally absurd.
Firstly, there is likely to be major changes to our social structure over the next few years. We are currently experiencing a surge in immigration to the UK, and in fact we should celebrate that fact.
Why? Because the people who come here tend to be young, well-educated, motivated, innovative and entrepreneurial. They want to join our workforce. They come here, by and large, to provide a better lifestyle for themselves and especially for their families.
And they will have enough people to supplement the workforce and take care of the elderly. This trend is sure to continue. First, unfortunately, it seems that we cannot stop wars around the world right now. Second, climate change will force more people into refugee situations. Large areas of the world, even parts of southern Europe, will become very difficult for people to live in. So people will look for somewhere else, and we are one of the potential destinations.
Our advantage is that they have a cost, they have a need to relocate, but our advantage is that we get the talent we need to rebalance the efficient economy that we have, and that requires that we have enough talent working to support dependents.
So let’s look at other assumptions. Would we allow the debt to grow so rapidly? No, of course not. Why wouldn’t we? Because we don’t need it, in the sense that it becomes a part of life. The government would simply buy back a large part of the existing debt through government bonds, as Japan did. Quantitative Easing It is a process to ensure that the amount of debt in private hands is limited to what the government can afford as a safe deposit facility, which in any case is the national debt.
As a result, interest rates can be controlled, but if Bank of EnglandAt the same time, it will provide absolute control over interest rates.
You can offset the QE payments on a net basis, they pay for themselves, so the idea that the debt is going to get out of control is, frankly, another stupid idea put forward by Steve Baker.
So could he be right that we, as an affluent society, are unable to support our elderly and other dependents?
No, he is talking complete nonsense.
What he is saying is that his assumption of a stable society with no population growth, rising incomes for working people, and increasing rewards for the wealthy would produce this outcome.
Every assumption he makes is wrong, and therefore his conclusions are wrong.
So should we worry that we will not be able to sustain the welfare state?
We have the capacity.
We can afford it.
Old age pension is paid.
Support will be provided to those who need it.
The state will exist and provide all sorts of services such as education and the National Health Service, but only if people like Steve Baker stop saying nonsense and getting into government.
