Give money straight to the poor?

G’day everyone,

Are aid agencies the best way to distribute aid or should we just give money directly to the poor so they can do what they like with it?

Aditya Chakrabortty thinks so, and he’s written about it in the Guardian today:

http://www.guardian.co.uk/commentisfree/2010/jun/29/revolution-global-aid-poor

Logic is that since a good deal of aid is spent on trying to administer aid without it falling into the wrong hands or being wasted, maybe it would be better to give it directly to the people and see what happens. Perhaps the cost of administering is higher than the value of administration.

Lots of positive feeling on the CIF page where it posted but there are some pretty clear problems in my book. Firstly, if suddenly everyone has twice as much disposable local currency isn’t that just inflation? I suppose if you means tested it, it would be redistributive by reducing the value of everyone’s money. I don’t really think it is as simple as this but there would certainly be an effect.

Secondly, practicalities. I’m sure giving out money is harder than it sounds.

Thirdly, I was reading Paul Collier’s the bottom billion and he is all about the large scale infrastructure projects that help countries gear up to an export economy. I’m not saying I agree with Collier but he does raise some interesting points.  He also examines ‘dutch disease’ where mineral wealth or aid pushes up wages and therefore makes other industries internationally uncompetitive. I imagine he would have a problem with the approach described in the article.

Giving out money certainly would reduce some costs of bureaucracy but would this be enough to balance the negative effects on an economy? What does anyone else think?

Rich

Political economy looks at the financial crisis

Roll up roll up! I stumbled into the ever-brilliant Robert Brenner giving an interview to a South Korean paper about the financial crisis.

Do give a read, it’s a sweeping comment on almost all aspects of modern global capitalism. Worth remembering, since I’ve heard murmurs that some of you are being seduced by the dismal ‘science’, that the entire dicipline of economics failed to predict anything about the crisis.

The political economists, on the other hand, had the courtesy to lift their eyes from their ever-so-smart models to catch a glimspe of the real world. It arms them with infinitely better tools.

The spirit level and statistics

Despite the promising title, this post is merely another link. But then, that’s what this watery place was for. Will, Rich and Katy, I’m hoping you’ll make clear for me what to think.

This is basically an article in www.spiked-online.com by a guy who’s written a hilariously-titled book called The Spirit Level Delusion.

He seeks to debunk pretty much everything it says. Obviously it’s abhorrent, but I need from you lot clear reasons why. Thanks.

Is VAT regressive?

The conventional wisdom is that VAT is regressive, because poorer people pay a higher percentage of their income in VAT. Save the Children say the poorest 10% of families spend 14% of their disposable income on VAT, versus 5% for the richest. This is important because a lot of people suspect George Osborne might announce a significant rise (from 17.5% to 20%) in VAT in his emergency budget in June, which would worsen inequality.

However I thought I’d read somewhere an argument claiming it wasn’t actually regressive, because many items (childrens clothes, food, etc) are excluded from VAT, and these are the things that people on lower incomes spend most of their money on.

This IFS paper (love the IFS) sorts it out. Apparently if you look at the percentage of income that goes out again on VAT, then it is regressive, just as Save the Children claim.

However, the IFS researcher argues that, in some ways, it makes more sense to look at percentage of expenditure rather than percentage of income. This is because borrowing and saving can allow a relatively stable consumption level despite fluctuations in income. A retired doctor eating through their savings is going to have a low income level but a high expenditure. So is a student spending their way through a student loan, hoping to earn it back later on, as is someone who is temporarily unemployed as they use their savings from a previous job. All of these might distort the picture, raising the amount of VAT paid by those with low incomes.

It turns that almost everyone pays about the same percentage of their expenditure in VAT. So, on this measure, it’s not regressive (not progressive either, mind).

In some ways this is quite convincing. If you assume that those with the lowest incomes who are actually poor (rather than sitting on big savings) have to spend all their money rather than saving it (there’s probably evidence one way or the other?), then removing the ones who have low incomes but are actually spending more does make sense.

The paper also identifies that 55% of consumer spending is on goods taxed at the full rate of VAT, which lends support to the argument that people on low incomes might be spending most of the money on goods that are not subject to VAT (or not at the full rate).

The Big Society Post Office bank

I don’t know what it says about the state of things that, as the election draws closer, thebathhouse has become quieter. I feel overwhelmed by rhetoric and wrangling over NI and I sense that a lot of interesting policies are muffled under the force of loud ElectionLive!-type of reporting.

It’s pretty old news already but the two ‘main’ parties have each proposed something interesting on progressive banking. I’ve only looked at this a bit, so if anyone knows better please correct me.

Cameron’s Big Society Bank wants to use the unclaimed money from dormant bank accounts as a base for attracting ‘ethical investment’ bonds and the likes, which will then lend money to social enterprise bodies, who will then invest in social enterprises. It’s an investment bank rather than a bank for lending to people. The idea of using dormant money already exists – at the moment it goes to the national lottery fund, which then lends to charitable organisations to lend to charities. So that’s hardly new.

As for the principle removing the state from care, there must be a worry that relying totally on profit making charities (social enterprises) will affect what type of care is delivered and how. It seems like a useful way of promising care without promising half of the investment needed. I want to know what Will thinks about this, since he’s the one with a street-level view.

Brown’s Post Office Bank is so nearly brilliant, but then, being New Labour it can’t help but slip up in a crucial way. It’s less an investment bank and more a high-street lender. The focus is on lending at normal rates to poor people who are normally charged extortionate rates. This is heady news indeed and could be a step towards reform that will break the massive power of elite private finance firms, who act as cartels when setting distorted high interest rates to poor people. Yet rather than keep this as a public service, it is a join venture with the Bank of Ireland (who were given the contract to provide financial services through the post office a while ago).

So the profits made from expanding finance to the majority will be channelled up into the hands of a tiny elite, all of this using public money. The Post Office Bank will invest in credit unions, but why not make the Post Office Bank a credit union instead. That way the profits could go back to members and would have the majority wielding the financial power of a big bank.

Ever thought about piracy as a career?

Just read an article about the the organisational structure of Somali piracy. Article is here but I’ve reproduced an extract from a UN report that the article drew attention to. I don’t really have point I’m trying to make, but these sorts of things always make me think about the parallels between legal and illegal business. Even with somali prirates someone is having to make sure all the invoices get paid and trying to identify and mitigate risks to the business.

For the avoidance of doubt, I’m not condoning piracy.

Extract from UN report (http://www.un.org/Docs/journal/asp/ws.asp?m=S/2010/91 )

“A basic piracy operation requires a minimum eight to twelve militia prepared to stay at sea for extended periods of time, in the hopes of hijacking a passing vessel. Each team requires a minimum of two attack skiffs, weapons, equipment, provisions, fuel and preferably a supply boat. The costs of the operation are usually borne by investors, some of whom may also be pirates.

To be eligible for employment as a pirate, a volunteer should already possess a firearm for use in the operation. For this ‘contribution’, he receives a ‘class A’ share of any profit. Pirates who provide a skiff or a heavier firearm, like an RPG or a general purpose machine gun, may be entitled to an additional A-share. The first pirate to board a vessel may also be entitled to an extra A-share.

At least 12 other volunteers are recruited as militiamen to provide protection on land of a ship is hijacked, In addition, each member of the pirate team may bring a partner or relative to be part of this land-based force. Militiamen must possess their own weapon, and receive a ‘class B’ share — usually a fixed amount equivalent to approximately US$15,000.

If a ship is successfully hijacked and brought to anchor, the pirates and the militiamen require food, drink, qaad, fresh clothes, cell phones, air time, etc. The captured crew must also be cared for. In most cases, these services are provided by one or more suppliers, who advance the costs in anticipation of reimbursement, with a significant margin of profit, when ransom is eventually paid.

When ransom is received, fixed costs are the first to be paid out. These are typically:

• Reimbursement of supplier(s)

• Financier(s) and/or investor(s): 30% of the ransom

• Local elders: 5 to 10 %of the ransom (anchoring rights)

• Class B shares (approx. $15,000 each): militiamen, interpreters etc.

The remaining sum — the profit — is divided between class-A shareholders.”

Is Britain Broken?

Some eager bathhouse members managed a field trip to a Guardian debate last night that asked ‘Is Britain Broken?’ (The link has a podcast of the event, by the way) So in the spirit of things, it seemed only right to share some thoughts.

‘Broken Britain’ is such a pithy, general and meaningless slogan that any number of issues can collapse into it. The state of social housing, the expenses scandal, the deficit and divorce lawyers were just a few of the bugbears cited by the audience and as symptoms of a broken society.

Yet Will made a good point by wondering just how useful the term actually is. Does ‘Broken Britain’ cloud or clarify the issues in question?

For me, many of the social issues that matter are outcomes of an unequal society rather than anything else. But equality has different aspects to it. While plenty has been said about the spiralling income inequality, there has been nothing about the inequality of political power.

Asking a government to promote the interests of the majority is pointless when that majority has little power. It’s a chicken-egg conundrum. With the break-up of unions, political power over the economy has been lost, and with the collapse of party membership numbers, power over the party system has been lost.

Until we discover ways of giving the majority of people political and economic leverage, the left will struggle to find electoral success. The obvious question is how exactly do we do that?

Will suggests joining the New Labour party. But it has spent the last two decades ridding itself of a historic tie to equality. That said, what else can we do?