The transition towards a low-trust society

Chris Dillow says:

“In this sense, short-term fiscal conservatism might create social norms more supportive of social democracy”

But this is just contrarianism. We can actually observe the opposite happening. After all, wouldn’t it be more likely that prolonged high unemployment, degradation of the public sphere, encouragement of dodgy coping-strategies like pretend self-employment, and perceived political hypocrisy, might tend to lead to a lower-trust society?

My case study No.1 is the run on Northern Rock in 2007. If you were a Northern Rock depositor, you actually had very little to fear. The Bank of England, as the central bank and lender of last resort, would provide enough liquidity to keep the ATMs functioning and ensure BACS payments were cleared. Famously, ever since the mid-19th century, the Bank’s doctrine was to lend without limit of quantity, at penalty rates, and against good collateral in order to stop a run on the bank.

If that wasn’t enough, the British Government guaranteed the value of deposits up to values far greater than is at all sensible to keep in a single deposit account. And when the crisis broke, the Government moved to guarantee all deposits without exception. The combination of the Bank of England and deposit protection had successfully prevented a run on the bank in the UK for over a hundred years, although there had been a couple of close calls.

Yet they queued up. If you expected to lose your money if you didn’t get it all in raw cash right now, you had to believe that the central bank would just wash its hands of the problem, abandoning every principle it had operated by in over a century, that the Government would just decide to break its own laws and also to breach an international treaty, all in order to screw you over.

A cynic might say that there is no law, there is only power, but then this is precisely my point. Presumably that was true in 1964 or 1926 or 1899 or 2002. But people did not, in fact, queue up at the banks to take out all their money, even though financial crises occurred from time to time. Somewhere since about 1974, when there was an honest-to-goodness bank crisis but no panic, something changed for a substantial number of people in their assessment of how trustworthy the society they lived in was.

I don’t really think I need to make this point, but let’s have it anyway. In Greece, the upshot of austerity seems to be “let’s all vote for Golden Dawn and kick some refugees”. In Italy, already a paradigmatic low-trust society, it’s “let’s 29% of us vote for the guy who got us into the mess who’s a rapist and a thief and a failure and a clown and who is very obviously lying, and another 25% for him-off-the-telly”.

Back in the UK, there has been a lot of chinstroking about the “productivity puzzle”. When GDP has been so poor, why isn’t unemployment higher/employment lower? If you divide GDP by employment you get a number that you can sort-of consider to be a measure of labour productivity, so a lot of people have reasoned from this that productivity has been destroyed in the slump.

Where you go from there basically depends on your ideological and partisan prejudices; if you’re a Tory trying to perform loyalty to David Cameron, you just ignore the whole issue and celebrate that the absolute number of people employed in the UK is the highest it’s ever been, much as an all-time high number of recorded years was achieved in 2012 and will be surpassed again as soon as December if current trends continue.

If you’re a Serious Economist, you’ll probably argue with yourself about whether firms are hoarding labour, and if so why, or whether productivity has actually fallen. If you take the second option, you’ll probably decide that Doomed Britain Iz Doomed and nothing much can be done and we’ll just have to stay the course with austerity. Basically, Sad Donkey economics.

If you’re an Unserious Economist, you might wonder if the problem is that the boom was bigger than we previously thought, and therefore the ratio of income to employment was overestimated. Output in the construction sector and everything connected to real estate is obviously very much related to property prices, and as Dean Baker would see, there was a housing bubble, stupid!

If you’re me, you might recall that the last Conservative government invented literally dozens of new ways to measure unemployment, all of which tended to reduce it, astonishingly enough. What if the same thing was happening? Well, if you want to have fewer unemployed people, one way to do this is to count some of them as employed.

Here’s Jules Birch, discussing the fact that there was a rise of 362,000 in self-employment between 2008 and 2012. Part-time self-employment went up thirty-two per cent.

So you’re being badgered by the job centre to go on an A4e compulsory course on how to wipe your own arse or they’ll cut your bennies. Now, if you’re self-employed, you’re eligible for the various Gordon Brown negative-income-tax schemes if you’re earning less than the thresholds. So here’s the trick: you declare that you’re self-employed and you’re picking up a few shifts at your mate’s newly launched hair salon. And you sign off, and sign up for Working Tax Credit.

This has several results. First of all, it stops the abuse. Second, if you keep it up for a while, it resets the clock, so in the future you could claim Jobseeker’s Allowance again for your full whack before the arse-wiping classes kick in again. Third, the money is no worse than JSA. Fourth, if you were already in the Work Programme, the Work Programme provider (i.e. A4e) gets their success payment. Fifth, the Jobcentre Plus caseworker closes the ticket, and this makes their manager happy. Sixth, this is reported up the chain and makes the minister happy. And seventh, the horse may sing; who knows, the business might take off.

Here’s a good post about WP and Jobcentre staff pushing bogus self-employment. I like the detail that they rang a bell every time someone signed off.

Why hair, by the way? Simple; it’s a low overhead business that’s mostly cash and gets its supplies on sale or return, and spending the day in the warm gossiping watching the absence of customers beats arsewiping classes or not cleaning windows. And it’s the trade that’s seen one of the biggest increases in part-time self-employment. (Also, 80% of the additional part-time self-employees are women.)

There are two other factors at work here. One is that the Revenue is under the gun to bring in the taxes. Another is that the DWP is trying to flog the unemployed into the Work Programme. So, if you’re a full-time worker in a construction trade who frequently does business cash in hand – i.e. a bloke – you may be finding this to be a good moment to suddenly discover that you have a job, in order to stop the Jobcentre finding out about you working on the black market, and the Revenue then auditing you back to the stone age over VAT and National Insurance contributions.

In this sense, the rise in full-time self-employment, which is concentrated in construction and among men, may be making the statistics more accurate. But the rise is much less dramatic (about 4%).

So, we’ve got 362k additional part-time self-employees. We’ve also got 800k people on no-wage placements or arsewiping classes through the Work Programme, all of whom are classified as employed. That’s more than a million people.

Obviously, some of the 362k are legit, and some of them are going legit. Also, if being entirely honest is too much of a stretch, you might go from working on the black market entirely to under-reporting hours, especially if there is a tax or benefit withdrawal threshold that affects you. But if 50% of them are bogus hairdressers, that’s still a hell of a lot of uncounted unemployment.

Now, I don’t for a moment presume to judge the bogus hairdressers; they’re victims of the system, and anyway it’s very much a matter of opinion whether you’re putting it on, whether you’re genuinely trying to start a business, or whether you started off trying and drifted into faking it, or even perhaps the other way round.

But the worst of it is that DWP is now getting all snotty and bluenosed and Fraser Nelson-y. Johnny Void attempts to explain, but it looks like an effort is under way to treat the self-employed as if they were sort-of unemployed, subject to DWP surveillance to ensure they are putting in enough hours and possibly expected to do arsewiping classes, but of course without counting them as unemployed. The worst of it is that the tax-credit system is notorious for doing sudden clawbacks of thousands of pounds.

If that happened to you, I submit you might just think you were in a low-trust society. That said, we’re no good at it; would Sicilians be daft enough to mess up a hack on the system that lets everybody involved get by a little easier than following the rules would be?

6 comments

  1. Phil

    In Sicily you’d work and you’d eat. You’d work long hours, you’d get beaten up or worse if you complained, and when the election came round you’d know who to vote for, but in the mean time you’d work and you’d eat and the government would keep well out of it. Devising a system worse than that is pretty good going.

    We were talking earlier on about evil and competence – is a competently evil government worse than one that’s both evil and incompetent? Normally I’d say yes, on the principle that it’s good for evil projects to screw up, but things like this and the bedroom tax make me wonder. Do people like IDS have any idea what they’re doing? If they did, could it possibly be worse?

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