Category: Economics

About the government’s claims on ‘real wages’ being ‘the highest since 2011’…


(Update: Raab has removed the original Tweet. Good job I took a screenshot of it).

 

Firstly, the graph does not show what Raab is claiming. The graph does show that after 8 years of Conservative government, real wages are lower than when the coalition took office. In fact they are lower now than they were during the Great Global Recession in 2008. This shows an appalling and shameful record.

After the global recession in 2008, consumer prices rose faster than the average wage, so the real value of wages fell. They continued to fall until 2014.

The average real wage is now actually lower than it was ten years ago.

Following the recession in 2008, average wages fell almost consistently in real terms until mid-2014. From 2014 to 2016, inflation was low and wages increased, though they’re still not back to their pre-recession levels. Now, inflation has caught up again, and real wages are levelling off a little.

Analysis by the Office for National Statistics showed that in 2014, average earnings for full-time workers grew by only 0.1%. However, the average earnings of full-time workers who had been in their job for more than a year rose by 4.1%.

So although the drop in average earnings tells us something important about the economy overall, it’s not the same as what’s happened to everybody working in the UK.

For example, the level of wages is different depending on where you live in the UK. No region’s average full-time weekly earnings is above its 2009 level.

Wages are highest in London, and the population there has also seen the biggest falls in earned income. The average full-time employee in London earned £655 a week in 2017; down from £700 in real-terms in 2009.

The smallest fall was seen in Northern Ireland, where in 2017 the average full-time weekly wage was £504 a week, down from £522 in real terms in 2009. 

People working for the public sector, such as in the NHS, state schools or the civil service, have seen pay growth being restricted in recent years as a matter of policy.

Public sector pay has grown more slowly than private sector pay for the past four years – though recently it has started to catch up, as the caps have recently started to be lifted.

But the private sector suffered large falls in pay during the post-recession years. 

To understand changes to peoples’ incomes we need to also consider tax and benefit changes as well.

Working households’ average income after taxes and benefits has fallen in real terms, from £35,100 in 2008/09 to £34,500 in 2016/17. That has been calculated by adding income to cash social security and then subtracting direct tax (e.g. income and council tax) and indirect taxes (e.g. VAT) for households where at least one person earns income from employment or self-employment. But that doesn’t include some losses such as the bedroom tax. 

The poorest fifth of households paid the most, as a proportion of their disposable income, on indirect taxes – 29.7% compared with 14.6% paid by the richest fifth of households.

Furthermore, the effects of taxes and benefits (ETB) data from the Office for National Statistics’s (ONS’s) Living Costs and Food Survey (LCF), are from a small, voluntary sample survey on which these data are calculated which comprises of around just 5,000 private households in the UK.

The ONS say themselves that the sample tends not to include the very poorest and the very wealthiest citizens. That means there is under-reporting at the top and bottom of the income distribution as well as non-response error (see The effects of taxes and benefits upon household income Quality and Methodology Information report for further details of the sources of error.

That is likely to distort the view of the extent of income inequality.

It’s also worth looking at some comparison at an international level, too.

Oh dear.

When citizens use a public service, it’s viewed as a ‘payment in kind’

‘Benefits in kind’ – education and healthcare, for example – are also added to the final amount of income that citizens are estimated to have. However, this distorts the calculation of average income levels. Citizens pay taxes and so contribute towards paying for these services, and the poorest citizens are likeliest to rely on them rather more than the wealthiest citizens.

This means that in effect, poorer citizens using public services appear to be better off than they actually are, since using public services does not increase incomes. In fact the smaller the income that citizens have, the more likely it is that they will need to use public services. That does not make them any wealthier than they are.

Consequently, the ratio of income of the richest fifth to the poorest fifth appears to fall from twelve to one, to five to one. The inclusion of indirect taxes (for example, alcohol duties, Value Added Tax (VAT) and so on) and benefits in kind (for example, education, National Health Service) further reduces this ratio to less than four to one. 

That does not present an accurate picture regarding income distribution. The poorest fifth of households received relatively larger amounts of ‘benefits in kind’ in 2017. This however, is not income. Nor is it a ‘gift’, since most people have paid into the Treasury and contributed council tax towards the services that they may need to use.

It’s almost like charging people twice for public services, which is utterly disgraceful. It would be very interesting to see the calculation of UK income distribution without this political cheat, that makes it look as though the poorest citizens are rather better off than they actually are. 

Finally, its worth remembering that despite their claims, the Conservatives inherited an economy that had escaped the impact of the global crash, and was out of recession by the last quarter of 2009. By 2011, the Conservatives put us back in recession. It’s what Conservatives do. Thatcher and Major both created recession in the UK, as did Cameron’s government. Despite pledging to keep our triple A level international Fitch and Moody credit ratings – another thing the Tories inherited – Obsorne lost them. Then in 2016, the UK was stripped of its last AAA rating as credit agency – Standard & Poor’s –  who warned of the economic, fiscal and constitutional risks the country now faces as a result of the EU referendum result.

The two-notch downgrade came with a warning that S&P could slash its rating again. It described the result of the vote as “a seminal event” that would “lead to a less predictable stable and effective policy framework in the UK”.

Yet the Conservatives claim they are the party of ‘economic competence’. You just have to laugh at that. 

Image result for a big labour boy osborne kittysjones

I’ll leave you with this comment, which made me chuckle:

Update

Wages are still worth a third less in some parts of the country than a decade ago, according to a report. Research by the Trades Union Congress (TUC) found that the average worker has lost £11,800 in real earnings since 2008.

The organisation said that the UK has suffered the worst real wage slump among leading economies

The biggest losses have been in areas including the London borough of Redbridge, Epsom and Waverley in Surrey, Selby in North Yorkshire and Anglesey in north Wales, the studyfound.

Workers have suffered real wage losses ranging from just under £5,000 in the north-east to more than £20,000 in London, said the report.

The TUC general secretary, Frances O’Grady, said: “The government has failed to tackle Britain’s cost-of-living crisis. As a result, millions of families will be worse off this Christmas than a decade ago.

“While pay packets have recovered in most leading economies, wage growth in the UK is stuck in the slow lane.

“Ministers need to wake up and get wages rising faster. This means cranking up the pressure on businesses to pay staff more, especially at a time when many companies are sitting on large profits.”

A government spokesman said: “The UK’s jobs market has never been stronger, employment is at a record high with more people in work in every region of the UK since 2010 and wages are now rising at their fastest in a decade.

“We have cut income tax for 31 million people, and through the national living wage we have helped to deliver the fastest wage growth in 20 years for over two million of the lowest-paid workers.”

Stephen Clarke, senior economic analyst at the Resolution Foundation thinktank, said: “While wages are currently growing at their fastest rate in a decade and employment is at a record high, the sobering big picture is that inflation-adjusted pay is still almost £5,000 a year lower than when Lehman Brothers was still around.

“Stronger wage growth is needed to make 2019 a better year for living standards than this one.”

A change from the government that is utterly conservative with the truth would be a good starting point.


 

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The Financial Times are having a laugh

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I’m doing a little light reading about behavioural economics for my next article.  After following what was clearly a broken link, I had to laugh at this irregular 404 page error notification from the Financial Times:

The page you are trying to access does not exist.

Why wasn’t this page found?

We asked some leading economists.

Stagflation 
The cost of pages rose drastically, while the page production rate slowed down.

General economics
There was no market for it.

Liquidity traps
We injected some extra money into the technology team but there was little or no interest so they simply kept it, thus failing to stimulate the page economy.

Pareto inefficiency
There exists another page that will make everyone better off without making anyone worse off.

Supply and demand 
Demand increased and a shortage occurred.

Classical economics
There is no such page. We are not going to interfere.

Keynesian economics
Aggregate demand for this page did not necessarily equal the productive capacity of the website.

Malthusianism 
Unchecked, exponential page growth outstripped the pixel supply. There was a catastrophe, and now the population is at a lower, more sustainable level.

Neo-Malthusianism 
To avoid unchecked, exponential page growth outstripping the pixel supply and leading to an inevitable catastrophe, we prevented this page from being conceived.

Marxism 
The failure of this page to load is a consequence of the inherent contradictions in the capitalist mode of production.

Laissez Faire Capitalism
We know this page is needed, but we can’t force anyone to make it.

Monetarism 
The government has limited the number of pages in circulation.

Efficient Markets Hypothesis 
If you had paid enough for the page, it would have appeared.

Moral Hazard 
Showing you this page would only encourage you to want more pages.

Tragedy of the Commons 
Everyone wanted to view this page, but no-one was willing to maintain it.

Game theory 
By not viewing this page you help everyone else get better pages.

Mercantilism 
The page is hosted by a foreign web server and is therefore banned to ensure the supremacy of our own software.

Trickle-down
High taxes on content publishers prevented them hiring the person who would have written this page.

Speculative bubble
The page never actually existed and was fundamentally impossible, but everyone bought into it in a frenzy and it’s all now ending in tears.

Socialism
If you were to get the page you wanted you might get a better page than someone else, which would be unfair. This way at least everyone gets the same.

Behavioural economics 
The influence of psychological factors caused you to act in a manner that would not be expected of a purely rational actor.

Theory of the second best 
The best outcome was unachievable, so you have arrived here instead.

 

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A few words about trickle down economics

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Trickle down economics is a form of laissez-faire capitalism in general and more specifically, it is a form of supply side economics. Whereas general supply side theory favours lowering taxes overall, trickle down advocates prefer targeting the very wealthy for lower taxes. Trickle down theory is implicit in neoliberal discourse. As such, it’s become politically normalised. It’s become a form of tacit knowledge. 

However, the term trickle down originated as a joke by humorist Will Rogers and it is often used to criticise economic policies based on a justification of  ‘competitive individualism’ and ‘meritocracy’, which strongly favour and reward the wealthy and privileged, while being framed as ‘good’ for the average citizen. This of course is political hocus pocus and snake oil economics. The government has been pulling at supply side economic levers which, for some time, have been attached to nothing.

The economic ‘success’ of governments has increasingly been measured by an aggregated data set that fails to take into account actual wealth distribution, merit, social contribution, inequality, poverty, or even the welfare and health of public they claim to represent. This kind of economics has become overarching and totalising, sucking in the social realm of human relationships and transforming them into hierarchies of economic (and political) worth.

Democracy is shrinking with the economy, as more and more money, political power and influence is concentrated in fewer and fewer hands. 

The richest 1% of people in the UK own almost a quarter of the country’s wealth. The huge levels of inequality in the UK were revealed in a detailed assessment by Credit Suisse last year, that also showed the richest 5% of people in the country own 44% of all wealth. 

Commenting on the report, Sally Copley, the charity’s Head of UK Policy Programmes and Campaigns, said: “The wealthiest one percent of the population – who own nearly a quarter of all the country’s wealth – continue to do well whilst so many people in Britain are just about managing to stay above the poverty line.

“Globally, the richest one percent own more wealth than the rest of the world put together. This huge gap between rich and poor is undermining economies, destabilising societies and holding back the fight against poverty.” 

As we have recently learned, the wealth accumulated among the richest 1%, through the systematic dispossession of the rest of the population, is rather more likely to trickle offshore and to be hoarded than finding its way to the Treasury and then redistributed to ordinary citizens, rewarding them with a long awaited break from the futile, self-defeating consequences of neoliberalism: austerity, increasing poverty and inequality.

There is an expanding and gaping hole in the economy as more and more money is funnelled off by the government to hand out to the wealthy, while increasing numbers of other citizens are now teetering on the brink of the chasm without an adequate social safety net or political lifeline.

What remains of our public services are now also in private hands, serving the private interests of vulture profit seekers. 

Multiple studies have found a correlation between trickle down economics and reduced economic growth. Conservatives since Thatcher and Reagan, however, have insisted on imposing it, despite recessions, and the resulting social damage caused by rising inequality and poverty. When neoliberalism fails, the Conservative answer is to simply apply more aggressive neoliberal policies and increasing authoritarianism. 

According to the economist John Kenneth Galbraith, trickle down theory was once called the rather less elegant “horse and sparrow” theory, a couple of centuries back, which goes something like this: You feed the big horse all of the oats and the wee birds can feed in its wake.

Which is fine only if you happen to like a diet of horse sh*t. 

The US Chief Correspondent and Editor-at-Large of Mashable, tech expert, social media commentator, amateur cartoonist and robotics fan, has this to say:

Image result for @LanceUlanoff on trickle down


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Welcome to the Labour Party’s excellent Economic Advisory Committee of experts

gret deceit

Labour Press released this in September 2015:

UK has shameful but unsurprising levels of inequality

 

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Austerity was never about what works or what is needed. It’s about traditional Tory class-based prejudices. Austerity is simply a front for policies that are entirely founded on Tory ideology, which is  all about handouts to the wealthy that are funded by the poor.

David Cameron has often denied claims that his party has overseen a rapid rise in inequality. In fact last year, Cameron said that inequality is at its lowest level since 1986. I really thought I’d misheard him. 

This wasn’t the first time Cameron has used this lie. We have a government that provides disproportionate and growing returns to the already wealthy, whilst imposing austerity cuts on the very poorest. How can such a government possibly claim that inequality is falling, when inequality is so fundamental to their ideology and when social inequalities are extended and perpetuated by all of their policies? It seems that the standard measure of inequality has been used to mislead us into thinking that the economy is far more “inclusive’ than it is. Yet the UK is one of the wealthiest nations in the world.

Earlier this year a published report by the Dublin-based Foundation for the Improvement of Living and Working Conditions (Eurofound) stated that the UK has become the most unequal country in Europe, on the basis of income distribution and wages.

The report also says that the UK has the highest Gini coefficient of all European Union (EU) member states – and higher than that of the US. The coefficient is a widely used measure of the distribution of income within a nation, and is commonly used to calculate inequality.

A year ago, the Organisation for Economic Cooperation and Development (OECD) published research that confirmed what most of us already knew: that income inequality actually stifles economic growth in some of the world’s wealthiest countries, whilst the redistribution of wealth via taxes and benefits encourages growth. That debunks one of the nastiest Tory myths. Having long been advocates and engineers of social inequality, implying a mythological  “trickle down” as a justification, and hankering after a savage, axe-wielding minarchism, chopping away at our civilising public services and institutions, they are now officially a cult of vicious cranks. The problem is that the general public don’t pay much attention to research like this. They really ought to.

Conservatism is centred around the preservation of traditional social hierarchy and inequality. Tories see this, erroneously, as an essential element for expanding national economic opportunity. But never equal opportunity.

Conservatives think that civilised society requires imposed order, control and clearly defined classes, with each person aware of their rigidly defined “place” in the social order. Conservatism is a gate-keeping exercise geared towards economic discrimination and preventing social mobility for the vast majority. Inequality is so clearly embedded in policies – which are written statements of political intent.

According to the annual Family Spending Review for 2014, published by  the Office for National Statistics (ONS), the richest 1 per cent of the population have as much wealth as the poorest 57 per cent combined.  Wealth inequality has increased since 2012. The richest 10 per cent own half the country’s wealth.

Charities have urged the government to address Britain’s shameful and growing inequality after the figures published this week show that the country’s richest 10 per cent spend as much on alcohol and cigarettes in a week as the poorest spend on gas and electricity. That turns the dominant “feckless” poor narrative in the media on its head. Poverty doesn’t happen because people have poor budgeting skills. Poverty happens because people don’t have enough money to meet their basic needs.

The richest 10 per cent of households spent more per week on furniture – an average of £43.40 – than the poorest spent on food – £30.40.

The average weekly household spend was found to be £531.30, but there was great variation of this amount between the highest and lowest earning 10 per cent – £1,143.40 and £188.50 per week respectively.

By 2011/12, the poorest fifth of households spent 29 per cent of their disposable income on indirect taxes, compared with 14 per cent paid by the richest fifth. All told, the poorest households pay 37 per cent of their gross income in direct and indirect taxes. In other words, the single biggest expenditure for people in poverty is tax. It is, at the very least, morally unjustifiable to be taxing the poor at such a rate. The most important thing the government can do to help the poor is to stop taking their money.

David Cameron did once tell a truth, though it was an inadvertent Freudian-styled slip. He said: We are raising more money for the rich. Yes. From where, I wonder?

Oh yes. The poor.

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 Pictures courtesy of Robert Livingstone

 

Corporate nudging and the graveyard shift: would a stint in a coffin inspire you to work harder?

The emergence of Nudge theory in the 2000s – generally described as a system for change/societal-management, has increasingly been used by governments to understand and alter group behaviour – reinforces the principle that governance must be driven by needs of the people being governed, not by the governing authority.

Nudge theory has found its way into the business management and corporate culture. Although Nudge was initially developed as a concept by behavioural economists, its stated aim was the improvement of society, theorists claimed it was not designed as a mechanism for commercial exploitation, or government manipulation. However, there are no safeguards in place to prevent such exploitation and manipulation in the application of Nudge theories.  

Imagine the scene. You knew office morale had been low for a while, but you never thought senior management would go to quite such lengths to try and get everyone enthusiastic about their jobs again.

You and your co-workers file slowly into the meeting room and an array of perfectly aligned coffins comes into view. As your team development manager smiles and asks you to climb into a coffin – after all, it has your name on it – you are met by a photograph of yourself taken years ago when you still were optimistic about the future: “Now hug the image of yourself” is the final instruction before the coffin’s lid is closed.

No, this is not some bizarre scene from a Philip K Dick novel but an actual motivation exercise reported to have occurred in South Korea.

Faced with high stress levels and low productivity in corporate Korea, some employers have upped the ante, trying to get employees to embrace life at work rather than seek ever more desperate forms of escape. Firms send staff to the Hyowon Healing Centre, where its president explains the rationale behind the coffin ritual: “Our company has always encouraged employees to change their old ways of thinking, but it was hard to bring about any real difference … I thought going inside a coffin would be such a shocking experience it would completely reset their minds for a completely fresh start in their attitudes.”

To get employees in the mood they are shown videos of people overcoming debilitating conditions including cancer. As one employee robotically says as he emerges from a coffin: “I’ve realised I’ve made lots of mistakes. I hope to be more passionate in all the work I do, and spend more time with my family.”

What on earth is going on here? Actually, this extreme motivational technique is symptomatic of how work has changed over the last 20 years. What some call 24/7 capitalism has seen work overtake all other social activities to become the centre of society.

This is not only down to mobile technology, as some have argued, since there is nothing inherent in a smartphone that makes us work 24/7. No, the compulsion to check email and always be “poised to work” stems from the expectation that if you are not ready for that call from the boss then you are somehow deficient, disposable and lacking important qualities. No wonder a survey found 80% of employers find it perfectly appropriate to contact workers outside of business hours.

This weird “24/7 perpetual worker” was always the ideal goal of neoliberal economists such as Friedrich Hayek and Gary Becker. Because homo economicus is considered a superior being, we are constantly encouraged to transform ourselves into tradeable “human capital” and “permanent enterprises” that never switch off in case we miss that crucial deal.

We would expect unions and anti-work lobbyist to be at the forefront of resisting this trend. And they are. But large corporations are also trying to deal with the fallout, recognising the all-too human limits of this extreme ethos. Having unleashed 24/7 capitalism – and the ideal-worker to go with it – some businesses are frantically trying to put the genie back in the bottle.

Some firms in Europe and the US, for example, now deactivate their employees’ email after business hours because they realise that the obsessive-compulsive behaviour it inspires is bad for the worker and bad for business.

A Barclays’ banker was fired after it was leaked he declared to summer interns: “I recommend bringing a pillow to the office (yoga mat works as well). It makes sleeping under your desk a lot more comfortable, in the very likely scenario that you have to do that.” In light of the tragic case of Moritz Erhardt, the intern who died of an epileptic seizure after working nonstop for 72 hours, the comment was deemed very bad taste.

No wonder South Korean employers are taking extreme measures to put work back into perspective: actually ordering workers into a coffin and reminding them that life isn’t all that bad … death is worse.

The intertwined relationship between work and dying is the dark-side of the neoliberal fantasy and ‘ideal’ worker, which probably can’t be reversed so easily. When our society is reconfigured singly around our job or search for one, then work becomes more than something we do among other things: it becomes who we are. Thus escaping our job when things go wrong becomes exceedingly difficult. For how do you escape yourself?

It seems that neoliberal capitalism wants its cake, and to eat it too: a life of nonstop work and normal, balanced individuals. But something has to give.

Indeed, we can imagine the “coffin exercise” backfiring, an employee refusing to ever return to the pettiness of office life after realising that her existence must add up to more than merely sending emails all day. Inspired by neoliberal capitalism’s own contradictions, perhaps we are on the cusp of a new workers’ movement and the coffin exercise is not so morbidly wacky after all.

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You can read the original article here.

The media need a nudge: the government using ‘behavioural science’ to manipulate the public isn’t a recent development, nudging has been happening since 2010

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Last year I wrote a critical article about the government’s Nudge Unit. The ideas of libertarian paternalism were popularised around five years ago by the legal theorist Cass Sunstein and the behavioural economist Richard Thaler, in their bestselling book Nudge. Sunstein and Thaler argue that we are fundamentally “irrational” and that many of our choices are influenced negatively by “cognitive bias.” They go on to propose that policymakers can and ought to nudge citizens towards making choices that are supposedly in their best interests and in the best interests of society.

But who nudges the nudgers?

Who decides what is in our “best interests”?

And how can human interests be so narrowly defined and measured in terms of economic outcomes, within a highly competitive, “survival of the fittest” neoliberal framework? The Nudge Unit is concerned with behavioural economics, not human happiness and wellbeing.

The welfare reforms, especially the increased application of behavioural conditionality criteria and the extended use of benefit sanctions, are based on a principle borrowed from behavioural economics theory – the cognitive bias called “loss aversion.” It refers to the idea that people’s tendency is to strongly prefer avoiding losses to acquiring gains. The idea is embedded in the use of sanctions to “nudge” people towards compliance with welfare rules of conditionality, by using a threat of punitive financial loss, since the longstanding, underpinning Conservative assumption is that people are unemployed because of behavioural deficits.

I’ve argued elsewhere, however, that benefit sanctions are more closely aligned with operant conditioning (behaviourism) than “libertarian paternalism,” since sanctions are a severe punishment intended to modify behaviour and restrict choices to that of compliance and conformity or destitution. But nudge was always going to be an attractive presentation at the top of a very slippery slope all the way down to open state coercion. Most people think that nudge is just about helping men to pee on the right spot on urinals, getting us to pay our taxes on time, or to save for our old age. It isn’t.

How can sanctioning ever be considered a rational political action –  that taking away lifeline income from people who are already struggling to meet their basic needs is somehow justifiable, or “in their best interests” or about making welfare “fair”?  The government claim that sanctions “incentivise” people to look for work. But there is an established body of empirical evidence which demonstrates clearly that denying people the means of meeting basic needs, such as money for food and fuel, undermines their physical, emotional and psychological wellbeing, and serves to further “disincentivise” people who are already trapped at a basic level of struggling to simply survive.

The Minnesota Semistarvation Experiment for example, provided empirical evidence and a highly detailed account regarding the negative impacts of food deprivation on human motivation, behaviour, sociability, physical and psychological health. Abraham Maslow, a humanist psychologist who studied human potential, needs and motivation, said that if a person is starving, the desire to obtain food will trump all other goals and dominate the person’s thought processes. This idea of cognitive priority is also represented in his classic hierarchy of needs. 

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Maslow’s hierarchy of needs

In a nutshell, this means that if people can’t meet their basic survival needs, it is extremely unlikely that they will have either the capability or motivation to meet higher level psychosocial needs, including social obligations and responsibilities to job seek.

Libertarian paternalists claim that whilst it is legitimate for government, private and public institutions to affect behaviour the aims should be to ensure that “people should be free to opt out of specified arrangements if they choose to do so.” The nudges favoured by libertarian paternalists are also supposed to be “unobtrusive.” That clearly is not the case with the application of coercive, draconian Conservative welfare sanctions. (See Nudging conformity and benefit sanctions.)

Evidently the government have more than a few whopping cognitive biases of their own.

I have previously criticised nudge because of its fundamental incompatibility with traditional democratic principles, and human rights frameworks, amongst other things. Democracy is based on a process of dialogue between the public and government, ensuring that the public are represented: that governments are responsive, shaping policies that address identified social needs. However, policies are no longer about representing and reflecting citizen’s needs: they are all about telling us how to be.

I’ve also pointed out that nudge operates to manipulate at a much broader level, too. The intentional political construction of folk devils and purposeful culturally amplified references to a stereotype embodying fecklessness, idleness and irresponsibility, utilising moral panic and manufactured public outrage as an effective platform for punitive welfare reform legislation, is one example of the value-laden application of pseudoscientific “behavioural insights” theory. The new paternalists have drawn on our psychosocial inclinations towards conformity, which is evident in the increasing political use of manipulative normative messaging. (For example, see: The Behavioral Insights Team in the U.K. used social normative messages to increase tax compliance in 2011.) 

The paternalist’s behavioural theories have been used to increasingly normalise a moral narrative based on a crude underpinning “deserving” and “undeserving” dichotomy, that justifies state interventions imposing conditions of extreme deprivation amongst some social groups – especially those previously considered legally protected. Public rational and moral boundaries have been and continue to be nudged and shifted, incrementally. Gordon Allport outlined a remarkably similar process in his classic political psychology text, The Nature of Prejudice, which describes the psychosocial processes involved in the construction of categorical others, and the subsequent escalating scale of prejudice and discrimination.

So we really do need to ask exactly in whose “best interests” the new paternalist “economologists” are acting. Nudge is being targeted specifically at the casualties of inequality, which is itself an inevitability of neoliberalism. The premise of nudge theory is that poor people make “bad choices” rather than their circumstances being recognised as an inexorable consequence of a broader context in which political decisions and the economic Darwinism that neoliberalism entails creates “winners and losers.”

I have seen very little criticism of nudge in the mainstream media until very recently. On Monday the Independent published an article about how the Chancellor exploited our cognitive biases to secure his cuts to welfare, drawing particularly on the loss aversion theory. To reiterate, in economics decision theory, loss aversion refers to people’s tendency to strongly prefer avoiding losses to acquiring gains.

From the Independent article:

“Researchers have also found that people do not treat possible forgone gains resulting from a decision in the same way as equivalent potential out-of-pocket losses from that same decision. The forgone gains are much less psychologically painful to contemplate than the losses. Indeed, the gains are sometimes ignored altogether.

There was an apparent attempt to harness this particular psychological bias in George Osborne’s Autumn Statement. Of course the Chancellor was forced into a memorable U-turn on his wildly unpopular tax credit cuts. Millions of poor working families will now not see their benefits cut in cash terms next April. Yet the Chancellor still gets virtually all his previously targeted savings from the welfare bill by 2020.

How? Because the working age welfare system will still become much less generous in five years’ time. As research from the Institute for Fiscal Studies and the Resolution Foundation has shown, the typical low-income working family in 2020 will be hit just as hard as they were going to be before the Autumn Statement U-turn. The Chancellor seems to be calculating that the pain of future forgone gains will be less politically toxic than immediate cash losses.”

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It’s hardly a revelation that the Conservative government are manipulating public opinion, using scapegoating, outgrouping and the creation of folk devils in order desensitize the public to the plight of the poorest citizens and to justify dismantling the welfare state incrementally. As I’ve pointed out previously, this has been going on since 2010, hidden in plain view.

In the article, Ben Chu also goes on to say:

“Experiments by Daniel Kahneman, Jack Knetsch and Richard Thaler also suggest that this stealth approach fits with people’s sense of fairness. They found that in a time of recession and high unemployment most people they surveyed thought a hypothetical company that cut pay in cash terms was acting unfairly, while one that merely raised it by less than inflation was behaving fairly.

There was another exploitation of our psychological biases in the Autumn Statement. The Chancellor announced an increase in stamp duty for people buying residential properties to let. That underscored the fact that the Chancellor remains wedded to the stamp duty tax, despite pressure from public finance experts to shift to a more progressive and efficient annual property tax (perhaps an overhauled council tax).

But Mr Osborne, like all his recent predecessors, realises that stamp duty, for all its deficiencies, tends to be less resented as a form of taxing property. Why? Because of “anchoring”. When people buy a house they are mentally prepared to part with a huge sum, usually far bigger than any other transaction they will make in their lives. The additional stamp duty payable to the Treasury on top of this massive sum, large though it is, seems less offensive. People resent it less than they would if the tax were collected annually in the form of a property tax – even if, for most, it would actually make little difference over the longer term. Sticking with stamp duty is the path of least resistance.”

There is another economologist “experiment” that seems to have slipped under the radar of the media – an experiment to nudge sick and disabled people into work, attempting to utilise GPs in a blatant overextension of the intrusive and coercive arm of the state. It is aimed at ensuring sick and disabled people don’t claim benefits. I don’t recall any mention of behaviourist social experiments on the public in the Conservative manifesto.

When I am ill, I visit a doctor. I expect professional and expert support. I wouldn’t consider consulting Iain Duncan Smith about my medical conditions. Or the government more generally. There are very good reasons for that. I’m sure that Iain Duncan Smith has Dunning–Kruger syndrome. He thinks he knows better than doctors and unreliably informs us that work can set you free, it can help prevent and cure illness.  Yet I’ve never heard of a single case of work curing blindness, heart disease, rheumatoid arthritis, cerebral palsy, multiple sclerosis, cancer or even so much as a migraine. I’ve also yet to hear of a person’s missing limbs miraculously growing back. The Conservative “medical intervention” entails a single prescription: a work coach from the job centre. State medicine – a single dose to be taken daily: Conservative ideology, traditional prejudice and some patronising and extremely coercive paternalism. The blue pill.

I don’t agree with the conclusions that Ben Chu draws in his article. Whilst he acknowledges that:

“The Government has a Behavioural Insights Team (or “Nudge Unit”) whose objective is to exploit the public’s psychological biases,” he goes on to say that it’s merely “to push progressive policies, such as getting us to save more for retirement and helping us make “better choices”, perhaps by counteracting the negative impact of loss aversion. But, as we’ve seen, the Chancellor is not above exploiting our biases in a cynical fashion too.” 

Progressive policies? The draconian welfare “reforms” aren’t remotely “progressive.” In the UK, the growth and institutionalisation of prejudice and discrimination is reflected in the increasing tendency towards the transgression of international legal human rights frameworks at the level of public policy-making. Policies that target protected social groups with moralising, stereotypical (and nudge-driven) normative messages, accompanied with operant disciplinary measures, have led to extremely negative and harmful outcomes for the poorest and most vulnerable citizens, but there is a marked political and social indifference to the serious implications and consequences of such policies.

There is a relationship between the world that a person inhabits and that person’s actions. Any theory of behaviour and cognition that ignores context can at best be regarded as very limited and partial. Yet the libertarian paternalists overstep their narrow conceptual bounds, with the difficulty of reconciling individual and social interests somewhat glossed over. They conflate “social interests” with neoliberal outcomes.

The asymmetrical, class-contingent application of paternalistic libertarian “insights” establishes a hierarchy of decision-making “competence” and autonomy, which unsurprisingly corresponds with the hierarchy of wealth distribution.

So nudge inevitably will deepen and perpetuate existing inequality and prejudice, adding a dimension of patronising psycho-moral suprematism to add further insult to politically inflicted injury. Nudge is a technocratic fad that is overhyped, theoretically trivial, unreliable; a smokescreen, a prop for neoliberalism and monstrously unfair, bad policy-making.

Libertarian paternalists are narrowly and uncritically concerned only with the economic consequences of decisions within a neoliberal context, and therefore, their “interventions” will invariably encompass enforcing behavioural modifiers and ensuring adaptations to the context, rather than being genuinely and more broadly in our “best interests.” Defining human agency and rationality in terms of economic outcomes is extremely problematic. And despite the alleged value-neutrality of the new behavioural economics research it is invariably biased towards the status quo and social preservation rather than progressive social change.

At best, the new “behavioural science” is merely theoretical, at a broadly experimental stage, and therefore profoundly limited in terms of scope and academic rigour, as a mechanism of explanation, and in terms of its capacity for generating comprehensive and coherent accounts and understandings of human motivation and behaviour.

At worst, the rise of this new form of psychopolitical behaviourism reflects, and aims at perpetuating, the hegemonic nature of neoliberalism.

But for the record, when a government attempts to micromanage and manipulate the behaviour of citizens, we call that “totalitarianism” not “nudge.” 

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Related reading

A critique of Conservative notions of social research

The government plan social experiments to “nudge” sick and disabled people into work

Mind the MINDSPACE: the nudge that knocked democracy down

Nudging conformity and benefit sanctions