18 July 2014

from Lawrence, SATURDAY PhiloMadrid meeting: Poverty and Welfare


Dear friends,

The topic we are discussing this Saturday is: Poverty and Welfare.

This is a very trendy topic these days and given the economic and social
mess we are in we might be justified in thinking that these issues go
together. But as I tried to argue in the few paragraphs below, although
welfare and poverty might inhabit the same abysmal grounds they are not
necessarily blood relatives.

In the meantime Lola has also sent us her ideas on the topic she
proposed and Ruel has kindly sent us the link to his essay.

Hello Lawrence,
I wrote something on Saturday's PhiloMadrid topic and here's the link:

Thanks. See you.


It seems that human society may have long periods of welfare going back
to an increase of poverty again.
The cyclical issue provides with golden and obscure ages throughout times.

After world war ll, there has been a long period of prosperity and the
nations seemed to race up in the pyramid of wealth more a more all
through the western developed countries in the past seventy years more
or less.

So, what happened? Now the tendency seems to go back to pre-war times in
terms of unemployment and flight of capital anxiously looking for better
profits, it looks like "end of world" attitude. It is not that big money
doesn´t earn enough, but it is for capitalists certainly not enough if
they cannot count of big sums of money coming into profits.

Capitalism should be punished for antisocial attitudes, but reality
tells us that nobody is good enough to stop it, so they can turn lives
of millions into misery without any legal problem or conscience´s.
Nowadays the capital is sacred, the individual investments whatever they
are based on are also sacred. Everywhere there is fear; it seems as if
it should be the end of times.

I think one principle has been broken: progressive tax to people with
higher incomes is no longer applied in some countries such as Spain.
Rich people express great tension and they need to protect themselves
with unconceivable laws to encourage this.

So, the transfer of funds to services provided, mainly healthcare and
education is been jeopardized. Obviously the immigration tide has much
to see in this subject, as society leaders have turned to contemplate
people, not as co-nationals but as a mass of greedy people trying to
solve urgent problems their countries of origin do not provide them
with, as rulers are autocrats in countries they think they own. So we
have all become European immigrants in our own countries in spite of
paying high taxes to ensure basic social services.

Welfare state has been damaged in such principles as equality of
opportunity, equitable distribution of wealth and public responsibility
and very important: to ensure minimal provisions for a good life.

Capitalism is endangering ethics, as they have got an army of thousand
of million people in poor countries fighting for survival to be enslaved
freely, with greedy governments ready to cooperate or look on the other

Lola Garona.


Those political commentators who usually argue agaist welfare put
forward two arguments. The first is that welfare is subject to abuse to
the extent that countries with generous welfare systems attract economic
migrants that are a burden on the system. The second argument is that
welfare discourages people from entering the labour market and thus
become contributors to the economy.

I am not convinced that poverty and welfare are necessary determining
causes on each other. Hence, although in some respects they are
connected, poverty and welfare have a scope independent of each other.

Without going into too much detail the modern version of the welfare
system is conceptually based on the British system that was a political
promise made to the British people for their sacrifice during the Second
World War.

The system was based on a sort of pyramid scheme where one third of the
nation would finance and support the rest of the country and the very
same workers who might find themselves in financial trouble.

The irony is that today's failure of the welfare state system is caused
by the very same factor that has caused the collapse of the neo liberal
economic system. This factor is the assumption that there will always be
a net growth in the economy and hence businesses and job creating
institutions will always be net recipients of this wealth. The welfare
state was never supposed to be financed by borrowed money and the neo
liberal economy was supposed to create new money. However, the economy
post 1980's was beginning to affect the welfare system and labour
market. One of the big changes at the time was that credit was no longer
a vehicle to enable transactions but a means to create more money in the
system by simply buying everything today and pay later; except more
money in the system does not equate to wealth. And as everyone knows
today many people are going to be unemployed later. Money is what we
need for transactions but wealth is what we need for investment: buying
a car is a transaction, owning the patent rights of the car is wealth.

But creating money and especially wealth takes time and time is what
people who wanted to get rich quickly did not have. Hence the situation

It is true that abuse of the welfare system can put strains on the
system but abuse in and of itself is not an argument to reduce or get
rid of the welfare state. After all no one suggests that we should get
rid of the government just because some ministers abuse their office.

One of the most effective ways for people not to abuse the welfare state
is to create a stable economy for companies to create wealth and thus
offer stable jobs to people. But wealth creation is incompatible with
quarterly profits higher than the previous quarter.

The other way to reduce welfare abuse is to have a mechanism that makes
abuse difficult but legitimate users easy to obtain. Helping people in
kind rather than cash can go a long way. People who abuse the welfare
system are usually after the cash and not the services it provides.

As for the argument that welfare creates a dependency for people that
make it difficult for them to want to enter the labour market is
probably also based on a fallacy. The irony is that neo liberal economic
thinking (and I am using the term rather loosely here - another non
academic term would probably be free-for-all economics) is that although
there is no ration agent to model economic behaviour, the rational thing
to do for a person on welfare is to stay on welfare if the alternative
is not sufficiently profitable.

Furthermore, even if we discount labour movement, not only must a job be
more profitable than a welfare payment, but more importantly, there must
be jobs to go to. What is clear is that there are not many jobs in most
economies to cater for the various skills one finds in an economy; and
still pay a fair wage. It is beyond a coincidence that the welfare
system is mainly used by unskilled people and not many bank presidents
or CEOs of multinationals rely on the welfare system for their income.

What was once a system that served as a safety net for people in
transition between jobs or hardship periods has today become a long term
country club where governments underwrite the subscription fees so that
the private business sector can pursue short term profits instead of
long term wealth and growth.

The only relationship between poverty and the welfare system is that
poor people are more likely to be excluded from the profitable labour
market. But poverty is not just a matter of not having money but also a
mind set, or group culture. Many people don't have money but still
retain their dignity and still manage to be in reasonably paid jobs.

What is happening today is that there seems to be a class shift
downwards. Those people who once occupied the lower and middle levels of
the middle class have had their real income reduced substantially to the
extent that their living standards have been reduced but their asset
costs have increased (i.e. mortgages, cost of education, transport,
health costs). The poor have always remained poor and those who made it
out of this class did so on their own and through hard work. The middle
classes were never meant to be members of the welfare system but net

But if you remember, the middle class was the creation of more complex
machinery of state that was required by monarchs to keep their enemies
away from their wealth. The king (sometimes queen) had enough people to
help them plunder the wealth of the land and that of others. He only
need a middle class when more people wanted part of the action and
started offering their more sophisticated ways to plunder more
efficiently. Today, these maverick kings are not called kings, but CEOs,
heads of families, presidents, offshore investors, and "bosses". And
like their predecessors they do not need to employ many people to
channel the bulk of global wealth their way.

Thus poverty is inequitable distribution of resources probably based on
the natural instincts of greed and domination of others. The welfare
system was a political pact in recognition that those who operate the
machines of state and production (working classes) are worthy of
recognition and help when they need it. However, this pact in now in
tethers because the state as a model of power and wealth distribution
has been abrogated in favour of wealth concentration by a few economy
outriders and their sidekicks.

Best Lawrence

tel: 606081813
philomadrid@gmail.com <mailto:philomadrid@gmail.com>
Blog: http://philomadrid.blogspot.com.es/
PhiloMadrid Meeting
Meet 6:30pm
Centro Segoviano
Alburquerque, 14
28010 Madrid
Metro: Bilbao
Open Tertulia in English every Thursday from 19:30 to 21h at
Irish Pub, c/ Barceló 1 (metro Tribunal)

from Lawrence, SATURDAY PhiloMadrid meeting: Poverty and Welfare

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