It’s Important To Understand Why Cash Is The Best Christmas Present

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It’s somewhat sad when the deputy economics editor of a national newspaper manages to get the economic point being made wrong. So it is that we have the Telegraph telling us that cash isn’t the best Christmas present:

On the first day of Christmas my true love gave to me: a wad of cash with neither a partridge nor a pear tree in sight.

One the second day it was the same. And the third day too.

That is because my true love is an economist, and economists have no sense of the magic of Christmas.

You can guess how the full 12 days of the festive song will go at this rate. No maids a-milking, thank you very much – and certainly no racket from all of those drummers drumming, if it is all the same by you.

Traditional economic theory would suggest that buying presents is a poor use of money.

No, that’s not the point being made at all. It is that non-cash is a poor receipt of value.

The point being made is dual, that individuals have agency and that utility is entirely personal.

To unravel that jargon.

Individuals, peeps, are able to make choices. We delight in making choices in fact, “agency” is the opposite of “anomie”, that feeling that society determines what we may or can do that so depresses the human spirits. We get to choose to get up at 6 am or 8. Have coffee or tea when we do. Go buy the latest platters from the newly popular beat combo, pay the ‘leccie bill or have the coffee out at an emporium.

Having choices, making them, makes people happier.

Secondly, utility. The result of those choices, which of them will maximise happiness, is different for each and every individual. Sure, we can aggregate some of them – food is usually pretty high up everyones’ list, that first litre of water a day tops most. But the higher up Maslow’s Pyramid we go the more tastes – and thus happiness devoured – differ.

So, we make humans happier by their having the choice to do what they want, not what others think they should want or have.

Thus, give people cash at Christmas not socks.

Balancing that is the obvious point that the care and attention with which a present is considered is part of that consumption of happiness. The boyfriend who actually listens to the type of clothing desired and goes gets it provides that joy that a bloke has, for once, been listening. Or the book that would never have been individually considered but was chosen because it might – and does.

Sure.

But the point isn’t about Christmas at all. That’s a way of wrapping the point so it can be left underneath the tree of knowledge.

The actual point is that we shouldn’t be giving the citizenry things, or services, from the public finances. If we think people – poor people usually but not always – should have more than they do then we should give them the cash so they can go get the more they want. Not the more some bureaucracy somewhere thinks they should have.

Thus we should not have universal provision of something, we should simply redistribute the cash and allow people to purchase what they desire. For they have agency and utility is personal.

True, we need to distinguish between those things that are public goods and those that are private. Public here meaning non-rivalrous and non-excludable, not goods supplied to the public. So, law’n’order is provided to everyone because it’s a public good. Health care isn’t but the funds to purchase it if desired are.

And yes, I really do mean health care. US Census has been moaning for decades now that the recipients of Medicaid value it at less than it costs to provide it to them. They would be made richer if they just got the cash. Taxpayers would be made richer by giving them the same value in cash instead of the health care. Everyone would be made richer if the poor got cash to a bit more than the value they place on Medicaid, a little less than it costs to provide it to them. This would be a Pareto improvement, everyone being made better off at the same time, something of the Holy Grail in economics.

We can explain why too, think back to Maslow’s Pyramid. A slightly different concept but illustrating the same point is that of superior, or luxury, goods. These are things we spend more of our income upon as our income rises. So, richer people spend more on health care than poorer people. This is simply an outcome of homo sapiens being ‘uman beans and exercising their preferences – utilising their agency to maximise their individual utility – as their disposable resources rise. For health care is one of those luxury goods.

Delivering health care to poorer people is thus not just that denial of their agency, ignoring of their personal utility calculations, it’s to force upon them the consumption patterns of richer people. Against their own calculations of their own best benefit.

All of which is what economists are trying to package up into that story that you should give cash for Christmas. But do note that it’s a story. The moral of which is that we should be giving the poor cash, not things.

To insist upon that universal provision, upon the government deliverance of goods and services to all, is to be insisting that the proles are too stupid to know what they ought to want and the upper middle classes colonising the bureaucracies know better.

But then that’s left wingery all over, isn’t it?

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Mr Yan
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Mr Yan

But if you give the poor money and they buy a TV what happens when they are ill?

Andrew Carey
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Andrew Carey

They go to the doctor and get treated. They might tap their overdraft or their friends or family to do so, but they get treated because their friends and family care about them, or the bank providing the overdraft albeit at high rates knows they have an income stream ( from the government money scheme to buy stuff ) and some assets ( like the TC you mentioned ).
Next year, the poor person is more inclined to buy the basic insurance package. Doesn’t like the bank’s rates, or the guilt of tapping friends/relatives.

Mr Yan
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Mr Yan

Ah, but as everyone knows from the US experience, if you get the slightest bit ill, the doctors shaft you and you go bankrupt. Want a baby, get charged £100k. We can’t have teenage girls on benefits deciding not to get up the duff because of the costs!

Spike
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Spike

What we know from the US experience is that the poor person doesn’t feel guilt at all from availing himself of government money. This is implicit in the “welfare” system and was made explicit when the Electronic Benefit Transfer was introduced to eliminate “stigma.”

Jim
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Jim

You’re imputing a nice middle class situation and attitudes all round to those who would find themselves in such situations. What would happen is a) the money would get spaffed up against a wall, b) the person would eventually get sick and need healthcare, c) such individuals would be then paraded around by the usual suspects as evidence of the heartlessness of the neoliberal capitalist overlords, and d) the taxpayer would be demanded to bail out such people, which e) would happen because no politician is capable of saying ‘No, go die in a ditch, its your own fault’ to… Read more »

Jim
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Jim

Which of course is exactly what happens with regards to ordinary welfare payments and food banks. We give people £££ to feed themselves and their families, if they fail to manage that money wisely and end up with no money for food at the end of the month, and have to attend a food bank, this is used as ‘evidence’ of the uncaring nature of the evil capitalist bastards, Jacob Rees-Mogg etc etc etc.

Bloke on M4
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Bloke on M4

I’ve had this argument with people who support arts funding. If the poor can’t afford opera, give them money.

The truth is that what most of the left care about isn’t helping the poor, it’s increasing the bureaucracy. More union jobs, more salaries for them. Look at Labour’s manifesto: there’s nothing in it for the poor. It’s all for Corbyn’s buddies.

Phoenix44
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Phoenix44

I dont think that’s right. What most of the Left care about is telling people what to do or say or think. That’s why they care little about the outcomes of their policies and very much about how those outcomes are delivered. Somebody who actually cared would want the best health outcomes for the most people and wouldn’t care who owned or ran the system that delivered that. Same with education or a railway. But the Ledt cares very much that they get to decide what is done and to whom.

Spike
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Spike

No, Mr Yan, give that beggar a fiver and he won’t even buy a tool like a television (coz he doesn’t save), but will spend it on screw-top wine or cocaine. Yes, according to his values and not ours. But our values could solve his poverty problem and his values will not. So Tim’s point that we should minister to poverty by giving cash, perpetuates poverty while making us feel we are doing something. A better way to acknowledge “agency” is to give the cash back to the guy who earned it, and let him give it to the beggar… Read more »

Phoenix44
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Phoenix44

Why is the beggar a good and representative example of the point?

Spike
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Spike

If you have a euphemism for the recipient of coerced transfer of funds, such as “client,” you may substitute it. But the “client” is not the same type of person as the source of the funds, simply victimized by the absence of wealth. In some cases, poverty is caused by bad decision-making, and injecting funds does nothing but fund more bad decision-making, whereas free government cheese does not.

Phoenix44
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Phoenix44

A person made unemployed through no fault of their own is not a beggar who will spend cash on drugs. Is that not simple enough?

Spike
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Spike

Perfectly simple. Equally simply, a person made unemployed through showing up for work stoned, or not at all, will spend replacement cash on drugs. Neither model explains all cases of requesting unemployment benefits. A private giver would distinguish; a government rulebook will not.

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Michael van der Riet
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Michael van der Riet

I feel just a teeny bit peed off when someone thinks that they can buy me off by giving me cash. I want a visible something like socks or a three-pack of underpants and why not a bottle of 5-year old, to show that they actually thought about me and guessed at my preferences.