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.
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?