I posted this video on YouTube this morning:
The transcript is:
I am deeply offended by welfare for wealthy people.
Now I don't particularly like the term welfare because I think that ‘social security' or ‘benefits' are much better terms than welfare, but it happens to work quite nicely in the context of making payments to the wealthy that they don't deserve.
What payments am I talking about? Well, since 2021, the Bank of England has increased its base rate of interest from 0.1 per cent to 5.25 per cent. And as a consequence, as we all know, vast amounts of extra interest has been charged in the UK on those who have had to borrow.
Mortgage holders are paying more.
People who pay rent pay more because their landlords, by and large, have mortgages.
And we're also paying more for many products that have interest implicit within them. Car loans, for example.
On the other side of the equation - and there is always another side of the equation in economics - somebody is benefiting hands down. Who's benefiting? Well, the owners of the wealth on which interest is paid are benefiting.
The interest rate went up from 0.1 per cent to 5. 25 per cent. It's unusual for anybody to have earned 5.25 per cent on their deposits, of course, over that period. But real interest rates have risen from well under 1 percent in 2021 to over 4 percent still if you search around. In other words, the wealthy have benefited enormously from the welfare that has been provided to them by the Bank of England's benevolence, which is biased in their favour.
That means they have vastly more income available to them at present, whilst those who have had to borrow to live and those on lower income - those who are younger by and large - have had much less. This has had a serious economic impact. The wealthy are, in effect, of course, able to spend more right now and have still been fueling inflation, despite the Bank of England's efforts to increase interest rates to suppress inflation.
Counterintuitively, they have, in fact, even more cash to spend and, therefore, have the most impact upon inflation - the consequence being that inflation has not gone away as fast as was anticipated.
It's bizarre. We have literally created a system where inflation control doesn't work, interest rates don't achieve the desired outcome, but the rich get richer.
What a great surprise. And what a news story that is. A news story that's not being said on any of the mass media, which is why I thought I'd mention it here.
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“… there is always another side of the equation in economics.”
Surely a definition of money which unfortunately eludes most people other than the simplistic “household budgeting” viewpoint.
Thanks Richard, I have up on mainstream media a few years ago
Reducing welfare for the wealthy is one of the successes of the new Universal Credit system. The previous system of ‘Tax Credits’ took no account of your wealth so very wealthy people on lower incomes were treated the same as people in debt on lower incomes.
I think Ian Duncan Smith should be applauded at least for that.
That is a theme I see a lot with neoliberalism and Tory economics.
Socialism for the well-off (bail-outs, hand-outs, colossal government spending to private companies).
Capitalism for the least well-off (those with the least money pay for everything, and subsidise the well-off).
It hasn’t always been so, but I think more people can see what they are doing.
Are you struggling to understand the difference between real rate and nominal rates?
With inflation at 3% or above, real rates have barely been 0%, maybe 1%, but 4% you are claiming.
You do realise that my argument is not in any way dependent on that distinction?
I doubt you really are an economics teacher.
Real interest rates of over 4% ?
For that to be true using the Bank of England rate of 5.25% quoted in your article inflation would have to be lower than 1.25% which it clearly isn’t.
I wonder how you’ve calculated real interest ?
I talked about interest rates
Not real interest rates
Why make the rest up?
“But real interest rates have risen from well under 1 percent in 2021 to over 4 percent”
This is what you said.. nobody is making anything up
By real I mean those paid in the real world as opposed to the rates set by the BoE, as the context made abundantly clear, unless of course you are an acolyte of Tim Worstall, which ho doubt you are. I know you guys (you do all seem to be guys) live in some fantasy economic universe. I write about the real one.
The classical community have spent much of the last 14 years talking about negative real interest rates.
Negative real meaning the best rate you can get from a bank deposit less the rate of inflation.
Is this concept being useful a bit of an urban myth, or is it a genuinely useful concept as the classicals say.
A glossary entry could be order in my view.
Straw man should go in there too.
Noted
Back in the early 1990s, I heard the term Wealthcare coined in response to certain George Bush policies, I believe it could also aptly be used here!
All the outraged puffery about what is at best a careless ambiguity in the haste of incessant blogging (and note the point about momentary respite) blowing it up into hysterical finger-pointing is an obvious marker for cheap trolling, to be frank. And the accompanying blister doesn’t disguise it.
momentary respite today was mentioned in the first blog today. The trolls are spinning fake indignation for everything the can. Try gown up debate .
Yesterday’s video has been watched 8,500 times. I think the trolls are very worried.
As Erica said, the mistake was easily forgivable if it had been accepted and corrected when it was pointed out. However, the response from Richard was unfortunately typical, denial, accusation, abuse.
Richard should really do better here, he really doesn’t help himself.
I did not make a mistake of any sort
I used plain words
I referred to actual interest rates in the real world aimed at people living in the real world – not neoliberal fantasists. And the phenomenon I described is a real one, in that real world.
I have literally nothing whatsoever to apologise for. I do apologise when I have.
Once again, you could simply have said ‘Sorry, I realise that is a bit misleading, what I meant was ‘real’ as in the actual interest rates being paid on bank accounts’.
But you have to pretend you’ve not said it, challenge other people’s qualifications, abuse other people and claim they are making thus up, (effectively) call them trolls and then pretend that it was obvious all along.
Could you be any more objectionable? It’s hardly likely to endear new readers to your blog, even if they might support some of your views.
The only thing my readers dislike are pedantic, neoliberal, truth-distorting trolls like you.
I’m rich by historical and current world standards, but would not regard myself as rich by current UK standards as I earn under the median wage. Nevertheless, because I genuinely don’t have time for leisure right now, my partner still works and we have no weddings or grandchildren coming up, it makes sense to keep working and move my excess income over expenses into a savings account.
On this I can get around 5.25% interest tax free, and the core rate of inflation is about 1% less than that.
To me that represents a real interest rate of about 1%, and that’s a benefit to me for sure, not complaining. But do you have an explanation as to why my calculation of the real interest rate might be wrong, and the nominal rate is more valid in assessing your headline claims?
You might think that way
99% of people don’t
I will post in this tomorrow
And trolls like you will not be posting again
Welfare for the Wealthy. That is a great strapline, worth repeating, and headlining. Not least as the pitch-point for your taking wealth report: Stop Welfare for the Wealthy.
I wish I had thought of it earlier…..
Some time ago (BC – before Covid), BBC Countryfile highlighted a Scottish Highland estate’s evolution from a traditional sporting estate towards diversification including the possibility of more commercial forestry, agriculture and holiday lets. When asked to outline the plan for the future of the estate, the owner, daughter of the previous more traditional owners replied that the future direction largely depended on ‘what grants were available’, which sounded to me at the time very much like welfare for the wealthy.