18 Jan 2011

Public Expenditure and the Affordability Fallacy

a morcel of food for thought for my fellow researchers at one of Romania's top academic institutions...

by John Weeks

Implicit in almost every discussion on public expenditure and revenue, and most virulently on the debate over deficit reduction, is the fallacy of public affordability. This fallacy is manifested, for example, in the argument in the United Kingdom that if university education is available to a large portion of the population, the public sector cannot afford to deliver it without substantial fees, even less to provide support grants to all students. This lack of public sector ‘affordability’ means that people must pay for their own education.

Because ‘the public sector cannot afford’ to provide university education, it is necessary to ration the public contribution on the basis of need (income or means testing). The same argument is applied in every major area of social expenditure: with an ageing population, ‘the public sector cannot afford’ more than a safety net pension; cannot afford to provide all the drugs and care needed by that ageing population, and so on.

‘Affordability’ arguments are fallacious. The fallacy is obvious once one views it from the level of society as a whole. Consider education. Only a tiny minority of people would argue that individual families should wholly fund the primary education of their children with no public sector contribution. This near-consensus results from the conviction that children have a right to be educated, and that a democratic society requires an educated and informed public. These convictions determine the provision of primary education by the public sector, not public finances. Primary education should be for everyone, regardless of income or status, and if some wish to contract for private education, they may do so. The social consensus on public provision of secondary education is equally broad (for everyone), but the number of years provided varies (lower in Britain than most developed countries). Only a few on the far right wing would argue that the public sector “cannot afford” to provide primary and secondary education for all, though in practice many right of centre attempt to minimize the expenditure and therefore the quality of provision.

The same principle applies to university education: what is the appropriate coverage and to what level? Here there is no consensus, and those who believe that people have no right to higher education avoid taking that potentially damning position by seeking cover under the affordability argument: ‘I wish we could provide everyone with a university education, but we cannot afford it. In any case, people gain personally from higher education, so they should pay for it themselves to the extent that they can. The public sector can only afford to help the poor, and if you are poor and clever you will find funding.’

This line of argument is the most superficial mendacity, and would apply equally to primary and secondary education. The true essence of the affordability of higher education argument is, ‘People have no right to higher education. If they want it, let them pay for it. If you are poor and clever you might go to university. If you are dumb and rich you certainly will.’

When there is a social consensus that people have a right to a university education if they want one, then reducing public expenditure and raising fees does not save society money. There are two affects: 1) for those with high incomes it shifts expenditure from the public sector to households, and 2) for those on low incomes it reduces provision. It ‘saves public money’ in the same sense that not repairing railway bridges is a public sector financial gain.

Most pernicious is the application of the affordability fallacy to pensions and health. Two core values of democratic societies are that children have a right to education and the old have a right to live their final years in decent conditions with dignity. Given this consensus on the elderly, discussing financial affordability is grotesque. The question is, in light of a country’s economic development and productive resources, what level of decency can and should society provide to everyone past a certain age? Once the level is decided, it merely remains to decide the institutional mechanism by which it will be funded. Considerable empirical evidence indicates that provision of pensions through the public sector has the lowest resource cost. This is primarily because unlike private insurers, the public sector need charge no risk premium. Its revenue is guaranteed, and the growth of that revenue is determined by the growth of the economy as a whole.

Even more obvious is the fallacy of the affordability argument for health care. It is an appalling manifestation of the power of capital in US society that there seems to be no consensus that everyone has a right to be healthy, a principle Franklin Roosevelt included in his ‘Economic Bill of Rights’ speech in January 1944, that every American had ‘the right to adequate medical care and the opportunity to achieve and enjoy good health’. In almost every other developed country this principle is accepted. When it is accepted, as with education and pensions, the issue is not financial affordability, nor is it coverage (everyone qualifies). The only issue is the level of society’s obligation to itself on health care.

The affordability argument perpetuates a profoundly anti-social and anti-democratic fallacy. Whoever makes it asserts (as Margaret Thatcher did) that there is no society and no obligation to fellow human beings beyond an absolute minimum that the residual of social decency forces upon even the most reactionary Thatcherite or Reaganite. Reducing that residual of social decency is the project of the affordability fallacy. Existence is viewed as a collection of isolated individuals, for whom one has no concern, even if, or especially if, for those whose lives are rendered nasty, brutish and short.

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