Category: Business

Posts concerning business management and finance.

The Accidental Outsiders

Accidental outsider on a bridge with the University of Oxford University on the right and a northern English town on the left.
Why We Need More Than One Perspective

I have come to realise that the most valuable education I ever received was learning to see the same country from two completely different points of view.

I was reminded of this recently while listening to Andy Burnham speak about the “Makerfield test”: his promise that national policy should be judged by whether it improves life in places such as Makerfield, rather than merely satisfying the economic and political orthodoxies of Westminster.

I was attracted to the idea immediately. That was not altogether surprising. Burnham and I have several things in common.

We both came from relatively humble backgrounds in the North of England. We both went on to study humanities at Oxbridge — English at Cambridge in his case, French and German at Oxford in mine. We both entered worlds far removed from those in which we had grown up. And both of us, in very different ways and on vastly different public stages, appear to have become increasingly interested in the distance between the Britain described by its institutions and the Britain experienced by many of its people.

That does not mean I agree with Burnham on every issue. I don’t.

What interests me is the journey between two social worlds, and what that journey allows a person to see.

Learning to see two Britains

Social mobility is normally described as movement in one direction.

A child from an ordinary background works hard, receives a good education, enters a prestigious university and rises into a more prosperous or influential part of society. The story is presented as an escape: departure from one world and successful arrival in another.

But that is not quite how it feels. You do not necessarily leave the first world behind. Instead, you acquire a second vantage point.

At Oxford, I encountered people whose intelligence and talent were undeniable. But I also encountered people who had been prepared from childhood to enter rooms in which power was exercised. They understood the vocabulary, the conventions and the unwritten rules. They spoke to professors, employers and authority figures with an assurance that did not always reflect greater ability. It often reflected something simpler: nobody had ever suggested to them that the room might not belong to them.

This is one of the least discussed advantages of privilege.

Privilege does not always announce itself as wealth. Sometimes it appears as confidence. It appears as ease in unfamiliar surroundings, freedom from embarrassment, fluency in the language of institutions and the assumption that one’s opinions will be heard.

To the person who possesses these advantages, they may feel like competence.

To the person who does not, the absence of them may feel like personal failure.

Crossing the class divide teaches you to recognise the difference.

You remember the families for whom an unexpected bill is not an inconvenience, but a crisis. You remember people who are intelligent but have never been encouraged to think of universities, professions or public life as places for them. You remember how authority looks from below.

But you also begin to understand the people who design policies, manage institutions, allocate capital and shape public debate. You learn their language. Sometimes you become one of them.

You see Britain from both sides.

What economic success looks like from below

This double vision changes the meaning of economic statistics.

A government announces that the economy is growing. The stock market rises. Corporate profits increase. Property becomes more valuable. Ministers point to employment figures and national averages as evidence that the country is succeeding.

All of these measurements may be accurate.

But they do not answer the most important question:

Who is experiencing the success?

A rise in property prices is good news for someone who owns several properties. It may be disastrous for somebody trying to buy a first home.

A strong stock market enriches people with substantial investments and pensions. It means far less to families who own no financial assets and are struggling to pay their electricity bills.

Growth can take place while public services deteriorate. Average wealth can rise while wealth becomes more concentrated. Employment can remain high while wages fail to provide security, housing or hope.

Seen from Westminster, these may appear to be complications within an otherwise successful economic model.

Seen from Makerfield, or from many towns across northern England such as Runcorn where I grew up, they may be the model’s most important result.

This is why Burnham’s test has such immediate emotional force. It asks politicians to stop treating people as supporting evidence for an economic theory and instead ask whether the theory is improving their lives.

But it also reflects a more general truth: your assessment of any system depends partly on where you are standing inside it.

The education hidden inside the humanities

There may be another reason Burnham and I are drawn towards this way of thinking.

Neither of us studied economics, management, law or PPE. We studied humanities.

In modern public debate, the humanities are often treated as decorative. Science, technology and economics are described as useful, while literature, languages, history and philosophy are expected to justify their existence.

But the humanities teach something our political and economic systems desperately need.

They teach us to enter realities other than our own.

A novel asks us to inhabit another person’s consciousness. History asks how people and societies arrived at their present condition. Philosophy asks what we owe one another. A foreign language teaches that our own way of dividing, naming and expressing reality is not the only possible one.

Studying French and German did more than enable me to communicate in other languages. It challenged the unconscious assumption that the British way of seeing the world was the natural or neutral one.

Living abroad later deepened that lesson.

After 16 years in Germany, and now beginning a new life in Spain with an Indonesian husband, I no longer see Britain entirely from within Britain. Europe is not an abstract bureaucracy called “Brussels”. Migration is not simply a number in a newspaper. Borders, residence rights and administrative systems are no longer theoretical matters. Foreign policy is no longer conducted in distant countries inhabited by anonymous populations.

To live between countries is to acquire another form of double vision. You become what I term “an accidental outsider.”

You see your own nation more clearly because you are no longer surrounded by its assumptions, something I had experienced at an abstract level in the writings of Diderot and Voltaire.

You also become more suspicious of political systems that can calculate the economic cost of a decision while remaining curiously unable to imagine its human consequences.

Data can tell us where poverty exists.

Literature may help us understand what poverty does to a person.

Economics can measure migration.

Languages and lived experience may help us understand what it means to become a migrant.

Statistics can tell us that a region is declining.

History can explain why its people no longer trust the institutions announcing the latest programme for their renewal.

The humanities are not a retreat from the real world. They are among our best defences against governing that world without sufficiently understanding the people who live in it.

Britain’s geography of power

The same question of perspective applies to the way Britain is governed.

The United Kingdom remains extraordinarily centralised. Regions with distinct histories, economies and identities are repeatedly expected to apply for funding, permission or attention from London.

The underlying assumption is rarely questioned: wisdom and legitimacy become more concentrated as one moves closer to Whitehall.

Burnham’s political experience in Greater Manchester has led him towards a different conclusion. His argument for greater devolution is not merely that Westminster sometimes makes the wrong decisions. It is that Westminster makes too many decisions in the first place.

This matters because the centre inevitably sees places differently from the people who live there.

From London, a town may appear as a collection of indicators: productivity, employment, educational attainment, transport connectivity and levels of deprivation.

From inside that town, it is a network of memory, identity, family, opportunity and loss.

Policies designed remotely may be rational in aggregate and destructive in practice. They may improve a national average while hollowing out a particular community. They may create efficiencies that look impressive in a report and feel like abandonment on the ground.

Perhaps Britain’s problem is not simply that Westminster has forgotten the North.

Perhaps the deeper problem is that Westminster still believes it has the right to remember the North on the North’s behalf.

Social mobility is not enough

For decades, Britain has presented social mobility as the answer to inequality.

Find talented children from modest backgrounds. Help them reach excellent universities. Allow them to enter professions and institutions previously closed to them.

That is worthwhile. My own life was transformed by educational opportunity.

But there is an uncomfortable limitation to this model.

Social mobility can help individuals escape an unequal system without making the system itself more equal.

A society cannot solve regional poverty by helping a small number of successful young people leave poorer regions. Nor can it solve class inequality simply by allowing exceptional individuals to join an existing elite.

The question is not only how many people can climb the ladder.

We must also ask who built the ladder, where it leads, and why so many people are expected to remain beneath it.

The greatest social value of mobility may therefore lie not in personal advancement but in the perspective carried across the divide.

Institutions need people who know what those institutions look like from outside.

Universities need people who remember what it felt like to believe university was “not for people like us”.

Governments need people who understand that a policy can be statistically successful and humanly disastrous.

The media need people who recognise that the national conversation is often conducted in a language millions of citizens neither use nor trust.

And prosperous societies need people who understand that poverty is not merely the absence of money. It is often the absence of margin, choice, confidence and the expectation of being heard.

The responsibility of seeing both sides

There is, however, no automatic virtue in crossing a social boundary.

People can enter privileged institutions and adopt their assumptions completely. They can use education to distance themselves from their origins. They can become more contemptuous of those who did not make the same journey, imagining that personal success proves the system is fair.

Indeed, meritocracy can create a particularly unforgiving elite.

If successful people believe they reached the top entirely through talent and effort, they may conclude that everybody who remained below simply failed to try hard enough.

Double vision, or becoming an accidental outsider, must therefore be preserved deliberately. It requires memory. It requires humility.

It requires an awareness that intelligence is widely distributed even when opportunity is not.

It also requires resisting the comforting idea that entering a powerful institution means fully understanding the people over whom that institution exercises power.

This may be the most valuable thing a person from a modest background can carry into an elite room: not authenticity as a performance, nor a sentimental claim to represent everyone they grew up alongside, but the knowledge that the world looks radically different depending on which side of the door you occupy.

The most important education

Oxford changed my life.

It gave me knowledge, confidence and opportunities my younger self could scarcely have imagined. It introduced me to languages, cultures and ways of thinking that eventually carried me far beyond the country in which I was born.

But Oxford was only one part of my education.

The North taught me how power looks from a distance.

Oxford taught me how power explains itself.

Teaching showed me how institutions affect individual lives.

Living abroad taught me to see Britain from the outside.

And moving between these worlds taught me that no single vantage point is sufficient.

This is what I recognised in Burnham’s Makerfield test: not a complete political philosophy, and certainly not an answer to every difficult national and international question, but an insistence that perspective matters.

Who is speaking?

Where are they standing?

What can they see from there?

And what remains invisible to them?

We spend a great deal of time asking how to help more people cross Britain’s class divide.

Perhaps we should ask an additional question: how do we ensure that those who cross it employ their experience to create a fairer society?

“I thought about the breaks that had scored the rhythm of my life. Expansion through rupture. Where others built continuity, I built awareness. And though that awareness didn’t make me happy, it had made me lucid. These breaks had been my real education — violent scholarships in the art of seeing.”  — Níco Durón, Teacher, there are things that I don’t want to learn.

When a Country Gets Richer, Who Owns the Wealth?

Wealth. A man reading a financial newspaper about who owns Spain's wealth in the background.A newspaper headline over breakfast in Spain made me question something I’d never really considered before. When a country’s economy is booming, who actually owns the wealth that’s being created?

One of the unexpected pleasures of moving to Spain has been rediscovering the lost art of breakfast.

Most mornings I walk to my favourite café, order a café con leche and toasted bread rubbed with fresh tomato and olive oil, then spend half an hour simply watching the town wake up. The same waiter greets familiar faces with effortless warmth. Elderly couples linger over coffee. Shopkeepers raise their shutters. Sunburnt tourists wobble by. There is something reassuring about the rhythm of ordinary life here.

A few mornings ago, however, it wasn’t the people who caught my attention. It was a newspaper.

The gentleman at the next table was reading Expansión, Spain’s financial newspaper. Across the front page was a headline that immediately made me stop.

The real owners of the IBEX 35.

The real owners?

Surely Spain’s largest companies belong to Spain.

I finished my breakfast, but the question followed me home.

The Assumption

Like most people, I have spent much of my life assuming that when a country’s economy grows, its people become wealthier. I’ve lived in Germany for 16 years, which always provided me with the perfect example.

And that is how the news is usually presented.

The economy is booming.

Corporate profits are rising.

The stock market reaches another record.

We instinctively hear those as different ways of saying the same thing.

But they are not.

Companies create wealth where they operate.

Ownership determines where much of that wealth ultimately accumulates.

The distinction sounds almost trivial.

It isn’t.

It changes the way we think about almost everything.

Creating and Owning Wealth

Imagine two people.

One spends forty years working.

The other spends forty years owning.

The first helps create prosperity.

The second receives part of the return from that prosperity.

Sometimes, of course, they are the same person.

Often they are not.

That morning, as I watched the waiter carrying coffees from table to table, it occurred to me that he was helping to create Spain’s prosperity every bit as much as a hotel owner, a banker or a company director. Every tourist welcomed, every breakfast served and every day’s work honestly completed contributes, however modestly, to a nation’s success.

Yet if one of Spain’s largest companies doubles its profits this year, a significant share of those profits may eventually belong to people who have never set foot in Spain.

The wealth is created here.

The ownership may be somewhere else.

For some reason, that simple distinction had never really occurred to me before.

A Global Story

The more I reflected on it, the more I realised that Spain was merely the setting.

This is the story of the modern world.

Capital crosses borders far more easily than people do.

That freedom has transformed our lives. It has financed innovation, built industries, connected economies and lifted hundreds of millions of people out of poverty. Few of us would seriously wish to reverse it.

Yet every system has consequences.

Perhaps the least discussed consequence of global capitalism is that it increasingly separates the place where wealth is created from the place where much of it is ultimately owned.

The two are no longer the same thing.

Britain Taught Me the Lesson Before Spain Did

Ironically, Britain had been teaching me this lesson for decades without my noticing.

Successive governments sold companies, utilities, railways, airports, property and infrastructure into private and often international ownership. We were told that this was modernisation, efficiency and the price of attracting investment. In many respects, it was.

Investment creates jobs.

Investment raises productivity.

Investment helps economies grow.

But every sale also carried another consequence.

A little more of tomorrow’s income would belong to someone else. And if the quality of a service such as buses and railways deteriorates in Manchester when the company owners sit in an office along the Champs Elysées, we should not be too surprised.

At the same time, Britain itself became a major owner of overseas assets. Pension funds, investment companies and multinational businesses accumulated wealth around the world. Perhaps that is one reason Britain has continued to generate considerable income despite producing far fewer of the manufactured goods that once defined its economy.

I had simply never connected those two facts before.

The newspaper in Spain finally joined the dots for me.

The Conversation We Rarely Have About Wealth

Political arguments usually revolve around wages, taxation or redistribution.

The left asks how wealth should be shared.

The right asks how more wealth can be created.

Both debates matter.

But perhaps they both overlook an earlier question.

Who owns the wealth before anyone starts arguing about how to redistribute it?

That seems to me to be one of the defining questions of our age.

Not because ownership should be concentrated within national borders.

Nor because global investment is somehow undesirable.

But because ownership itself has become strangely invisible.

Millions of people spend entire careers helping to create wealth while accumulating very little ownership of the economy they are helping to build.

They earn incomes.

But wages and ownership are not the same thing.

One pays today’s bills.

The other builds tomorrow’s security.

A Fairer Form of Globalisation

I have no desire to retreat into economic nationalism.

The extraordinary prosperity of the modern world owes much to capital flowing freely across borders. The challenge, surely, is not to make investment less global but ownership less exclusive.

Economic growth should not become a spectator sport in which millions of people spend their lives creating wealth they will never meaningfully own.

A healthy economy should produce not only better wages but broader ownership, because ownership is what allows one generation’s work to become the next generation’s security.

That does not require abandoning global markets.

It requires asking whether ordinary citizens have enough opportunities to become long-term owners of the prosperity they spend their lives creating.

What if governments devoted as much energy to widening ownership as they currently devote to encouraging growth?

What if employee share ownership became the norm rather than the exception?

What if ordinary citizens found it easier to build long-term stakes in productive businesses through pension funds, savings schemes and investment accounts?

What if the people whose daily work creates prosperity gradually came to own a larger share of that prosperity?

That strikes me as a far more constructive ambition than trying to turn back the clock on globalisation.

I still remember folding that newspaper and taking one last sip of coffee before walking home.

The headline had answered one question.

But it had raised another.

When we say that a country’s economy is booming, we usually ask how much wealth has been created.

Perhaps the more important question is one we almost never ask.

Who really owns the wealth that a nation’s workforce is creating?

“The political problem of mankind is to combine three things: economic efficiency, social justice and individual liberty.”
— John Maynard Keynes

 

The Seven Economic Myths We Tell Ourselves

Seven economic myths we tell ourselves
Seven economic myths we tell ourselves

Last week I questioned whether our current school curriculum provides us with the knowledge we require for handling money during our adult life. This week I’d like to look at seven common economic myths I consequently grew up with that, I believe, should be examined by students in today’s education system.

Economics is often presented as a science of numbers. We hear about growth rates, inflation figures, government debt and stock market performance. Experts produce graphs. Politicians quote statistics. Journalists report percentages.

Yet much of our thinking about economics is not based on facts. We inherit economic beliefs in much the same way that we inherit religious beliefs, political loyalties, or assumptions about human nature. They become part of our mental furniture. We rarely examine them. We simply assume they are true.

Here are seven economic stories many of us have been taught to believe.

Myth No. 1. If GDP Is Growing, Everything Must Be Fine

One of the most common assumptions is that economic growth automatically means social progress. If the Gross Domestic Product is increasing, politicians congratulate themselves, commentators celebrate and newspapers announce that the economy is doing well.

But there is an obvious question that often goes unasked: doing well for whom?

GDP measures economic activity. It measures production. It tells us how much a country produces and sells. What it does not tell us is how that wealth is distributed or whether ordinary people are benefiting from it.

A nation can have impressive growth while housing becomes unaffordable, public services deteriorate and large sections of the population struggle to make ends meet.

As a former teacher, I sometimes compare GDP with examination results. A school may improve its statistics while becoming a worse place to learn. The numbers can look impressive while something essential is being lost.

The same is true of nations. Economic growth matters, but it is not the same thing as human flourishing.

Myth No. 2. Debt Is Always Bad

Most of us are taught to fear debt. For individuals, that is often sensible. Excessive borrowing can destroy lives. It can create stress, dependency and hardship. Yet not all debt is the same.

A mortgage, a student loan or a business investment is different from borrowing money to fund reckless consumption. One creates future value; the other merely brings tomorrow’s spending into today.

The same principle applies to governments. When a state borrows to invest in education, infrastructure, scientific research or healthcare, it may be creating assets that benefit future generations. The question is not whether debt exists, but whether the borrowing is productive and sustainable.

The most successful economies in the world often carry substantial public debt. What matters is not the existence of debt itself, but the wisdom with which it is used.

Myth No. 3. The Rich Create Jobs

This idea appears so frequently in political debate that many people accept it without question. There is, of course, some truth in it. Entrepreneurs create businesses. Businesses employ people. Investment can stimulate growth. But the story is incomplete.

Businesses do not hire employees simply because their owners are wealthy. They hire employees because there is demand for their products and services. A restaurant expands because customers fill its tables. A manufacturer recruits workers because orders are increasing. A shop hires staff because people are buying what it sells.

In other words, jobs are not created by wealth alone. They are created by economic activity. Moreover, much employment comes not from billionaires or multinational corporations, but from small and medium-sized businesses. Across Europe, countless family businesses, local shops, tradespeople and self-employed entrepreneurs collectively employ millions of people.

The real engine of employment is not wealth itself but a healthy and active economy.

Myth No. 4. Markets Always Know Best

For some people, the market has become almost a secular religion. The argument is familiar. Left alone, markets allocate resources efficiently. Government intervention merely creates distortions and stunts economic growth.

There is certainly some truth in this. Competitive markets can be remarkably effective. They often encourage innovation, efficiency and consumer choice. But markets are not infallible.

Consider healthcare. If access to medical treatment depends entirely upon ability to pay, many vulnerable people will be excluded.

Consider environmental protection. Businesses may profit by passing environmental costs onto society as a whole. Pollution becomes someone else’s problem.

Economists even have a term for these situations: market failures.

The reality is that markets and governments each have strengths and weaknesses. Mature societies require both. The challenge is not choosing one over the other, but finding the right balance between them.

Whenever someone insists that the answer is always more market or always more state, I become suspicious. Human societies are rarely that simple.

Myth No. 5. If You Tax the Rich, They Will Leave

This argument appears whenever tax reform is proposed. Raise taxes on wealthy individuals, we are told, and they will immediately pack their bags and move elsewhere.

At first glance, the claim seems plausible. Yet people are not spreadsheets.

Human beings make decisions based on family, friendships, culture, language, quality of life, security and belonging. Financial considerations matter, but they are rarely the only consideration.

Countries such as Norway, Sweden and Denmark have maintained relatively high levels of taxation while remaining prosperous, innovative and attractive places to live.

This does not mean taxes can be increased without limit. Excessive taxation can certainly discourage investment and entrepreneurship.

The point is simply that reality is more nuanced than political slogans suggest.

People stay for many reasons. They leave for many reasons. Tax is only one factor among many.

Myth No. 6. Inflation Is Always Bad

The word inflation usually arrives wrapped in anxiety. We hear that prices are rising and immediately assume disaster.

Certainly, high inflation can be deeply damaging. It erodes savings, creates uncertainty and hits those on lower incomes particularly hard. Yet economists generally do not aim for zero inflation.

A modest level of inflation is usually considered healthy because it reflects a growing economy. It encourages spending, investment and economic activity.

What is often forgotten is that the opposite problem can be equally dangerous.

If prices continually fall, people postpone purchases. Why buy today if everything will be cheaper tomorrow? Businesses then sell less, investment slows and unemployment may rise.

Like many things in life, the issue is not inflation versus no inflation. It is balance. Too much inflation can be destructive. Too little can be equally problematic.

Myth No. 7. Money Is Real

This final myth is my favourite because it takes us beyond economics and into philosophy.

Most of us think of money as something solid and tangible. We earn it, spend it, save it and worry about it. Yet money possesses no intrinsic value.

A fifty-euro note is merely paper. The number displayed in your bank account is simply a digital record stored on a computer somewhere.

Money works because we collectively believe it works. Its value depends upon trust.

This is not as strange as it sounds. Much of human civilisation rests upon shared beliefs. Nations exist because enough people believe they exist. Laws function because people collectively accept their legitimacy. Companies, universities and governments all depend upon systems of shared trust.

Money is one of humanity’s most successful collective stories. That does not make it imaginary. It makes it a social construct, like any other.

And perhaps that is one of the most important lessons economics can teach us.

If only I’d known in my twenties what I know now

If there is a lesson I wish somebody had taught me when I was starting out, it is that wealth is rarely built through cleverness alone. Looking back, the people who seem to achieve financial security are often not the most intelligent, the most educated or even the highest earners.

They are the people who consistently do a few simple things well.

    • They spend less than they earn
    • They avoid unnecessary debt
    • They acquire productive assets
    • They diversify their investment portfolio
    • They think long term
    • And above all, they allow time and compounding to work their quiet magic.

Perhaps that is the greatest economic lesson of all. Not that there are easy answers. But that small, sensible decisions repeated over decades are often more powerful than brilliant ideas pursued for a few months.

Beyond Economics

The purpose of examining these myths is not to replace one certainty with another.

It is to become more cautious whenever someone offers a simple explanation for a complicated problem.

Economic debates are often presented as battles between truth and error, between common sense and foolishness, between left and right. Reality is usually less satisfying.

The older I become, the less interested I am in certainty and the more interested I am in questions.

    • Who benefits from economic growth?
    • What kind of debt creates value?
    • When do markets work well, and when do they fail?
    • How much inequality can a society tolerate before trust begins to erode?

And perhaps most intriguingly of all: what other things do we collectively believe in that are no less dependent on faith than money itself?

Economics turns out to be about far more than money.

It is about human beings and the stories we tell ourselves about how society works.

The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.

— F. Scott Fitzgerald

 

I studied for four years at Oxford and Nobody Taught Me How Money Works

The British government has this week announced plans to ban social media access for under-16s. Ministers describe it as a historic intervention to protect children. Newspapers are full of discussion about algorithms, screen addiction and online harms. Yet as I watched the announcement unfold, I found myself asking a different question entirely. Why are we once again arguing about what children should be prevented from doing rather than what they should be taught?

The discussion is presented as a matter of national importance. Ministers speak gravely about online harms. Newspapers speculate about restrictions and enforcement. Experts are summoned to television studios. Committees are established. Reports are commissioned.

But all of my experience as a student and teacher tells me that we are arguing passionately about the wrong problem. At sixty-five years of age, having attended good schools, won a scholarship to Oxford, taught for decades and worked in several countries, I have reached an uncomfortable conclusion: almost nobody ever taught me how money works.

Nobody explained investing. Nobody explained compound interest. Nobody explained pensions. Nobody explained the long-term consequences of inflation. Nobody explained the relationship between taxation and public services. Nobody explained mortgages beyond the most superficial level. Nobody explained the astonishing difference between acquiring assets and merely consuming income.

Yet these are not specialist concerns. They are among the most important forces shaping the lives of ordinary citizens.

They influence where people live, when they retire, whether they accumulate wealth, how vulnerable they are to economic shocks and, ultimately, the degree of freedom they enjoy throughout their lives.

The strange thing is that this educational failure is almost invisible. Some parents complain if their children leave school unable to read Shakespeare. Politicians worry if socially constructed examination results fall.

Universities debate decolonisation, inclusion, safe spaces and artificial intelligence.

Meanwhile, millions of young adults enter the world with little understanding of debt, investment, taxation, pensions or wealth creation.

Nobody seems particularly alarmed. But as a teacher, I find this extraordinary. And as a citizen, I find it deeply disturbing.

As someone who grew up in a working-class family, I find it difficult to avoid an even more uncomfortable observation.

Those who grow up in affluent families often learn these things anyway.

They hear conversations around the dinner table. They observe parents discussing property, investments, inheritance and taxation. They absorb financial knowledge almost by osmosis.

Those from less privileged backgrounds are often far less fortunate.

The result is that schools, which are supposed to reduce inequality of opportunity, usually end up reinforcing it.

I studied languages, theology, literature and philosophy. I do not regret a moment of it. Education transformed my life and broadened my horizons in ways I shall always be grateful for.

Yet if I am completely honest, my grandfather, a builder with far less formal education, may well have understood practical wealth creation better than I did. He understood property. He understood value. He understood patience. Most importantly, he understood that money is not primarily about income. It is about what income becomes over time. That lesson alone may be worth more than half the curriculum I studied. Unfortunately, he passed away when I was five years old, so he could never pass on his wisdom.

The question therefore is not whether children should be protected from harmful content online. Of course they should.

The question is why governments find it easier to regulate TikTok than to ask whether the curriculum itself is preparing young people for adult life.

Why is there endless discussion about screen time but comparatively little discussion about economic literacy?

Why do we devote thousands of classroom hours to subjects that many pupils will never use again while allocating almost no serious time to understanding mortgages, pensions, inflation, taxation, investing and economic reasoning?

And why, after decades of educational reform, do so many intelligent, capable and highly educated adults still feel financially illiterate?

These are not merely personal questions. They are political questions. They are social questions.

And they are ultimately questions about power.

A population that cannot critically evaluate economic arguments is easier to persuade, easier to frighten and easier to divide. It becomes dependent upon experts, commentators and politicians to interpret reality on its behalf.

A population that understands economics is harder to manipulate.

Perhaps that is why the seven economic myths I recently encountered fascinated me so much. I will share them here next week.

These seven myths didn’t just reveal something about economics, but they revealed something about education.

And perhaps, more importantly, about what education still fails to teach.

“Education is not the filling of a pail, but the lighting of a fire.”

— W. B. Yeats

If Yeats was right, then perhaps we need to ask whether we are lighting the wrong fires.

 

Gregor Gysi: The Best Chancellor Germany Never Had

Why Friedrich Merz Is Sealing Germany’s Coffin

Recently, Gregor Gysi made an observation that deserves far more attention than it has received. According to Gysi, Friedrich Merz’s political strategy is increasingly based on finding new groups of people to blame for Germany’s socio-economic problems rather than confronting the deeper causes of the country’s decline.

First it was immigrants and refugees.

Then it was the healthcare system.

Now it is Germany’s workforce.

Whether one agrees with Gregor Gysi on everything or not, his criticism exposes a troubling pattern. Whenever Germany faces a serious challenge, Merz appears more interested in identifying a convenient target than offering either a compelling vision for the future or consistent decisions aligned with clear political and ethical values.

The Refugees Who Helped Germany

Germany welcomed around one million refugees during the migration crisis of 2015 and 2016. The decision was controversial then and remains controversial today, stoked up by the nationalism of the AfD.

Yet ten years later, many of these refugees have integrated successfully. They have learned German, entered the labour market, started businesses, paid taxes, contributed to the pension system and become part of German society.

Some arrived as highly qualified professionals: doctors, engineers, academics and lawyers. Others filled essential jobs that Germany struggles to recruit for itself.

Germany’s demographic crisis is not a future problem. It is happening now. Employers across the country face labour shortages. The pension system depends on a shrinking workforce supporting a growing retired population.

Against this background, treating refugees primarily as a burden rather than as contributors makes little economic sense.

I recently thought of a young Syrian woman I know. She now speaks fluent German, as well as English and Arabic. She is completing a doctorate in law and has every prospect of becoming a highly productive member of German society.

Yet she is planning her future elsewhere, most likely in the United States.

Germany invested in her integration. Germany benefited from her talent. Germany may now lose her altogether.

That is not a success story. It is a failure of political imagination.

Scapegoating Healthcare

The same pattern appears in healthcare.

Germany undoubtedly faces major financial pressures in its health and social insurance systems. An ageing population, rising costs and economic stagnation create genuine challenges.

But the answer cannot simply be to reduce protections that millions of people rely upon.

The principle that families should have access to healthcare regardless of income has long been one of the strengths of the German social model. Weakening that principle may save money in the short term, but it risks creating greater social and economic costs in the future.

What is particularly striking is the contrast between the urgency applied to military spending and the hesitation shown towards investments in social infrastructure.

Politicians readily describe defence spending as an investment in the future. Yet healthcare, education and social stability are investments too.

A nation is not defended only by weapons. It is defended by healthy, educated and confident citizens.

The Myth of Working Longer

The latest target appears to be Germany’s workforce.

Merz has argued that Germans need to work more hours and remain economically active for longer. On the surface, this sounds practical and responsible.

In reality, it reflects a remarkably outdated understanding of productivity.

Human beings are not machines.

Productivity depends upon motivation, trust, leadership, skills, technology and working conditions. A well-managed and valued employee working thirty-five hours per week can often contribute more than an exhausted and disengaged employee working fifty-five.

The most successful economies do not necessarily have the longest working weeks. They have the most productive working hours.

Germany’s challenge is not primarily that its people are lazy. It is that investment in digitalisation, reducing bureaucracy, promoting infrastructure and innovation has lagged behind many competitors for years.

Blaming workers is easier than fixing structural problems. But it is also less effective.

Germany Needs Leadership, Not Scapegoats

Friedrich Merz undoubtedly possesses ambition. He looks like a statesman. He speaks confidently. He projects authority.

Yet genuine leadership requires more than authority.

It requires empathy.

It requires vision.

It requires values.

The CDU once prided itself on balancing economic responsibility with social responsibility. Today, that balance often seems absent. The willingness to embrace large-scale borrowing while simultaneously questioning social protections creates the impression not of strategic thinking but of political inconsistency.

Germany faces enormous challenges: demographic decline, economic stagnation, digital backwardness, labour shortages and growing political polarisation.

None of these problems will be solved by blaming refugees, healthcare recipients or workers.

They require something much rarer.

They require a government willing to unite rather than divide.

For all his political flaws, Gregor Gysi has long understood one simple truth: a society becomes stronger when it expands the circle of belonging rather than narrowing it. He truly is the best chancellor Germany never had.

Germany’s future will depend on whether more of its leaders understand that truth as well.

“When five people own more wealth than the poorer half of an entire nation, the problem is not refugees, nurses or workers. The problem is where the wealth has gone.”
— Gregor Gysi (paraphrased from his speeches on wealth inequality)

Sovereignty Begins at the Desktop

Linux desktop workspace representing digital sovereignty, privacy and independence from big tech ecosystems

For years, choosing an operating system was treated as a consumer preference: Mac or Windows. Apple or Microsoft. Design or compatibility.

Those days are ending. Indeed, for me, they have already ended.

My move to Linux was not born of practicality. It began as an explicitly political decision: a small personal protest against what I see as the increasingly troubling direction of the United States and my growing discomfort about privacy and with Europe’s dependence on American technology.

What began as principle, however, quickly became something more exciting. An education, even.

In moving away from mainstream platforms, I discovered not merely a political statement but a better way of computing: faster, calmer, less intrusive, more user-controlled—and one that forced me to confront how casually many of us have entrusted vast quantities of personal data to a handful of foreign corporations.

Increasingly, our technology choices are no longer merely about convenience or aesthetics. They are about jurisdiction, sovereignty, dependence and trust.

The Illusion of Neutral Technology

We have spent two decades pretending that software is apolitical. It is not.

Private data is the so-called new oil.
Cloud platforms are geopolitical assets.
Operating systems are instruments of jurisdiction.
App ecosystems are channels of dependency.

To build one’s digital life entirely on American platforms is not simply to use foreign products. It is to place one’s communications, workflows, data and habits inside systems governed elsewhere.

For years, this dependency seemed harmless because America appeared stable, predictable and aligned with European interests. That assumption now looks far less secure.

Why Linux Appeals Beyond the Technically Curious

My own switch to Linux was motivated initially by principle, but sustained by practical reality.

Linux is, quite simply, excellent.

It offers:

    • greater speed and efficiency
    • far less software bloat
    • more user control
    • minimal intrusive advertising or telemetry
    • freedom from forced ecosystem lock-in
    • a calmer, more focused computing experience

It also avoids a growing trend I find exhausting in mainstream software: the transformation of operating systems into hyperactive consumer platforms.

Notifications.
Recommendations.
Prompts.
Pop-ups.
Embedded AI assistants.
Animated interfaces designed less for work than for perpetual engagement.

Linux, by contrast, still feels like a tool. Not a theme park.

My Preferred Distributions: Mint and Arch

For those exploring Linux, I find two distributions particularly compelling.

Linux Mint: Mature Practicality

Mint is Linux at its most civilised.

Stable, polished, intuitive and highly accessible, it offers a reassuringly traditional desktop experience without sacrificing elegance.

It is the Linux distribution I would recommend to most ordinary users and beginners.

Arch Linux: Radical User Ownership

Arch is a different philosophy entirely.

Minimal, modular and deeply configurable, it demands more of the user—but rewards that effort with extraordinary control.

Arch is not merely software.

It is a statement of intent:

I will shape my tools. My tools will not shape me.

Europe Is Beginning to Think This Way Too

What may once have looked like niche hobbyism is increasingly becoming state policy.

The French government has announced plans to migrate large parts of its public administration away from Windows and toward Linux as part of a broader digital sovereignty strategy.

Other European administrations are exploring or implementing similar moves, including regional and national migrations toward open-source alternatives in Germany and Denmark.

Why?

Because governments are recognising what individuals increasingly recognise:

Dependency creates vulnerability.

Reliance on foreign proprietary platforms means reliance on:

    • foreign licensing decisions
    • foreign corporate roadmaps
    • foreign legal jurisdictions
    • foreign political stability

The Great Irony: Linux Already Runs the World

Here is the part casual users often miss: Linux may still be niche on consumer desktops, but it already powers much of the digital world.

Linux runs:

    • most of the web’s server infrastructure
    • the overwhelming majority of supercomputers globally
    • vast portions of cloud computing infrastructure
    • countless embedded and industrial systems
    • even Android is based on a modified version of the Linux kernel

In other words:

Linux is not an outsider technology.

It is the backbone of modern computing.

The desktop is merely catching up.

A Warning to America — And An Opportunity for Europe

The United States should not assume technological dominance is permanent.

Consumers, institutions and governments are increasingly asking difficult questions:

    • Who controls our infrastructure?
    • Who governs our data?
    • What happens if political alignment breaks?
    • Why are we so dependent on foreign platforms for essential digital life?

If American tech firms continue to treat lock-in as strategy and complacency as entitlement, they may discover that dominance breeds resistance.

Meanwhile Europe has an opportunity.

Not necessarily to replace Silicon Valley overnight.

But to build credible alternatives.

To invest in open standards.
To support interoperable software.
To back European cloud and software infrastructure.
To treat digital autonomy as seriously as energy autonomy.

The next decade may not produce a mass exodus from American technology.

But the direction of travel is becoming harder to ignore.

Slowly, unevenly, but unmistakably.

Final Thought

My move to Linux will not alter geopolitics.

But it is, in its own small way, an expression of a wider conviction:

That technology should serve its user.
That infrastructure should remain contestable.
That dependency should never become invisible.

Linux is not merely for hobbyists anymore.

It is increasingly for those asking a larger question:

Who should control the tools on which modern life depends?

“In times of change, the learners inherit the earth, while the learned find themselves beautifully equipped for a world that no longer exists.”
— Eric Hoffer

Social Media Bans for Under 16s

Why banning social media for under-16s may feel right — but fails to address the real issue

There is a growing political appetite to ban social media for under-16s. Governments in countries such as Australia and Indonesia have already moved in this direction, driven by rising concern about anxiety, depression, and the psychological effects of digital life.

The instinct is understandable. But it may also be wrong.

The comfort of the ban

A ban is politically attractive because it is clear, decisive and easy to communicate. It signals protection. It tells a worried public that something is being done.

But it also avoids a harder question.

Why has social media become so central to childhood in the first place?

Policy without evidence

The Cambridge psychologist Sander van der Linden has been unusually blunt. There is, he argues, “zero empirical evidence” that banning social media for teenagers improves outcomes.

His warning is not ideological but methodological:

“Blindly instituting wholesale bans for teens takes the ‘evidence’ out of evidence-based policy.”

This matters. Because once policy is driven primarily by anxiety, it becomes vulnerable to simplification.

And simplification is exactly what this issue does not need.

The variability problem

Social media does not affect all children in the same way.

For some, it amplifies vulnerability: comparison, exclusion, anxiety.
For others, it provides connection, identity and support. As well as of course access to information for school work.

The outcome depends on:

    • personality
    • patterns of use
    • existing mental health
    • social environment

A blanket ban assumes uniform harm where there is, in reality, radical variation.

The misdiagnosis

More fundamentally, a ban risks targeting the wrong thing.

The problem is not simply that children use social media. It is that social media have been designed to capture attention:

    • infinite scroll
    • algorithmic reinforcement
    • intermittent rewards

These are not neutral features. They are behavioural systems.

Yet instead of regulating the environment, we regulate the child.

We restrict the user because we do not confront the system.

The illusion of control

Even on practical grounds, bans are fragile.

    • Teenagers will bypass them
    • Peer groups will remain online
    • The demand for connection will persist
    • Evidence shows that the dangers are greater once hidden underground

The behaviour does not disappear. It relocates. More importantly, a ban does not teach navigation. It postpones exposure.

From protection to preparation

Van der Linden’s alternative is not permissiveness, but preparation:

    • early digital literacy
    • gradual exposure
    • critical thinking
    • resilience

In short:

Not protection through restriction, but protection through competence.

The question beneath the question

But even this may not be the deepest layer because the focus on social media obscures a more uncomfortable possibility.

Over recent decades, childhood has changed:

    • less independent movement
    • less unsupervised play
    • more adult control
    • more structured time

Children are safer, and yet less free.

We did not simply give children smartphones.
We removed much of the world they would otherwise have enjoyed.

Social media did not replace childhood.
In some respects, it stepped into a space that had already been narrowed.

Conclusion

The case for concern about social media is strong.
The case for banning it is not.

As Sander van der Linden argues, policy should be guided by evidence, not urgency or political posturing. At present, the evidence for bans is thin, while the complexity of the problem is substantial.

If we want children to spend less time online, we will have to do something more difficult than passing laws.

We will have to ask what kind of childhood we are willing to allow.

“Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive.”              – C.S. Lewis

Bürgergeldempfänger als Deutschlands liebste Sündeböcke

Die kleinste Ausgabe des deutschen Sozialstaates erzeugt die lauteste politische Empörung.

Die deutsche Debatte über das Bürgergeld wird meist im Ton gereizter Empörung geführt. Zu viel Geld, zu wenig Druck, zu wenige Anreize, zu viel Nachsicht. Das Bild dahinter ist simpel: Der Staat verteilt Geld – und dann ist es weg.

Doch dieses Bild ist sowohl ökonomisch grob als auch eine politisch bequeme und polarisierende Ablenkung.

Geld, das an einkommensschwache Haushalte gezahlt wird, verschwindet nicht. Es zirkuliert. Ein Teil fließt sofort über die Mehrwertsteuer zurück zum Staat. Ein größerer Teil landet bei Supermärkten, Lieferanten, Vermietern, Dienstleistern – und damit wiederum in Löhnen, Gewinnen und Steuereinnahmen. Sobald man aufhört, Sozialleistungen so zu betrachten, als würden sie einfach in einem schwarzen Loch verschwinden, sieht die Rechnung plötzlich ganz anders aus.

Der unmittelbare Rückfluss über Steuern

Beginnen wir mit dem Offensichtlichen. In Deutschland zahlt der Endverbraucher die Mehrwertsteuer. Der reguläre Satz beträgt 19 Prozent; für viele Grundbedürfnisse gilt der ermäßigte Satz von 7 Prozent.

Wenn ein Haushalt mit niedrigem Einkommen sein Geld für Lebensmittel, Kleidung, Hygieneartikel, Verkehr oder andere Alltagsausgaben verwendet, fließt ein Teil dieses Geldes unmittelabar zurück in die öffentlichen Kassen. Bei einem Einkauf von einem Euro mit 7 Prozent Mehrwertsteuer stecken etwa 6,5 Cent Steuer im Endpreis. Bei 19 Prozent sind es rund 16 Cent.

Schon bevor man die weiteren wirtschaftlichen Effekte betrachtet, ist also klar: Die Vorstellung, Sozialtransfers seien reine Einbahnstraßenverluste, stimmt schlicht nicht.

Warum ärmere Haushalte mehr ausgeben

Der wichtigere Punkt kommt danach: Menschen mit geringem Einkommen geben Geld aus. Meistens müssen sie das auch.

Ökonomen beschreiben dieses Verhalten mit dem Begriff der marginalen Konsumneigung – also dem Anteil eines zusätzlichen Euro, der tatsächlich ausgegeben statt gespart wird. Der Befund aus zahlreichen Studien ist eindeutig: Haushalte unter finanziellem Druck geben einen größeren Teil zusätzlicher Einnahmen aus, während wohlhabendere Haushalte ihr überschüssiges Geld eher sparen oder steuerlich begünstigt investieren.

Eine Studie des Internationalen Währungsfonds zeigt beispielsweise, dass finanziell belastete Haushalte Transferzahlungen mit einer um mehr als 20 Prozent höheren Konsumneigung verwenden als Haushalte ohne solche Sorgen. Eine andere Analyse kommt zu dem Schluss, dass Transfers über mehrere Jahre hinweg gesamtwirtschaftliche Multiplikatoreffekte deutlich über eins erzeugen können.

In einfachen Worten: Ein ausgezahlter Euro kann mehr als einen Euro wirtschaftliche Aktivität erzeugen.

Die Zirkulation des Geldes

Genau deshalb ist die klassische konservative Kritik am Bürgergeld oft nur halb blind. Sie zählt die Bruttoausgaben – aber nicht die Zirkulation danach.

Der Empfänger kauft Lebensmittel. Der Supermarkt bezahlt Personal und Großhändler. Der Großhändler bezahlt Transport und Lager. Beschäftigte geben ihre Löhne aus. Unternehmen zahlen Mehrwertsteuer, Gewerbesteuer, Körperschaftsteuer und Sozialabgaben.

Kein seriöser Ökonom würde behaupten, dass jeder ausgezahlte Euro sich vollständig selbst finanziert. Aber ebenso wenig ist es ehrlich, so zu tun, als würde der Staat das Geld einfach verbrennen.

Marx und die „Reservearmee“

Es gibt noch einen tieferen gesellschaftlichen Punkt. Karl Marx’ alte Idee von der „industriellen Reservearmee“ hat bis heute eine gewisse Erklärungskraft. Kapitalismus stabilisiere sich, argumentierte Marx, unter anderem durch die Existenz einer Bevölkerung, die arbeitslos, unterbeschäftigt oder wirtschaftlich unsicher genug ist, um Druck auf diejenigen auszuüben, die Arbeit haben.

„Je größer der gesellschaftliche Reichtum … desto größer die industrielle Reservearmee.“
— Karl Marx, Das Kapital, Band I

Man muss kein Marxist sein, um die Relevanz dieses Gedankens zu erkennen. Arbeitsmärkte brauchen immer eine gewisse Zone der Verwundbarkeit: Menschen, die verfügbar sind; Menschen, die unsicher sind; Menschen, die daran erinnert werden, was passiert, wenn sie herausfallen.

Auch deshalb werden Debatten über soziale Mindeststandards so emotional geführt. Beim Bürgergeld geht es nie nur um Haushaltszahlen. Es geht auch darum, welches Maß an Unsicherheit eine Gesellschaft für akzeptabel – oder sogar nützlich – hält.

Die Zahlen des deutschen Sozialstaates

Und hier werden die deutschen Zahlen politisch aufschlussreich.

Laut Sozialbudget 2024 des Bundesministeriums für Arbeit und Soziales beliefen sich die gesamten Sozialausgaben Deutschlands auf rund 1,345 Billionen Euro. Davon entfielen etwa 58,2 Milliarden Euro auf das Bürgergeld – rund 4,3 Prozent der Gesamtausgaben.

Zum Vergleich: Allein für Alter und Hinterbliebene wurden 533 Milliarden Euro ausgegeben. Für Krankheit und Invalidität rund 523 Milliarden Euro.

„Die kleinste Scheibe des Sozialstaates erzeugt die lauteste politische Empörung.“

Wie auch immer man den Haushalt betrachtet – die Vorstellung, Bürgergeld sei das zentrale finanzielle Monster des deutschen Sozialstaates, ist schlicht absurd. Es ist sichtbar, ja. Politisch verwertbar, sicherlich. Aber es ist nicht die Hauptgeschichte.

Politische Obsession und reale Probleme

Und das ist nicht trivial. Politische Obsession kostet Zeit.

Zeit, die damit verbracht wird, über Bürgergeld zu moralisieren, fehlt bei der Auseinandersetzung mit den wirklich großen Herausforderungen der deutschen Wirtschaft: schwaches industrielles Wachstum, lähmende Bürokratie, schleppende Digitalisierung, überforderte Verwaltungen, unzureichende Qualifizierungssysteme, ein angespanntes Gesundheitssystem, steigende Rentenlasten und die fiskalischen Entscheidungen rund um Verteidigung und Staatsverschuldung.

Den Blick unverhältnismäßig stark auf die unterste Stufe der Einkommensleiter zu richten, ist keine nüchterne Realpolitik. Es ist eine politische Ersatzhandlung.

Die Lehre aus der Kurzarbeit

Deutschland selbst hat übrigens bereits gezeigt, wie die Logik solcher wirtschaftlichen Multiplikatoren funktionieren kann. Während der Pandemie setzte der Staat nicht allein auf moralische Appelle zur Eigenverantwortung, sondern nutzte Kurzarbeit, um Einkommen an Beschäftigung zu binden.

Auf dem Höhepunkt befanden sich fast sechs Millionen Menschen in Kurzarbeit. Studien des Instituts für Arbeitsmarkt- und Berufsforschung legen nahe, dass das Instrument dauerhaft Arbeitsplätze gesichert hat.

Die Lehre daraus ist einfach: Wenn der Staat Einkommen stabilisiert, stabilisiert er auch Nachfrage, Unternehmen und Beschäftigung.

Bürgergeld ist ein anderes Instrument. Aber das Prinzip ist ähnlich.

Einkommenssicherung ist oft billiger als gesellschaftlicher Absturz.

Ein ehrlicher Ausgangspunkt

Eine ehrlichere Debatte über Grundsicherung müsste deshalb mit einem einfachen Satz beginnen:

Dieses Geld verschwindet nicht.

Ein Teil fließt sofort über Steuern zurück. Ein größerer Teil hält Nachfrage in der realen Wirtschaft aufrecht. Und alles zusammen verhindert die weitaus höheren Kosten von Armut: schlechtere Gesundheit, geringere Beschäftigungsfähigkeit, soziale Demütigung, familiären Stress und langfristigen Vertrauensverlust in staatliche Institutionen.

Wenn Deutschland wirklich weniger Menschen im Bürgergeld haben möchte, lautet die Antwort nicht moralische Empörung.

Sie lautet: Wachstum, Kompetenz, Qualifizierung, funktionierende Verwaltung und ein Arbeitsmarkt, der Menschen tatsächlich wieder in stabile Beschäftigung aufnehmen kann.

Bis dahin sagt das höhnische Reden über diejenigen, die gezwungen sind, vom Minimum zu leben, vielleicht weniger über sie aus als über die Armut der Debatte selbst.

„Die Ideen von Ökonomen und politischen Philosophen, ob richtig oder falsch, sind mächtiger, als gemeinhin angenommen wird.“
— John Maynard Keynes

 

The Dishonest Distraction About The Dole

Welfare Money Does Not Disappear

Across Europe the debate about welfare spending tends to follow a predictable script. Governments warn about ballooning costs. Conservative politicians complain about incentives. Newspapers highlight the most extreme cases of abuse. The impression created is simple: the state hands money out, and the money is gone. This is even implied in the English word “dole.”

But economically, this picture is deeply misleading.

Money paid to low-income households does not disappear. It circulates through the economy, supports businesses, generates tax revenue and stabilises demand. A portion returns immediately to the state through consumption taxes. A larger portion sustains economic activity that would otherwise collapse.

Once this is understood, the political argument about welfare begins to look rather different.

The immediate return: consumption taxes

Across Europe, the final consumer pays VAT (or its equivalent). In Germany it is 19 percent; in the UK it is 20 percent; reduced rates apply to essentials such as food or children’s clothing.

When a low-income household spends welfare payments on groceries, toiletries, clothing, transport or household goods, a share of that spending flows straight back to the public purse.

This means welfare transfers are never purely one-way payments. Even before wider economic effects are considered, part of the money immediately returns to government.

The multiplier effect

The more important effect comes from how poorer households use money.

Economists describe this through the marginal propensity to consume — the proportion of additional income that is spent rather than saved.

Low-income households typically spend most or all of any extra income simply because they have to. Bills must be paid, food bought, and rent covered. Wealthier households, by contrast, are more likely to save additional income or invest it, taking advantage of tax incentives that reduce government income.

This matters because spending generates economic activity.

When a welfare recipient buys groceries:

    • the supermarket pays staff
    • suppliers receive orders
    • workers earn wages
    • those workers spend their own income

Taxes are paid at multiple stages — VAT, payroll taxes, corporate taxes.

Studies by organisations such as the International Monetary Fund and the OECD repeatedly find that transfers to poorer households produce relatively high fiscal multipliers. In simple terms, each euro or pound transferred can generate more than one euro or pound of economic activity.

The invisible stabiliser

This mechanism is why many European welfare systems act as automatic stabilisers during economic downturns.

When unemployment rises:

    • government spending increases
    • households retain some purchasing power
    • businesses retain customers

This prevents economic contractions from becoming deeper recessions.

Germany’s Kurzarbeit scheme during the COVID-19 crisis is an example of the same principle applied to wages. By subsidising reduced working hours instead of allowing mass layoffs, the government kept millions of workers connected to their employers and maintained consumer demand.

Income support, in other words, is often cheaper than economic collapse.

The Marxian shadow

None of this would have surprised Karl Marx. Marx argued that capitalist economies maintain what he called a “reserve army of labour” — a population that is unemployed or precariously employed, exerting downward pressure on wages and disciplining those who remain in work.

Whether one accepts Marx’s wider conclusions or not, the idea captures a persistent truth: labour markets always contain a margin of insecurity.

Welfare systems therefore operate at a delicate intersection. They prevent destitution while preserving enough economic pressure to keep labour markets functioning.

“The greater the social wealth, the functioning capital, the extent and energy of its growth… the greater is the industrial reserve army.”  — Karl Marx

The political misdirection

The numbers themselves reveal how distorted the debate often is.

In Germany, for example, spending on pensions alone exceeds €500 billion per year, while the Bürgergeld programme for the long-term unemployed accounts for only a small fraction of total social spending.

Yet political debates frequently focus obsessively on the latter.

Across Europe the pattern is similar: politically visible welfare programmes for the unemployed attract far more attention than the vastly larger costs associated with pensions, healthcare, demographic ageing and long-term care.

The result is a curious form of fiscal theatre. Here is the statistical reality in the UK:

The real question

If governments genuinely want fewer people dependent on welfare, the answer is not moral outrage. It is:

    • economic growth
    • functioning labour markets
    • effective training systems
    • efficient public administration
    • investment in education and skills

Until those foundations improve, the debate about welfare spending risks becoming little more than a ritualised complaint about the weakest participants in the economy, akin to refugees arriving in boats.

A more honest conversation

The welfare debate would look very different if it began with a simple act of honesty. Welfare money does not disappear. It circulates through shops, businesses, wages and tax systems before returning, partly and often quickly, to the state itself.

The real fiscal pressures facing European governments lie elsewhere: ageing populations, pensions, healthcare and the long-term costs of economic stagnation. Yet political attention continues to circle obsessively around the smallest slice of the welfare state. Perhaps that is because it is easier to argue about the poor than to confront the deeper structural challenges of a modern economy.

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.                — John Maynard Keynes

Six Countries, One Question: Who Actually Knows How to Run a Modern State?

The puzzle we keep arguing about

Political debate in the West is strangely repetitive.

We argue about whether governments spend too much.
We argue about whether welfare states are affordable.
We argue about whether taxes are already too high.

What we almost never do is step back and ask a more structural question:

What does a successful modern state actually look like on both sides of the ledger?

Over the past weeks I have been comparing six very different countries:

    • United Kingdom
    • Germany
    • Spain
    • Finland
    • United States
    • India

Looking not at slogans, but at the underlying fiscal architecture:

    • Where governments actually spend their money
    • Where they actually get it from
    • And how coherently the two sides fit together

What emerges is not ideological. It is mathematical.

What the spending side reveals

Start with expenditure.

Across all advanced economies in this comparison, one fact stands out immediately:

Modern states already spend most of their money on the social foundations of economic life.

In different proportions, but with striking consistency, the largest items are:

    • Pensions and social protection
    • Health
    • Education

Even in the United States, public spending is heavily concentrated in these areas.

The real differences between countries are not about whether they fund a social state.

They are about how coherently and efficiently they do it.

Compare three cases.

Finland represents the clean Nordic model:

    • Social protection is dominant
    • Health and education are heavily funded
    • Defence and debt interest remain contained

Nothing here is accidental. The spending profile is internally consistent and politically normalised.

Now contrast that with the United Kingdom.

The UK spends in recognisably European patterns — heavy on welfare and health — but with noticeably tighter margins and more visible fiscal strain.

And then there is the United States.

The US looks different in one crucial respect: defence and health together absorb an unusually large share of public money.

But the bigger insight is this:

On the spending side alone, most rich democracies look more similar than political rhetoric would suggest.

To understand why outcomes diverge, we have to look at the other half of the state.

The side we almost never discuss: how states raise the money

Public debate obsesses over spending.

But the real dividing line between successful and strained states lies on the revenue side.

When we map where governments actually get their money, the picture sharpens dramatically.

The United Kingdom raises most of its revenue from:

    • Income and payroll taxes
    • Consumption taxes (especially VAT)

But one feature stands out:

Borrowing plays a structurally large role.

In other words, part of the British state is routinely financed with future money.

Now compare Finland.

Here the architecture is strikingly different.

Finland funds its state primarily through:

    • Broad income and payroll taxation
    • Strong but not dominant consumption taxes
    • Limited reliance on borrowing

The key point is not that taxes are higher.

It is that the system is broad, balanced and paid for largely in real time.

Finally, the United States.

This is where the structural paradox becomes impossible to ignore.

The US has:

    • No national VAT
    • A relatively narrow tax base
    • Heavy dependence on borrowing

Roughly speaking, the American state is financed partly by something no other country in this comparison can rely on at scale: the global demand for US government debt.

The real dividing line

At this point the pattern becomes clear.

The question is not:

Who spends the most?

It is:

Who has built a revenue system capable of sustainably funding what they have promised?

In this six-country comparison, three broad models emerge.

The Nordic coherence model (Finland)

    • Broad tax base
    • High social trust
    • Strong upfront funding
    • Limited structural borrowing

Result: high social provision with relatively low fiscal drama.

The continental industrial model (Germany, partly Spain)

    • Strong payroll contributions
    • Embedded welfare financing
    • Export-supported tax base
    • Result: durable but dependent on continued industrial strength.

The Anglo-American fragility model (UK and US)

    • Narrower tax bases
    • Political resistance to broad taxation
    • Greater reliance on borrowing

Result: permanent fiscal anxiety despite comparable spending commitments.

India, meanwhile, represents something different again: not excess, but constraint — a state still expanding its tax capacity while carrying significant debt burdens.

So which model actually works best?

If we strip away culture, history, and political rhetoric — an artificial exercise, but a revealing one — the evidence points in a consistent direction.

The countries that most successfully combine:

    • economic competitiveness
    • high employment
    • strong social protection
    • and fiscal stability

tend to share three features:

First, they fund their social state broadly and visibly through taxation rather than chronically through borrowing.

Second, they treat health, education, and social protection not as residual costs but as core economic infrastructure.

Third, they minimise fragmentation and administrative leakage in how public money flows through the system.

In my six-country comparison, the model closest to this balance is the Nordic one, particularly Finland’s.

This does not mean it is easily transplantable.

But it does suggest something important.

The uncomfortable implication

If the arithmetic is this clear, why is the model so rare?

Because the barriers are not primarily technical.

They are political and psychological.

A fully coherent modern state requires:

    • broad-based taxation
    • high social trust
    • willingness to pay upfront
    • and political systems capable of explaining the trade-offs honestly

Many democracies struggle with precisely these conditions.

It is easier to argue about spending than to redesign revenue.
Easier to promise services than to build the tax base that sustains them.
Easier to borrow than to explain who must pay, and how.

But the underlying mathematics does not go away.

And the countries that align both sides of the ledger most cleanly are, increasingly, the ones that govern with the least fiscal drama.

Next question: not whether the Nordic model can be copied wholesale — it cannot — but which elements of fiscal design travel well across very different political systems.

“The difficulty lies not so much in developing new ideas as in escaping from old ones.”
— John Maynard Keynes