Sorry but cleaners are not more valuable than bankers or ad men - however much you may wish this to be

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“Cleaners more valuable than bankers” screams the headline – written to get the most attention the Unison press release celebrates the publication of a report from the New Economics Foundation (NEF) dubbed “A Bit rich”. A boy is it a bit rich – and for that matter a lot ignorant and very worrying.

I could go on for a long while taking apart the economic illiteracy of the NEF report – it purports to show that cleaners, child care workers and recycling employees contribute more value than do bankers, advertising executives and tax accountants. And it does so by applying something the authors call the “Social Return on Investment” – precise figures for the value added by the carefully selected professions are presented that show just how evil bankers, ad men and accountants are and how we really should be paying cleaners and child minders more money than these spawn of Beelzebub.

However, I have trawled through the full report and there is no model, no econometrically valid methodology – just some adding and subtracting based on sweeping assumptions about the chosen jobs:

“We attributed the entire measurable loss to the UK’s economy and public finances to an elite few thousand very highly paid financiers – those earning over £1 million in bonuses.”

Big assumption that one! Those 1000 bankers are really bad boys! Clearly this is a ridiculous assumption with no theoretical foundation and certainly no validation.

“The calculation for the advertising executive centred on the notion of overconsumption – that we consume more than we need and that this has damaged environmental and social impacts.”

This is based on something invented by the Joseph Rowntree Foundation as a means of assessing what the lowest reasonable income should be – the Minimum Income Standard. Most of the consumption above this level is, according to NEF, down to wicked advertising folk making us buy stuff we don’t want.

For the tax accountants “…there is clearly an opportunity cost in terms of foregone public service value that could accrue to society from having this revenue available.”

Obviously tax accountants are bad because they help their “wealthy clients” avoid tax. This is also known as paying the right amount and is no different from making sure that the folk on benefits get their entitlement surely?

This is not economics – there is no replicable model that I can test on say “Equal Opportunities Officers” or “Five-a-day Co-ordinators” to find out what they contribute. Moreover the argument builds on:

1. The lump of labour fallacy. The “iron law of wages” (that they always trend to a minimum) is so comprehensively false it’s hard to countenance the arguments made just on this basis. Empirical observation tells us that Ricardo was right (as he was on trade) innovation will always raise wages above subsistence.

2. The determination of utility by money. My jaw dropped reading the statement that “…orthodox economic thinking tells us that our utility is derived from money.” Again this is a comprehensive misrepresentation – the only way to measure economic value is money but the utility of something isn’t derived from money. Utility (probably the first thing you learn on an economics course) is determined by how much it is of use to the consumer.

3. The confusion of earnings with spending. The work of public sector workers – however we value it and deem it important – is consumption. What bankers, ad men and accountants do is earn – without that earning we cannot have the spending. Simple really – the private sector earns and we spend it (sometimes through the mediation of taxes)

4. Ignoring consumption. It’s not at all clear whether the authors recognise that it’s consumption that matters rather than production? The banker, the ad man and the accountant either spend or save their ill-gotten gains (and roughly half of that spending will be taxes) – that spending employs shop workers, plumbers, holiday company executives, car salesmen and adult entertainment providers. The model does not recognise how valuable all that spending is to our economy.

5. And the saving supports investment. All those savings – the deferred spending – go to invest in industry, commerce and (too much these days) providing borrowing for governments. It isn’t wasted.

There is within the NEF report a great deal of information, much referencing but no evidence of research. Was I assessing its academic value I would suggest that the whole idea is to substantiate an initial (and economically illiterate) ideological position rather than to extend the body of knowledge. It is a triumph of selective desk research over a genuine understanding of economics as a science and does cleaners, bin men and child minders no favours. I'll believe when some models are constructed, data is collected, assumptions are challenged and this shows the headline is right - theory says it's wrong and the market says it's wrong. 'Nuff said.

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