Sunday 20 November 2011

Arbitrage

The Daily Mail gives us a good example of arbitrage in action:

A criminal swindle of the nation's $64.7 billion food stamp program is playing out at small neighborhood stores around the country, where thousands of retailers are suspected of trading deals with customers, exchanging lesser amounts of cash for their stamps. Authorities say the stamps are then redeemed as usual by the unscrupulous merchants at face value, netting them huge profits and diverting as much as $330 million in taxpayer funds a year.

But the transactions are electronically recorded and federal investigators, wise to the practice, are closely monitoring thousands of convenience stories and mom-and-pop groceries in a push to halt the fraud, the Associated Press reports...


Illustrating yet again that the most efficient form of welfare is straight cash payments. If you ear mark a part of it for food, then those who want to spend money on something else will sell the food stamps at a discount.

Or shops will mark up all their prices and then offer discounts for cash payment, in the same way as Housing Benefit (welfare payments earmarked for rent) allows landlords to charge an HB claimant a higher rent than a non-claimant would be willing to pay to live at the same address.

7 comments:

Anonymous said...

@Mark,

This can be stopped much the same way council send you fake buyers to catch those who sell alchohol to the underage.

Of course the most efficient way has to be either:
(a) No benefit payment
(b) A fixed Citizen dividend (with close border) type of payment

Any other payment will provide arbitrage opportunities.

ebm

Mark Wadsworth said...

EBM, yes, the fraud can be tracked down etc. but it is very expensive.

(a) is a variant of (b), it's just a regular payment of £nil. But the most inefficient form of welfare (as opposed to outright theft of taxpayer cash) is (c), not taxing the rental value of land. And if you do (c) then you end up with spare cash and the best use appears to be to pay it out again as a CI (b).

Bayard said...

"EBM, yes, the fraud can be tracked down etc. but it is very expensive."

But worth every penny. These people have got to be taught to abide by the rules. If you give them cash they will just spend it on drink, or cigarettes or other immoral things.

Bayard said...

Mark, sod the tax revenue, it's immoral, it should be banned.

john b said...

Bayard, what on earth do you mean by 'immoral'?

The current UK system says "the minimum requirement for an austere-but-tolerable-and-healthy lifestyle is GBP67.50 per week, so we'll pay benefits at that level, and then people who want to live an austere-but-tolerable lifestyle can do so".

If some people, instead of living an austere-but-tolerable-and-healthy lifestyle, would rather blow the lot on gin, then so what? As long as they're nonethelss living within the GBP67.50 (ie not robbing to fund their gin habit), what possible objection could anyone have to this?

Bayard said...

john b, I totally agree, I was playing being a Puritan.

john b said...

Haha, sorry. Too much time spent at Tim's, where proper conservatives infest the comments claiming to be libertarians... ;-)