Economy

WASHINGTON (Reuters) -U.S. President Joe Biden is considering scrapping tariffs on a range of Chinese goods to curb inflation, but no decision is likely before next week’s Group of Seven summit, people familiar with the matter said.White House officials discussed options on Friday with Biden for reducing some of former President Donald Trump’s punitive duties on China, including potentially substantial cuts, three of the sources said. The scale of any potential final move is not yet decided, they said.Biden’s advisers are poring over Trump-era tariffs on hundreds of billions of dollars of Chinese goods – many of which they see lacking strategic value, the sources said. A White House spokesperson said the goal was to align the tariffs with U.S. economic and strategic priorities, safeguarding the interests of workers and critical industries, while not “unnecessarily raising costs on Americans.” After weeks of fierce debate among key aides over the issue, Biden has come to favor swift action on the tariff issue, keen to use any leverage to reduce surging inflation ahead of the Nov. 8 midterm elections for control of Congress, two of the sources said.The president told reporters on Saturday that he was in the process of making up his mind.”Conversations on this issue are ongoing and intensifying,” a senior administration official told Reuters. “But this is not a binary (choice to) lift all tariffs or don’t. It has to make sense strategically.”Margaret Cekuta, a former U.S. trade official who is now a principal with the Capitol Counsel lobbying firm, said easing tariffs would likely have a limited impact on inflation and could take about eight months to become fully effective.”Economically it doesn’t make sense, but it could help combat the psychological impact of high inflation,” she said, adding that the administration was trying to analyze which tariff lines could have the greatest impact on prices.One administration proposal calls for eliminating a large chunk of Trump’s punitive tariffs on Chinese consumer exports, except those on $50 billion of goods tied to an initial so-called Section 301 probe, which focused on circuit boards, semiconductors, and other “strategic” goods, said one of the sources. The proposal also excluded changes to tariffs on steel and aluminum.But it could remove tariffs on a large number of consumer goods hit with tariffs in 2018 and 2019 as Trump’s trade war with Beijing escalated – some $320 billion at the time they were imposed. These included internet routers, Bluetooth devices, vacuum cleaners, luggage and vinyl flooring. More

Investing.com — Everyone thinks a recession is getting more likely. Well, Goldman Sachs, Deutsche Bank, and Elon Musk do anyway, and more and more central bankers are talking like they’ve made peace with the idea. Relations between Russia and the West plumb new lows after Lithuania blocks Russian rail access to the Baltic exclave of Kaliningrad. Existing home sales data are due, JetBlue makes a decisive move in its pursuit of Spirit Airlines and there’s big news afoot in the world of liquefied natural gas. Here’s what you need to know in financial markets on Tuesday, 21st June.1. Russia-EU relations sink to new lowWhile the U.S. holidayed, relations between Russia and Europe deteriorated sharply. After last week’s series of gas supply cuts by Gazprom (MCX:GAZP) to its European buyers, Lithuania has stopped the transit of most goods across its territory to the Russian exclave of Kaliningrad on the Baltic Sea. The European Commission in Brussels approved the measure.Russia called the move ‘illegal’ and ‘unprecedented’ and promised to retaliate, the Security Council saying its measures “will have a serious negative impact on the Lithuanian population.”Kremlin spokesman Dmitry Peskov told MSNBC meanwhile that relations are likely to suffer long-term damage from the current crisis, and refused to rule out the execution of two U.S. citizens fighting in Ukraine who have been captured by Russian proxies.2. Recession risk rising, say Goldman, MuskRecession fears are on the increase, with both Deutsche Bank and Goldman Sachs analysts warning of a rising risk of an economic contraction. Goldman raised its estimate of the likelihood of a recession over the next year to 30% from 15% previously, citing both inflation and the effects of the Ukraine conflict on the world economy.Goldman is in good company. Elon Musk told a conference in Qatar overnight that he thinks a U.S. recession “more likely than not” in the near term. He also confirmed that he expects to lay off around 10% of Tesla’s salaried staff, or 3.5% of its total workforce.The warnings come as more and more central bank officials talk openly about their willingness to sacrifice growth in the pursuit of stable prices. The Bank of England’s chief economist Huw Pill became the latest to take up that refrain earlier Tuesday, while on Monday, St. Louis Fed President James Bullard had warned that U.S. inflation expectations could become unmoored without credible Fed action.Richmond Fed President Tom Barkin speaks at 11 AM ET and Cleveland’s Loretta Mester will speak an hour later.3. Stocks set to bounce at open despite warnings; JetBlue, Spirit eyedThe holiday appears to have brightened the mood of U.S. stock market investors. Markets are set to reopen comfortably higher later, amid some dip-buying by those who think the recent selloff has been overdone.By 6:20 AM ET, Dow Jones futures were up 496 points, or 1.7%, while S&P 500 futures, and Nasdaq 100 futures were both up 1.8%.Individual stocks likely to be in focus later include Spirit Airlines (NYSE:SAVE) after JetBlue (NASDAQ:JBLU) raised its offer and finally accepted it will have to dispose of more assets to get antitrust clearance for its plans. Spirit was up 12% in premarket on perceptions that JetBlue’s bid, which is higher than rival Frontier Group’s will now succeed.The data calendar is relatively light, with the Chicago Fed’s manufacturing survey due at 8:30 AM ET and May numbers for existing home sales at 10 AM.4. Qatar seals massive LNG development dealsThe search for alternatives to Russian gas in Europe took two big steps forward, as the Gulf state of Qatar signed a series of deals to develop what will be the world’s biggest liquefied natural gas project.QatarEnergy said on Tuesday that Exxon Mobil (NYSE:XOM) will take a 6.25% stake in the North Field East project, joining others including France’s TotalEnergies (NYSE:TTE), Italy’s Eni (BIT:ENI), and ConocoPhillips (NYSE:COP), who have all signed similar deals in recent days. The project – which will increase Qatar’s LNG capacity by nearly 50% to 110 million tons annually – is, however, only expected to come online in 2026.Separately, Venture Global became the first U.S. company to sign a long-term LNG supply contract with Germany.5. Oil extends recovery as Biden prepares tax holiday decisionCrude oil prices extended their recovery from last week’s selloff, amid expectations that U.S. President Joe Biden will announce a suspension of the federal tax on gasoline to cushion the impact of high prices on U.S. drivers.Biden told reporters on Monday that he expects to make a decision by the end of the week on levying the tax, which currently stands at 18.4c a gallon.By 6:30 AM ET, U.S. crude futures were up 2.2% at $110.41 a barrel, while Brent futures were up 1.5% at $115.81 a barrel. Newswires quoted Russell Hardy, CEO of one of the world’s biggest traders Vitol, as saying that markets were unlikely to come much lower unless there were signs of a substantial “abatement of demand.” More

The ECB has pledged fresh action to prevent financial “fragmentation” between the euro zone’s most indebted countries, such as Italy, and safe-haven Germany after a sudden, sharp widening of spreads between bond yields.But Slovak central bank governor Peter Kazimir and his Finnish peer Olli Rehn set a high bar for any ECB intervention on the bond market.Kazimir said it was not just the ECB’s job to cap spreads, which are also caused by certain countries’ economic fragility and the euro zone’s incomplete architecture as a currency union with no fiscal backstop.”When we talk about fragmentation, often we are knocking on the wrong door, and the key and substantial question is for the economies of the countries to modernise, innovate, be more resistant to these problems,” he told reporters in Bratislava.Rehn said no country will automatically be eligible to benefit from the upcoming ECB tool designed to limit spread widening – a possible reference to conditions attached to any ECB purchase of a country’s debt. Sources told Reuters last week the ECB is likely to attach some loose strings to the scheme, such as compliance with the European Commission’s economic recommendations. “To me it is very clear there is no automaticity and there is no one single benchmark,” Rehn told a news conference in Helsinki. “There has to be plenty of room for judgment … practiced by the ECB Governing Council.” The ECB unveiled plans to devise this new tool last week but it failed to provide any detail and policymakers’ comments since then highlight there is no agreement yet on what it should look like. The Bank of Italy’s Ignazio Visco said last week the premium paid by Italy over Germany to borrow for 10 years was unjustifiably high at more than 200 basis points while it should be below 150.But Latvian governor Martins Kazaks later told Reuters the ECB shouldn’t target specific spread levels but simply ensure that its interest rates are passed on to all corners of the euro zone. More

FAYETTE, Alabama, (Reuters) – Rising from a muddy field on the outskirts of the small town of Fayette, Alabama is a bricks-and-mortar symbol of the global COVID pandemic: A new glove factory.When completed in 2024 the complex, owned by Japan’s SHOWA Glove Co will be able to produce about 3 billion medical-grade nitrile gloves a year from its dozen massive new, five-stories-tall, automated assembly lines.That may seem like a lot but is only a small slice of the over 100 billion consumed in the United States annually.”There’s a burgeoning glove manufacturing industry popping up in this country, a lot of it funded by the government,” said Dan Izhaky, chief executive of New York-based United Safety Technology, which got $96 million in federal backing to begin to transform an empty Baltimore steel plant.Demand for gloves spiked early in the pandemic, spotlighting a glaring weakness in the U.S. supply chain for all types of medical safety equipment. Most of it comes from factories in Asia.”The market went absolutely crazy during the pandemic,” said Richard Heppell, head of SHOWA’s U.S. division, as buyers scrambled to find supplies and prices exploded.SHOWA was expanding a small, decades-old glove factory in Fayette – originally built to make old-style latex gloves – when the pandemic struck. Seeing an opening for a revival of larger-scale U.S. glove manufacturing as the government reconsidered the wisdom of heavily relying on foreign sources, the company decided to triple the size of its expansion.At least 12 other companies – a mix of domestic startups and Asian and U.S. producers looking to gain or expand U.S. footholds – are building new glove plants, including the one inside the former Baltimore steel mill and another in a former Caterpillar (NYSE:CAT) factory outside Chicago. One entrepreneur wants to build a plant on a Navajo reservation in New Mexico.The U.S. Department of Health and Human Services (HHS) has so far committed $572 million to five glove projects, including $81.3 million for SHOWA, “that will result in domestic capacities that can produce more than 600 million nitrile gloves per month,” according to a HHS spokesperson.PANDEMIC-RELATED BUSINESS RISKSIzhaky knows the risks of jumping into a pandemic-related business.He and a partner hastily built a face mask factory with private funds in Los Angeles early in the COVID crisis but was forced to shutter it when mask prices collapsed and customers evaporated. Most of the mask factories that sprang up during the pandemic have closed.Despite that experience, Izhaky and other producers are counting on customers willing to pay some premium for U.S.-made gloves, as well as federal mandates such as requiring them in government safety stockpiles. A group of glove makers are discussing forming a trade group to push for such mandates and lobbying is underway, company officials said.”The VA, DHS, TSA, they all use huge amounts of gloves,” said Izhaky, reeling off a list of federal agencies. “We’re expecting that they’ll be mandated to purchase Made in America.”But it remains a risky proposition. The Biden administration has not guaranteed it will buy the output of these new operations, and the cost of producing domestically, even using the latest equipment, is expected to remain higher than imports.Glove making is far more capital intensive than masks, raising the stakes for those building large factories.Modern glove factories are modeled on those developed in Asia, a reverse of the decades-old pattern of companies in advanced economies developing industries in low-cost regions. Izhaky’s project has 45 U.S. employees and a team of 28 in Malaysia with industry experience.Alison Bagwell is an American engineer who spent most of her career working for Kimberly-Clark (NYSE:KMB), setting up glove factories in Thailand and Malaysia. With private backing, she is building a $70 million plant in Sandersville, Georgia, set to open next year. “I feel pretty confident that I can do this,” she said, “having done it in a third world country.”In Fayette, the SHOWA factory is churning out gloves in the original production area and a towering new addition that holds the first four new production lines. Behind the building, a new structure for four additional lines is nearly complete, while another four-line building has yet to break ground.Plant manager Scott Robertson leads the way past a team of women catching clumps of blue gloves as they are automatically pulled off ceramic hands used to mold them and piled into stacks.”We have to use these auto stackers,” he said, referring to the machines that gather the gloves, “because gloves are coming off the line so fast there’s no way a person could keep up.”The company is planning to install new machinery in this spot that will do the job of putting the gloves into boxes.”We have to do everything we can to control cost,” said Gilbert LeVerne, the company’s marketing director, “because this country is cost impulsive – the disaster goes away and the mindset shifts back to the bottom line.” More

If you started investing under lockdown, the past few weeks will have been a real test of your mettle. Global stock markets have suffered their biggest weekly drop since the start of the pandemic, and cryptocurrencies have crashed. As younger investors struggle to absorb the losses, they also have the rising cost of living to contend with. This week, presenter Claer Barrett speaks to Ashley, a 28-year-old investor who has lost thousands, about how he’s attempting to stay focused on the long term and weather the financial storm. Plus, two of the FT’s top investment brains unpick exactly what’s happened on world markets, and where things could go from here. Katie Martin, the FT’s markets editor, and Robert Armstrong, the FT’s US financial commentator and author of the Unhedged newsletter, have plenty of ideas for new investors to think about as they formulate their next move.To listen, click the link above, or search for Money Clinic wherever you get your podcasts.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser. More

Toby Nangle was formerly Global Head of Asset Allocation at Columbia Threadneedle Investments. Tony Yates is a former professor of economics and head of monetary policy strategy at the Bank of England. The Bank of England’s rising interest bill has been of increasing focus over the past few weeks. The BOE balance sheet has swollen to close to £900bn after waves of quantitative easing. And while there were fiscal dividends attached to effectively shortening the rate structure — circa £123bn to the end of April — there could be fiscal costs as rates rise. So, what to do?First, a quick recap of the mechanics. Almost 15 years in there’s still no agreement as to how QE works as a policy, but operationally it’s straightforward. The BOE bought around £875bn of interest-bearing gilts as well as a few corporate bonds. It paid for these gilts with fresh central bank reserves. As such, the asset side of the Bank’s balance sheet ballooned (gilts!) as did liabilities (reserves!). Prior to QE, the BOE set overnight interest rates by fine-tuning the quantity of (unremunerated) reserves in the market. Commercial banks would then scramble to borrow or lend them to one another at a price, and that (market) price was Bank Rate.QE meant vast quantities of reserves were created, so fine-tuning reserve quantities to target price could no longer work. The Bank had lost its ability to put a floor on rates and recognised: a) financial institutions would face problems of such magnitude that negative rates could be contractionary rather than stimulative; and b) there could be some unpredictable adverse consequences of plunging into the world of unmanaged negative interest rates. Paying interest on reserves was a way to keep control of rates, while doing huge amounts of QE.And so QE led to the Bank receiving coupons on the gilts that they had bought and paying interest on reserves. The positive carry was, and continues to be, enormous:

But now, with interest rates rising, the interest costs attached to the liability side of the QE book (interest on reserves) threatens to exceed the income from the asset side of the QE book (the gilts).Will this bankrupt the BOE? Absolutely not! Leaving aside that it’s hard for a central bank — which can literally imagine into existence as much new money as it likes — to run out of its own claims, the Bank was careful at the inception of QE to ensure that the whole programme was indemnified by HM Treasury. In return the Treasury has received all of that enormous positive carry.But so far as described, it does sound like taxpayers are on the hook for the P&L of one of the largest long-duration trades in history. At a time when yields are moving higher. And the net cash flow does turn negative once Bank Rate moves north of 2 per cent. Two UK think tanks, The National Institute of Economic and Social Research and The New Economics Foundation, have published plans to keep that positive carry.The NIESR plan draws on the insights of Bill Allen, an ex-BoE Head of Division for Market Operations and economic historian who wrote the definitive UK monetary history of the 1950s. At the start of the decade Britain had debt to GDP of 175 per cent and by 1959 this had declined to 112 per cent in spite of modest growth and low inflation. How? Allen argues that outright financial repression — monetary authorities’ direct control of banks and credit — was the answer, and that the lessons from November 1951 can be borrowed to financially repress banks today. Specifically, NIESR argued last summer that banks should be allocated compulsorily newly created two-year gilts to the commercial banks at non-market prices in exchange for their reserves “as a means of draining liquid assets from the banking system, and of insulating the public finances in some degree from the costs incurred when short-term interest rates were increased, as they were in March 1952”. Failing to follow this plan has, according to NIESR, cost HM Treasury £11bn.The NEF plan by contrast follows Lord Turner’s suggestion to pay zero interest on a large block of commercial banks’ reserve balances, but continue to pay interest on remaining marginal balances. This approach has international precedent: it’s how things are done in the Eurozone and Japan. NEF reckons that HM Treasury would save £57bn over the next three years if their plan is taken up.Free money! Where’s the catch?Well, the NIESR plan is . . . perplexing. The authors admit that its implementation would lead to soaring yields and could disrupt the government bond market in sufficiently unpredictable ways. They recommend that “a modest first step could test the size of such an impact”. In a world where a central bank forex dealer calling around for live price checks constitutes an intervention, this “modest first step” could end . . . badly?And any scheme that forces an unplanned and fundamental reconfiguration of every commercial bank’s balance sheet would pose a variety of financial stability questions. It’s probably not a stretch to argue that implementing the plan may even have triggered a financial crisis. Still, the plan would’ve led banks’ income to be £11bn lower and the government’s income to be £11bn higher. For any policymakers reading this thinking “yeah, but ELEVEN BILLION!?”, a lower risk way to scratch that itch could be to introduce an £11bn windfall tax and maybe not accidentally trigger a financial crisis. The NEF plan by contrast looks more reasonable. It’s rooted in practices that other major central banks have operated (albeit only during periods of negative interest rates). But as Bill Allen (of the NIESR plan) writes, it could have adverse consequences for the financial system and would shift QE from an instrument of monetary policy to an instrument of taxation. Moreover, taxation would be ongoing and open-ended, with commercial banks more heavily taxed than less regulated financial channels. Increasing the stock of QE would push taxes on commercial banks higher; unwinding QE would cut taxes on commercial banks. This turns the traditional logic of balance sheet operations (where QE is more normally associated with easing) upside down. Some argue we should tax the banks more. Others argue that doing so would just push costs across society, heighten financial instability risks and stymie growth. If the Chancellor wanted to tax the banks more, why not … er … tax the banks? Binding this decision forevermore with the decision as to how desired monetary policy stance should be implemented is illogical. That said, we do see a powerful case to accelerate the Bank’s glacial timetable for unwinding QE, or to auction new sterilisation bonds into the system — and return to the reserve averaging system of yesteryear. Coincidentally, these reserves genuinely would require no remuneration. More

It was when sales of discounted cat litter started picking up that Matthew Farrell knew something new was happening with US consumer spending. For more than a year, the chief executive of Church & Dwight had seen sales of premium brands such as Arm & Hammer Platinum Clump & Seal outpace its lower-priced offerings. In its latest quarter, though, that changed. In cat litter, water flossers and laundry detergent, shoppers began favouring the company’s cheaper options.“That was a canary in a coal mine,” Farrell told analysts this month. “We would expect that to worsen.”With US inflation at 40-year highs, petrol averaging above $5 a gallon and recession fears weighing on consumer sentiment, Church & Dwight is not alone. In earnings calls and investor conferences in recent weeks, several US retailers have flagged that customers have begun migrating to cheaper products. Others are bracing for more to do so in the coming months. “Customers are aggressively starting to buy our brands,” Kroger, the $33bn grocery chain, told analysts last week. Like-for-like sales of its store brands were up 6.3 per cent in the latest quarter compared with total growth excluding fuel sales of 4.1 per cent. The trend is feeding market concerns about the sector, which is exposed to rising prices, excess inventory and unreliable supply chains, but analysts also expect it to create some winners. Discount retailers and makers of stores’ own brands, in particular, stand to benefit if more consumers switch to cheaper alternatives.About 15 per cent of US adults said they had bought lower-priced alternatives when shopping for groceries in May, up more than 3 percentage points from April, according to survey data from Morning Consult. Roughly one in five people buying a car, a computer or a mobile phone traded down — up 6 to 7 percentage points month on month.Mentions of “trade down” and “trading down” on US retail and consumer companies’ analyst calls and investor presentations are now running above the previous peak they hit in the global financial crisis of 2009, according to data provider Sentieo.And while some chains say they have yet to see signs of significant substitution, retailers including Walmart have reported incidents of shoppers buying a half-gallon of milk instead of a gallon, or choosing own-brand cooked meats and bacon over branded versions. Steven Oakland, chief executive of TreeHouse Foods, last month credited the new value-seeking mood among consumers with delivering an expectation-beating quarter for his own-brand producer, which supplies retailers with foods ranging from pita chips to pickles. Own-brand goods have gained unit share in each of the past three months, according to data from market research company IRI. Retailers as large as Best Buy, Costco and Dick’s Sporting Goods have all highlighted the acceleration. Some have detailed how stark the change has been, with SpartanNash, a Michigan-based grocery chain, reporting a near 14 per cent year-on-year increase in the first quarter. Big Lots, the household goods and grocery retailer, said that its own-brand products had reached almost 30 per cent of its total sales for the period, up “notably from the mid-20s” a year earlier.Past cycles had shown that “when disposable income becomes tighter, consumers find ways to stretch their budgets”, said Jack Kleinhenz, chief economist at the National Retail Federation, a trade organisation.

Not all consumers have been affected equally, however. Morning Consult’s polling shows that baby-boomers, who tend to allocate more of their budgets to essentials, were the most likely age group to trade down in May while lower and middle-income shoppers were also more likely to substitute goods than higher-earning Americans.“What we’re seeing is a bit of a bifurcation,” said Kohl’s chief Michelle Gass on a call with analysts last month, adding that the company had seen continued strength in luxury categories even as some shoppers traded down to cheaper products.Higher prices would force some consumers to cut out purchases altogether, said Gregory Daco, an economist at EY-Parthenon, but in relative terms “the two extremes of the retail sector are likely to outperform the others”. Discount retailers were likely to benefit from more pervasive inflation, he said, while “the luxury end of the market is more likely to outperform because of the healthier household finances of luxury individuals”.Joe Feldman, an analyst at Telsey Group, echoed the sentiment. “Discounters are where there’s going to be more strength” in the coming months, he predicted, noting that they typically performed better when consumers felt pressure on their wallets.“The inflationary environment is one that’s going to create much more polarisation in retail,” said Neil Saunders, a retail analyst at GlobalData who expects low-priced chains including Aldi, Dollar General, TJ Maxx and Walmart to benefit from the spending shift.However, he added: “Overall it’s not a very helpful environment for anyone.” More

It’s a fact that ought to be so obvious as to be banal: the most effective way to help people who don’t have enough money is to give them more of it. Cash transfers are among the most efficient ways for rich states to spend money in middle and lower-income countries. Studies show that they give better life outcomes, improve mental health, alleviate stunted growth among children and increase the number of women and girls in education. And that’s just if we restrict our analysis of cash transfers to those given by rich states to poorer ones. If we widen our gaze to include working people in the rich world transferring cash to their relatives in middle and lower-income countries (the highest source of external financing in those nations before the pandemic) then their impact is stronger still.Although studies into the efficacy of cash transfers are largely confined to poorer countries, they have big implications when used within rich nations, as well. It generally proves cheaper and more effective for both households and states to provide hungry families with cash for food rather than to provide food directly. This should inform whether rich states offer breakfast clubs and free school lunches to children or if they would be better served simply by increasing the amount of money that governments give directly to citizens on lower and middle incomes. The effectiveness of cash transfers is also in part a reminder that, most of the time, for most of us, individuals are pretty good judges of how to spend their own money. Not that this means that cash transfers are the only lever governments should reach for. Questionable Star Wars purchases aside, I am probably the best judge of how to spend my own money, but my ability to fund and run all the things I want by myself is limited. I don’t have the means or, frankly, the motivation, to run my own mass transit network, hire my own police, decarbonise my energy usage or set up my own education system. These are all things that governments should concern themselves with, as well as redistributing cash to the needy. Yes, cash transfers work, but studies also show that capacity-building measures, such as hospital and school construction, have a role in alleviating poverty. Nonetheless, despite the fact that cash transfers are so effective, states do very little of them, particularly within their own borders. Why not? One reason is simple politics: when I told a US friend the subject of this week’s column, they laughed mirthlessly. They then told me that while free school lunches might well be less effective than increasing welfare payments, these lunches are a popular government programme, while welfare is not. Political parties of any number of hues have, at one time or another, found success running on the idea that there are a large number of “undeserving” voters whose spending habits need to be checked, monitored or tackled. Very few politicians are willing to concede that many social problems can be sharply curbed simply by increasing the amount of cash people have, rather than through invasive state programmes.Another is that states are preoccupied with the handful of people who are not well served by cash transfers: what you might call the “power users” of government services. One study in New Zealand found that a fifth of the population accounted for 54 per cent of all cigarettes smoked, 57 per cent of overnight stays in hospitals and 81 per cent of criminal convictions. While most jobseekers would not, if given unconditional cash transfers, live on benefits forever or spend their money on so-called “temptation goods” like alcohol, cigarettes and other drugs, a minority would. So, who should states run their services for? The majority who would be better off with cash transfers, or the minority who require more intensive support? We see this with highly conditional benefits — which studies show consistently decrease the number of people who are long-term unemployed but with the consequence that more of them end up in lower-paid and less secure jobs than they held before. Welfare policies are constructed with the needs of “power users” in mind, rather than what might benefit the majority. The reluctance of states to adopt cash transfers, then, is in large part about what governments see as their “real” job: namely to make policy for the minority of people whose difficulties cannot solely be fixed with the injection of more money. But governments might well free up both more resources and more time if they were willing to tailor their first response to the vast majority of service users, rather than those who require more prolonged and difficult policy [email protected] More