How Public Money Changes Behavior

In the latest edition of his well-known textbook on UK domestic policy, LSE Professor Howard Glennerster tells the remarkable story of how national government support for housing the elderly exploded under Margaret Thatcher. In the decades after the war, local government authorities provided some social housing for the elderly who had nowhere else to turn. Technically, an elderly person also had the right to move into a privately-managed home with the bill paid by the national government. But this happened very rarely until the Thatcher government spelled the possibility out in explicit regulation, making the public generally aware of it for the first time.

Glennerster describes the stunningly rapid adaptation of the British:

People began to rid their elderly relatives of their assets and claim [the housing benefit]. Local authorities, under pressure to cut spending, began to see that if they closed homes or privatized them the old people could still be looked after in residential care and the central government would have to pay for them through the social security scheme. Private [old age] home owners began to realize that if they increased fees locally in line with other homes the social security scheme would have to pay up.

The result, under the putatively tight-fisted Thatcher government, was that Social Security spending on old age homes increased from £10 million to £2,072 million, a more than 200-fold increase over 12 years!

Glennerster, a Labour Party man down to his bones, concedes the reality that is usually trumpeted by conservatives:

There could be no better example of the way individuals will change their behaviour in fairly ruthless ways to avail themselves of public money.

[Cross-posted at The Reality-based Community]

Keith Humphreys

Keith Humphreys is a professor of psychiatry at Stanford University. He served as a senior policy advisor at the White House Office of National Drug Control Policy from 2009 to 2010.