We predict a black market arriving in 3…2…1…

Some say that economics is not a predictive science. We say “Pish” to that idea, even “Pfft,” and here is a prediction from economics:

The Conservatives are planning to introduce “ration cards” to prevent thousands of criminals from spending their benefits on alcohol and gambling.

The party wants to reduce Britain’s ballooning welfare bill by issuing criminal claimants with cards that severely limit what their money can be spent on.

It will take some sub-triple digit number of hours for a black market to appear and given modern social media some sub-double digit number of weeks for it to be a commonplace across the country. There will be a trade of this restricted money for the unlimited ration coupons known as cash money. Further, we’d predict that the unlimited form will be worth more than the limited.

For we can observe what happens over in the US. Food stamps now come on a debit card (EBT), those debit cards can only be used in stores that have the correct reader and what may be purchased is limited. No alcohol and so on and there are, often enough, insistences that folk should not be able to buy “luxury” items using an EBT card. For some reason we want to point at lobster tails as an example, but we’re not sure if that was really a thing.

We do not - and no serious investigator does either - suggest that all recipients of SNAP benefits immediately trade all for cash to go buy drugs. But there is a thriving market in trade in purchases upon EBT cards. The usual transaction is that someone buying just regular food - an allowable purchase - does so on someone else’s EBT card then compensates the owner of the SNAP benefits with $ in cash. The going rate said to be 50 cents on the $. Nor does it all go on drugs, that which does happen. At least some research suggests that the most likely purchase with that 50 cents cash is diapers (nappies to us over here). Which, for some reason - probably because the food stamps system is seen as not only poverty alleviation but also as aid to US farmers - are not an allowable EBT expense.

Paying someone benefits in restricted money leads to a black market in that restricted money. We see that happen where such a system exists, we will see it happen if that system is recreated. There, a checkable prediction in economics, economics is a predictive science.

Now, true, proving this is going to be a little difficult. For, in order to move this from an hypthesis to a theory - something that does require empirical testing at least - we will need to have both a Conservative led government and also a political party that actually enacts claimed policy. Neither of which are wholly certain events. But, Bayes and all that - if the policy does get enacted we predict the black market with a probability of 1.

And, like all good science, everyone gets to try to prove us wrong.

Tim Worstall