The policy of guaranteeing every citizen a universal basic income is gaining support around the world, as automation increasingly makes jobs obsolete. But can it be funded without raising taxes or triggering hyperinflation? In a panel I was on at the NexusEarth cryptocurrency conference in Aspen September 21-23rd, most participants said no. This is my rebuttal.
In May 2017, a team of researchers at the University of Oxford published the results of a survey of the world’s best artificial intelligence experts, who predicted that there was a 50 percent chance of AI outperforming humans in all tasks within 45 years. All human jobs were expected to be automated in 120 years, with Asian respondents expecting these dates much sooner than North Americans. In theory, that means we could all retire and enjoy the promised age of universal leisure. But the immediate concern for most people is that they will be losing their jobs to machines.
That helps explain the recent interest in a universal basic income (UBI) – a sum of money distributed equally to everyone. A UBI has been proposed in Switzerland, trials are beginning in Finland, and there is a successful pilot ongoing in Brazil. The cities of Ontario in Canada, Oakland in California, and Utrecht in the Netherlands are planning trials; two local authorities in Scotland have announced such plans; and politicians across Europe, including UK Labour Party leader Jeremy Corbyn, have spoken in favor of the concept. Advocates in the US range from Robert Reich to Mark Zuckerberg, Martin Luther King, Thomas Paine, Charles Murray, Elon Musk, Dan Savage, Keith Ellison and Paul Samuelson. A new economic study found that a UBI of $1000/month to all adults would add $2.5 trillion to the US economy in eight years.
Welfare can encourage laziness, because benefits go down as earned income goes up. But studies have shown that a UBI distributed equally regardless of income does not have that result. In 1968, President Richard Nixon initiated a successful trial showing that the money had little impact on the recipients’ working hours. People who did reduce the time they worked engaged in other socially valuable pursuits, and young people who were not working spent more time getting an education. Analysis of a similar Canadian trial found that employment rates among young adults did not change, high-school completion rates increased, and hospitalization rates dropped by 8.5 percent. Larger experiments in India have reached similar results.
Studies have also shown that it would actually be cheaper to distribute funds to the entire population than to run the welfare services governments engage in now. It has been calculated that if the UK’s welfare budget were split among the country’s 50 million adults, each of them would get £5,160 a year.
But that is not enough to cover basic survival needs in a modern economy. Taxes would need to be raised, additional debt incurred, or other programs slashed; and these are solutions on which governments are generally unwilling to embark. The other option is “qualitative easing,” a form of central bank quantitative easing in which the money flows directly into the real economy rather than simply into banks. In Europe, politicians are taking another look at this once-derided “helicopter money.” A UBI is being proposed as monetary policy that would stimulate productivity without increasing taxes. As Nobel prize-winning economist Joseph Stiglitz, former senior vice president of the World:
More here:
Ellen Brown: How to Fund a Universal Basic Income Without Increasing Taxes or Inflation
Ellen makes the common mistake of confusing a UBI with a BIG.
ReplyDeleteUBI = everyone gets a check for $X
BIG = if you make less than $X, you'll get a check for the difference.
The Nixon BIG experiment as well as the Canadian MinCome experiment were BIG's, not UBI's.
MinCome and Nixon BIG experiments showed that a subsistence level BIG had little impact on workforce participation.
There is no need for doing more BIG trials, it has already been done. Trials are where programs go to die.
The closest thing to a UBI trial has been the casino payments of some Native American tribes -- every tribe member gets a check from casino profits. Outcomes were positive for children.
Today the BIG concept has been corrupted by elitist UBI fans. The UBI fans are yuppies who would not qualify for a BIG. They want a UBI so they can quit their job and write poetry. They're not motivated by helping the poor and they don't understand economics.
Ellen Brown is a lawyer and she says she's wealthy enough to be able to spend a lot of time working on trying to get her public banking idea more accepted. I admire because she's not doing it for self gain, but to get a better society. The libertarians would say she is only doing it for herself because she would feel happier in a more egalitarian society, but that really just means she is an emphatic and compassionate person.
DeleteKaivey, my remark about elitist UBI'ers was directed at the UBI "cult" in general and not at Ellen in particular, though now that you mention it she does fit the description. I do admire Ellen's advocacy for public banking and her contribution to the platinum coin proposal.
ReplyDeleteA BIG would do just as much to better society as a UBI. Try explaining that to a UBI'er and you get all sorts of BS excuses. The UBI'ers are dogmatic and close minded. They don't want to hear about a BIG.
One caveat about the various BIG/UBI trials is that a small scale trial cannot begin to measure the macro effects, only the individual effects and some of the social effects. The macro effects of a UBI would be an order of magnitude larger than the macro effect of a BIG.
Small scale trials also have little impact on labor markets and wages. A BIG might have some small effect on the low-skill labor market, forcing employers to try a little harder to recruit workers, particularly part time workers, who might otherwise opt to stay home and draw a BIG. The rest of the labor market would not be affected by a BIG.
A UBI might have a larger effect on the labor market. Similar to the current EITC, a UBI would be a defacto subsidy to employers. Walmart would not need to pay its workers as much because their wages would be supplemented by the UBI, just as their wages are currently supplemented by EITC and SNAP.
A UBI would have a significant inflationary impact, while the BIG's inflationary impact would be small.
A UBI would probably require new taxes, always a tough sell (no, Ellen's argument that government spending pays for itself does not hold water in the functional finance worldview).
There is usually enough slack in the economy to absorb BIG spending without requiring new taxes to throttle aggregate demand.
All that said, if I were king I believe that I could make a UBI work if I designed it carefully. I would implement new progressive taxes that tax away the UBI from people who don't need it. The UBI would go in your right pocket while my new taxes would come out of your left pocket. Your after tax income would be the same as if I implemented a BIG with no new tax.
To me, the BIG seems simpler, easier to pass because no new taxes would be required, and would help the people who need help. But unlike the UBI cult, I try to be open minded and imagine how either a BIG or a UBI could be made to work if designed carefully -- a big "if."
Dan Lynch's BIG, sounds more like a NIT to me but that's a trivial issue.
ReplyDeleteWould it be fair to describe Ellen's Qualitative Easing as Overt Monetary Financing?
NIT was Milt Friedman's version of a BIG. Milt liked the NIT because it would minimize administrative costs -- there would be no need to create a BIG bureaucracy -- but computer technology makes the administrative cost of a BIG very low so you could make the BIG weekly rather than annual. I think weekly or at worst monthly would be more practical and beneficial for the recipient.
ReplyDeleteEllen is shaky on functional finance. She understands bits and pieces but not the whole thing.
I believe the US should tackle balanced trade first and then fill in the gaps after that is achieved, e.g. with UBI or whatever. Cause otherwise I get the sense that players like Zuckerberg are pursuing UBI to provide relief due to the consequences of free trade so that free trade itself can continue unimpeded.
ReplyDelete"On the other hand a lot of people might end being inactive and waste their lives which might make them even unhappy because people like having things to do."
ReplyDeleteYou forgot the other other hand. The slave class that is *required* to operate a UBI will object to working for nothing in real terms and have the whole thing shut down.
The underlying UBI axiom that workers will work for money hoards is just wrong. So instead it relies on the continuing exploitation of workers by capitalists who then work in league with the terminally idle middle class to maintain the suppression and try and justify it by using the word 'fairness' a lot.
If you're not giving up your hours for the service of others, you don't deserve any share of the spoils. That's how human society works - and it is ruthlessly enforced.
"BIG = if you make less than $X, you'll get a check for the difference. "
ReplyDeleteDoesn't work. We have Universal Credit here in the UK and have had for more than a decade now. The result is exactly what you would expect from a subsidy to private business - lower productivity and low business investment.
And a political move to remove income from those who are not working. Of course they can't work because there are only 19 jobs for every 20 people. Nobody has bothered fixing that problem. They just tried to send money to people.
BIG doesn't work because it makes private business lazy. You end up with loads of hand car washes and no automatic machines. So nobody bothers improving the machines.
And because there is still a systemic shortage of work, you end up with a gig economy, zero hour contracts, false self-employment and continuing persistent unemployment. That breeds resentment and disappointment as well as the social and medical pathologies of poor work conditions and no work conditions.
The issue that needs to be solved, and which everybody misses, is that those giving up X hours to produce stuff need to see pretty much everybody else giving up X hours as well or they feel ripped off.
If you try to fix that by reducing X then you lose the advantages of Adam Smith's pin factory and society heads back to the feudal period.
As ever it has nothing to do with money, but the way human beings are and relate to each other.
Neil, you are describing what I would call the Speenhamland effect -- if you give a subsidy to a low wage worker, the employer effectively pockets the subsidy because he can get away with paying a lower wage -- in the absence of a minimum wage that is a living wage.
ReplyDeleteThe Speenhamland effect would definitely happen under a UBI. It happens now with America's EITC and SNAP.
It can be eliminated under a BIG *if* it is designed carefully.
Example: if the minimum wage is $300 / week and the BIG is $250 / week, then no full time minimum wage worker would get a BIG check and for the most part, there would be no Speenhamland effect. Hence my proposal is that the BIG should be about 25% less than the minimum wage -- and of course, the minimum wage should be a living wage.
Even a well designed BIG would distort the market for part time minimum wage workers, but ask who chooses to work part time minimum wage jobs? Teenagers and housewives. Set an age limit on the BIG to disqualify teenagers, and that leaves housewives. The housewife might be able to make just as much money staying home drawing a BIG as working part time, so I would expect a reduction in housewife workforce participation. That would not necessarily be a bad thing for the housewife, and not a huge thing for the labor force.
If your Universal Credit is pays people who work full time, then either your Universal Credit is too high or else your minimum wage is too low.
A BIG as I propose it would have little impact on workforce participation so it would not be a way to solve the unemployment problem. But it would greatly reduce poverty (completely eliminate poverty for adults, you'd have to address children separately) and it would provide some additional automatic stabilizer effect for the macro economy.
Other people have different notions about BIG / UBI and I'll be the first to say there are a lot of poorly thought out BIG / UBI proposals out there.
"those giving up X hours to produce stuff need to see pretty much everybody else giving up X hours as well or they feel ripped off."
You are describing capitalism. People feel ripped off by the inequality that untamed capitalism produces. Some guy on Wall Street may "give up" 80 hours a week, but he is still resented because he doesn't produce anything yet he makes more money than the working class. Your beloved JG would not change that, nor would a BIG. You have to dramatically reduce inequality, and the only proven way to do that is taxation and redistribution like the Nordic states.
A BIG would be part of the redistribution.
Alternatively, you could do like the Nordics and offer a hodgepodge of generous social programs that amount to a defacto BIG. The Nordic states do not seem to be heading back to the fuedal period, and their human beings relate to each other better than the unequal states like the U.S. and U.K..
Dan Lynch: Your beloved JG would not change that, nor would a BIG. You have to dramatically reduce inequality, and the only proven way to do that is taxation and redistribution like the Nordic states.
ReplyDeleteNo, the only proven way to dramatically reduce inequality is full employment. That was the view of the founders of the Swedish Model, which is in more disrepair now than you think. The USA from the 40s to the postwar era was closer to the classical "Swedish Model" than the current semineoliberalizing Nordic states. Roughly speaking, taxation & redistribution was the Hoover plan. Full employment was FDR's. Which succeeded?
Full employment at best means the Job Guarantee that some few irrationally dislike. Wall Street ripoff artists are not the ones who irrationally dislike the JG except in the sense that their fetishism of money is irrational. They dislike the JG & full employment because they know it is the only thing that has and will "change that". That is why the idea that the capitalism is ended by a JG is a classical (forgotten?) Marxist doctrine, going back to uhhh Marx.
BIG is just another name for "welfare". Sure, all MMTers I know of are for it. But as they understand the history and economics of welfare, they know that it doesn't solve problems without full employment.
Calg, the BIG and the JG need not be competing ideas. We could have both.
ReplyDeleteWhich succeeded? The Nordic model. Our inequality has never been as low as theirs. By just about any measure they make us look backwards.
The Nordic states may end up deteriorating due to their neoliberal infection and the EU, but if so that'll be a case of suicide, not death by natural causes.
Yes, a BIG is "welfare." Welfare means "well being." I love well being and want more of it. By the way, a JG is "wage slavery."
MMT claims to believe in Abba Lerner's functional finance. Lerner claimed that full employment could be maintained merely by fiscal policy, yet MMT turns around and claims that only a JG can maintain full employment. MMT needs to make up its mind.
Tom may say that the JG merely sweeps up the last 2%. If that's the case then the JG is not very important, is it? Yet MMT presents the JG as its crown jewel. Well which is it, the crown jewel, or unimportant? MMT needs to make up its mind.
Kaivey, thank you for posting about the basic income. I don't think either the BIG, UBI, or JG will happen in my country in my lifetime, but it's good to understand that there are alternatives to our present system. Once we accept Lerner's functional finance, many options present themselves.
Thank you, Dan. I've been reading the replies.
DeleteThe MMT JG plays too roles. Attaining actual full employment as a job offer for all willing and able to work at a location that they can reach and also serving as a price anchor to replace the natural rate that is the target of monetary policy.
ReplyDeleteBoth are important from the policy standpoint.
Every percentage point of unemployment in a work force of over 100 million is several million people. That is significant, especially when these people are presently being used as buffer stock tool to target the central bank's monetary policy aimed at a theoretical natural rate.
Both are a big deal in terms of political economy aimed at policy formulation, in that they address both employment and inflation, and affect growth as well
Combining a BIG with a JG is no problem. They are aimed at addressing different issues.
The JG is not a "welfare" program as such. It increases economic efficiency by reducing waste through employing otherwise idle resources. It also adds to growth in addition to addressing unemployment.
The BIG addresses workers's wages that are insufficient to care for a family with children. The EITC is weighted toward working families with dependents.
The key thing in considering the JG is providing a buffer stock of employed instead of relying on a buffer stock of unemployed. This advantage alone should make the choice obvious unless there is more negative aspect to the tradeoff.
ReplyDeleteI notice that the opponents of the JG never seem to address this but rather assume that the existing system of a buffer stock of unemployed is worth the cost owing to the effectiveness of monetary policy in controlling inflation. But there is ample evidence suggesting that existing monetary policy does no such thing. Then Volcker's jacking the interest rate up into double digits is cited as proof. Really?
"The MMT JG plays too roles" should read "two roles."
ReplyDelete"The key thing in considering the JG is providing a buffer stock of employed instead of relying on a buffer stock of unemployed."
ReplyDeleteIf you believe the buffer stock theory. It has never been proven with respect to labor.
"opponents of the JG never seem to address this"
Maybe because they don't believe in the buffer stock theory?
As Bill Mitchell has pointed out, Australia maintained full employment (<=2% unemployed) and price stability (<=4% inflation other than the usual blip at the end of WWII) for 30 years despite not having a JG. Doesn't that confirm Lerner's theory that full employment and price stability are achievable through fiscal policy, no buffer stock required?
This critic of the buffer stock theory has pointed out that buffer stocks only make sense for fungible commodities. Human labor is not a fungible commodity and the supply is not infinite. Even if you believe the buffer stock theory, there is nothing to prevent the economy from overheating, either due to government spending or private loans, and exhausting the labor buffer stock (admittedly that's the kind of problem the working class would like to have).
This critic of the buffer stock theory has also pointed out that most inflation in our lifetimes has been due to international commodity prices, particularly oil, not due to tight labor markets and especially not due to the market for unskilled labor. If MMT is serious about price stability and buffer stocks then it should advocate a buffer stock of key commodities.
That said, even if you dismiss the macro justification for the JG, as I do, you can still make a humanitarian case for it. There are minorities, disabled people, ex-convicts, mentally abnormal people, and general misfits who would like a job but the private sector is loathe to hire them. A JG could be a partial solution for those people, and I would support it to the extent that it helped them, even if there were no significant macro benefit.
There are parts of the country that are economically depressed even during the best of times -- Indian reservations, Appalachia, and the Mississippi Delta -- and a JG might be a partial solution. I would support a JG to the extent that it helped those people, even if there were no significant macro benefit.
Econ types sometimes care more about their theories than about helping people.
Granting for the sake of debate that the buffer stock theory is not viable, there is still the issue of existing theory and policy based on it. This operates on creating unemployment when there is wage pressure in order to control inflation.
ReplyDeleteThe first question is does this existing policy actually work to control inflation? The answer seems to be mixed at best.
The second question is whether this policy is preferable to alternatives. This involves comparing policy choices in terms of outcomes and considering tradeoffs, e.g. winners and losers. Which policy alternative most favors win-win.
All policy choices involves tradeoffs in which there are winners and losers. In a democracy, those tradeoffs should be debated rather than established arbitrarily as policy by unelected technocrats that have interests that do not necessarily align with social interests — which is what delegating monetary policy to a politically independent central bank involves.
Regarding functional finance, Lerner subsequently concluded that the inflation issue was likely more complicated than he had earlier surmised, and that something other than or in addition to functional finance would be required. He proposed MAP: A Market Anti-Inflation Plan (Lerner and Colander, 1980). MMT economists did not pick up on this, nor did they on Bill Vickrey's auction scheme. See William Vickrey. Chock-Full Employment without Increased Inflation: A Proposal for Marketable Markup Warrants The American Economic Review Vol. 82, No. 2, pp. 341-345.
MMT is a theory. There is reason to believe that its model and method deliver a more realistic approach than alternatives that have been tried and found wanting. The reason for this appears to begin with errors in assumptions about operations, which MMT sets straight.
There needs to be an informed debate over policy alternatives before choosing one to test. While an economic theory can claim to be the best explanation economically based on reason and evidence, and mutually agreed upon criteria, there are social and political factors involved that impact policy outcomes which economics doesn't include in its purview.
While I think that MMT would be a step in the right direction economically and also to a degree socially if implemented sufficiently to test it, it is a way of saving capitalism and in my view capitalism cannot be saved. Capitalism needs to be replaced with a system that prioritizes people and the environment instead of asset ownership.
So that's a No on OMF? I only ask as it wasn't directly addressed.
ReplyDeleteOn UBI, BIG, NIT, JG - they all fall under the overarching major heading of Basic Income. The nitpicking of which you prefer is just part of identity politics.
That said if you read the BIEN definition of Basic Income it describes both UBI & BIG in the same way - so even by proponents of preferred methods the delineation is never made clear.
Which succeeded? The Nordic model.
ReplyDeleteThe basis of the Nordic model was full employment, targeted at the unemployed. (Active labor market policies was the name) Read Wigforss - Can we afford to work? - The political platform that created the Nordic Model. Spending for full employment, targeted at the unemployed is a JG, in all but name, could cite Wray on that.
As Theda Skocpol, Edwin Amenta etc have pointed out, the USA had a larger welfare state by any measure on the eve of WWII than any state theretofore, including Scandinavia. So the USA, with its "JG" being the New Deal job programs at its heart was more "Nordic" than the Nordics.
Basic income welfare without full employment is an incredibly stupid idea. Never worked anywhere, never will. On the other hand, real full employment = the JG completely changes the structure of a capitalist economy, as all Marxists once knew, as all capitalists never forgot.
Lerner claimed that full employment could be maintained merely by fiscal policy
The JG is fiscal policy, so this does not contradict Lerner. In fact it is the sort of fiscal policy that Keynes & Lerner favored. So this is just a manufactured disagreement.
As Bill Mitchell has pointed out, Australia maintained full employment (<=2% unemployed) and price stability (<=4% inflation other than the usual blip at the end of WWII) for 30 years despite not having a JG. Doesn't that confirm Lerner's theory that full employment and price stability are achievable through fiscal policy, no buffer stock required?
As above, this grossly distorts Mitchell's (in addition to Lerner's) position, which was that Australia then had a buffer stock of employed people = a JG in all but name. He is very explicit the states that maintained full employment after the 70s: I believe he names Austria, Norway, Japan and Switzerland - maintaining a "buffer stock" employer of last resort - the national railways in Japan and elsewhere singled out.
If MMT is serious about price stability and buffer stocks then it should advocate a buffer stock of key commodities.
ReplyDeleteIt does. They used to be used more in the USA. Bill Mitchell was partly inspired by Ben Graham's book Storage & Supply. Graham & Keynes corresponded shortly before Keynes's death, coming close to Mitchell's ideas IIRC.
MMT Channel: On UBI, BIG, NIT, JG - they all fall under the overarching major heading of Basic Income. The nitpicking of which you prefer is just part of identity politics.
ReplyDeleteThat is not the MMT position, the position of all MMT academics & thinkers (to include Mosler) - as well as others like Alain Parguez say whose economics is nearly identical.
The MMT idea is that the JG is not at all a type of Basic Income, but a job like any other job. And furthermore that the difference is in no way "identity politics", of personal "preference", but a matter of logic and empirical observation. Of rational understanding of economics & history.
The MMT position is that UBI, BIG, NIT (especially alone, especially the UBI) at best do (next to) nothing good. While the JG alone creates a healthy economy and a more just society. Needless to say, my position is that the MMT position is right.