Saturday, September 20, 2014

JW Mason — Why Not Just Mail Out Checks?

A friend writes: 
Let's suppose that the United States could get a Universal Basic Income, but it had to trade a bunch of stuff for it. What would be important to keep after a UBI? 
Obviously, various income support could right out the door (food stamps, unemployment insurance). But would we be willing to trade labor regulations (minimum wage, union laws)? Public schools? Medicare? Curious as to your thoughts.
This sort of choice comes up all the time these days. Of course in practice it's a false choice: They take our parks and public insurance, and never send out those UBI checks. 
Or occasionally, as in New York, they give us our universal pre-K and parks and bike lanes, and we don't have to give up our meager income-support checks to get them. 
Still, it's an interesting question. How should we answer it?
The Slack Wire
Why Not Just Mail Out Checks?
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York


Matt Franko said...

Don't ask the GOP they do this all the time:

If the left could get Obama off the golf course long enough they might be able to get something like this started too...

Dan Lynch said...

I'm not sure I understand the point of the blog?

If we take the question literally, then the answer depends -- it depends on whether the BI amount is enough to take the place of SSDI, SS, UI, SNAP, etc.. We need specifics to answer those questions. UBI advocates tend to be short on specifics (other than the Swiss UBI'ers).

In general, I envision a BIG replacing SSDI. UI and SNAP could stay in place but far fewer people would qualify for those programs if the BIG is counted as income.

The real point of the blog seems to ask "should we shut down all public services and just let people buy services using their BIG money? Well, I'm not a big fan of toll roads, for-profit fire departments, private schools, or for-profit health care. And I'm kinda fond of my public lands.

I've always viewed a BIG as simple, reliable safety net, not as a way to redesign society.

Tom Hickey said...

Dan, I think that this is is the crux of the issue. It is ideological.

The moderate conservative wing concedes that some some social welfare is necessary and favors allowing recipients to make their own choices in the private sector rather than the government making the choices for them. The liberal position is that people cannot be relied on to make good choices, and it doesn't just affect them but also their families. So the government need to insure that basic needs are met through specific programs that address those needs.

As a libertarian I agree in principle with the view that people should be free to make their own choices — but only in so far as possible and practical rather than absolutely. The reality is that a whole lot of people don't choose responsibly for a variety of reasons, and their choices don't affect only them. So some assistance needs to be targeted specifically to be socially responsible and meet the needs effectively.

I also think that a more enlightened socio-economic policy would make a lot of the need for welfare assistance unnecessary, that that means converting from the ideology of a market state to that of a welfare state. Here, "welfare" doesn't mean assistance. It means orienting policy to achieving the common good by facilitating conditions that promote it, e.g., through public investment in human capital, although I don't like that way of framing it. I would say rather putting people and the environment before money and machines.

Calgacus said...

Again, the standalone UBI / BIG in any of its guises is an incredibly stupid idea. If it "paid for" in (progressive) taxes, it is not really a UBI / BIG. It is a targeted, means-tested BIG, "welfare", subject to the criticisms Neil and many others make. It is fragile and slightly inflationary too. Been there, done that. Didn't work too well.

And then to use Nassau William Senior's accurate word it can and will be made "degrading". Which is why NWS liked this kind of BIG, and loathed the not-able-to-be-made-degrading JG.

If it is not "paid for", then as the MMTers and anybody sane agrees (this does not include the original BIG proposers) it is extremely inflationary. It is magical thinking.

Of course the true solution, which will and always has benefited everyone, not just the lowest skilled as some strangely assert, is the JG. I do not know of any MMT supporter who does not support a JG plus some kind of "welfare" or "BIG". The JG will strongly back the currency - making it the hardest money of all time - with what has always been the strongest and only "backing" of any money: human labor.

Unknown said...

Hey Calc.

Why would a UBI be "extremely inflationary"?

I would think that the inflationary impact of a UBI would be completely context dependent.

$1000 a year? No
$5000? Maybe
$10000? Maybe
$20000? Probably
$50000? very likely

I think that a huge portion of the inflation debate gets overlooked. Which is to say, how much money is the private sector creating?

between 2000 and 2008, the private sector was creating about $2 Trillion in new money per year on average, with the Govt contributing about $300 Billion per year.

If narrow banking enforcement reduced private sector money supply growth to $1 Trillion per year, then theoretically, $1 Trillion larger deficits per year would not be "exteremely inflationary". Keeping income distribution constant.

On the other hand, if national income distribution were the same as the 1960's, then the Govt's deficit would become inflationary at a much lower level than today.

Dan Lynch said...

Good point, Auburn.

No one federal program is inflationary on its on. We can only say that the overall Federal budget is or is not inflationary relative to the current economic conditions.

The claim that a JG is not inflationary because it would increase useful production is dubious. It's dubious that the JG would produce anything useful and its dubious that whatever the JG did produce would be something that is a bottleneck -- like oil, or food.

Also, a JG could actually be disinflationary because it would suppress wages, by paying minimum wage rather than prevailing wage. If the goal is price stability, it would make more sense to me to pay slightly less than prevailing wages for each job category.

Tom Hickey said...

"Inflation" is a technical term that may be useful for economists and policy makers but it not useful for most people. Most people compute their own heuristic "index of inflation" based on the price change wrt the basket of goods that they regularly rely on. This is largely food, housing, apparel, taxes, insurance, energy, including heating & air conditioning and transportation. Offsetting that is both wage increase and asset appreciation.

For the truly poor who don't have a subsistence wage or any assets, the issue is food, housing including HVAC, and medical care.

These apply to the entire poverty level but many people (families) that are below the poverty line are above the subsistence level and have some assets, including home ownership. So they have needs as well and are hit by price increases wrt to their basket of non-discretionary goods. This includes mostly the elderly on fixed incomes and the working poor.

This is the primary issue that needs addressing. It has to be done in such as way that doesn't materially increase the difference between prices of non-discretionary items and incomes.

The issues of the so-called middle class are best addressed in terms of increasing the labor share relative to the capital share as it affects living standard.

This is complicated by the fact that while wages/salaries have not kept up with productivity gains and price increases, employee compensation remains high relative to GDP owing to increased benefits, chiefly health insurance. So the increased compensation has gone into the health insurance, health care and pharma industries.

So there are a lot of issues that need to be addressed in the overall socio-economic context, and I don't see a universal approach working very well to solve all the problems.

Calgacus said...

Auburn, that's not a sensible or ordinary way of arguing. If someone says "if you make a right turn, you will drive off a cliff" - this is not usually understood to be contradicted by "if you make a right turn and then a U-turn, you will not drive off a cliff".

When MMTers say the "UBI" BIG is extremely inflationary, they mean - take the proposals of the BIGgers at face value. Which frequently, modally are something like "hand out $30,000/ yr tax-free, inflation-indexed to every human being in the country." Implicit and often explicitly stipulated is "don't do anything else" (don't make a U-turn, don't "pay for it" with taxes - e.g. give 30,000 take 29,000). I don't think "insane" is too strong a word to describe this.

Similarly, when MMTers propose the JG, they mean don't change any other policy, just institute a JG. In neither case do the MMTers ignore private money-creation. It would just exacerbate the bad, inflationary effects of the BIG UBI BIG, perhaps after a short period of deleveraging & saving - by suckers. And it would augment the good effect, the employment creation by the JG, by the "multiplier".

NeilW said...

"Why would a UBI be "extremely inflationary"?"

Because it removes the income withdrawal half of the automatic stabiliser system.

'Narrow banking' again doesn't work in the way that people who get very excited about it think it works. It's another one of those ideas that is mostly PR rather than substance.

The existing banks are actually 'narrow banks'! It's just that the people who get excited about 'narrow banking' don't really understand how banks work. In particular they don't understand the relationship between bank funding and the discount window.

The 'Narrow banking' concept relied upon, where it involves dubious technical changes rather than addressing loan demand issues, is pretty much identical to putting up interest rates in the current system.

So what you're hoping will happen there is that people will tax themselves - by saving a lot or not borrowing as much. But mostly you're hoping that the majority of people don't get involved in bank funding and will retain their 'liquidity preference' over time and regardless of the quantity of hoarding they undertake.

No guarantee of that (in fact it's pretty certain they won't), as there never is with monetary policy alterations. Monetary policy has uncertain dynamic and distribution characteristics. That's why MMT parks monetary policy and uses the more flexible fiscal policy system via the auto-stabilisers - which at least are directly connected to the wheels of the economy.

Any design that relies upon trying to create the mechanical loanable funds system of theory is doomed to failure - whether that includes the elimination of nation states, fixed exchange rates, European unions, narrow banks, or anything else that goes against the nature of human trade interactions or tribal associations.

It's the economic equivalent of trying to make gay people straight.

We are intelligent selfish apes that have evolved to work together under a limited set of circumstances. That's the raw material you have to work with.

It can achieve great things, if you work with it.

Unknown said...

"Auburn, that's not a sensible or ordinary way of arguing. If someone says "if you make a right turn, you will drive off a cliff" - this is not usually understood to be contradicted by "if you make a right turn and then a U-turn, you will not drive off a cliff".

Its completely sensible as the impact of a BIG is context dependent. I had no idea that you were referring to a $30K per year BIG, I've seen people make the case for $10K a year. In either case, its impossible to predict the inflationary impact of any particular BIG level (or any other policy for that matter).

I dont believe that $10K a year would be very inflationary given the current economic conditions, other people may believe that it would be. Neither of us can KNOW, so run the experiment and adjust as necessary is the best policy from my perspective.

" Because it removes the income withdrawal half of the automatic stabiliser system."

Thats a good point, didnt think about it in quite those terms.

NOTE: I prefer JG to BIG

"'Narrow banking' again doesn't work in the way that people who get very excited about it think it works. It's another one of those ideas that is mostly PR rather than substance."

Now its my turn to have be misinterpreted. When I say narrow banking, I am most certainly not referring to the silly full reserve banking of the sort that Positive Money types like to talk about. I use the term in a similar sense as Mosler.

High capital requirements and a narrow definition of what kinds of loans FDIC banks can make. The 1950's style "boring banking" where banks hold their loans etc.

It seems to me that good economic policy involves maintaining a relatively stable and low private debt to GDP %, I'm not really debating the policies that would make that happen right now, but if we could get that outcome, then larger Govt deficits wouldn't be as inflationary as they would be with our current private debt growth levels.

Calgacus said...

Auburn:Its completely sensible as the impact of a BIG is context dependent. While of course it is, everything is - that does not contradict my point.

"Context-dependent" does not mean it is sensible to propose something in one context, change the context of the proposal and maintain it is the same proposal. A right turn plus a u-turn is not the same as a right turn in any context.

In either case, its impossible to predict the inflationary impact of any particular BIG level (or any other policy for that matter).

No, it is quite possible, and you did it well enough yourself above. We can know the effects of BIGs and many other policies to an ordinary, practical, useful degree of certainty.

My apologies - a number of others are using these kinds of bad arguments, usually more obscurely, here and elsewhere.