Universal basic income: notes of an agnostic

I got this list from Google Images. It’s a good checklist though some may quibble with some of it.

Michael Haines, who has previously posted on Troppo, is campaigning for universal income funded from the adoption of sovereign money — which would yield a large amount of seigniorage like revenue to government. Geoff Croker is campaigning for something similar from the UK. I responded to this by email which I reproduce here.

As far as I understand it, you’re both arguing that you generate all this free money with sovereign money and then you spend it on UBI.  They’re two separate policies that need to stand or fall on their own merits. 

Thus for instance, I’m in favour of green taxes and wealth taxes and some move towards greater sovereign money (I don’t think I’m so clever that I know what would happen with full sovereign money so I’d like to take some substantial steps in that direction and then reassess). But the case for each is a product of their cost-effectiveness, distributional impacts considered in the context of the political economy of each measure. (If you’re not sure what I mean, the last two dot points of this post relate to political economy questions). 

The case for UBI likewise needs to be made on the merits. 

We have something quite like a UBI now but with work tests. Milton Friedman’s argument for UBI was based on getting rid of the moralism and bureaucracy of such tests. 

Others on the left of centre are more concerned with the stigmatisation of welfare. I have to say that that has been what has been the strongest influence tempting me to switch from agnosticism to support of a UBI. But this is very difficult because it is easy to imagine a situation in which, for want of targeting, the UBI is sufficiently expensive that, in the upshot of electoral competition the basic payment available via UBI is made lower than it would be for the dole.

Both on the right and left, most people arguing for a UBI have accepted that it would come with costs. Those costs include 

  • less targeting leading to higher rates of taxation 
  • removing the need to ‘work’. This will be a boon to many and to the extent to which it is, to society. But it will also shear away the incentive to work which is, in the minds of many, a foundation of the social contract and the quid pro quo for community support to the destitute. The hoi polloi are highly suspicious of doing away with this foundation, both in terms of its economic efficacy and its social ethics. This is relevant to:
    • the economics of how a UBI will turn out — considered broadly — whether it raises or lowers wellbeing (considered broadly) in the long run. I have at least as much respect for the hoi polloi’s suspicions of it underwriting an indolent underclass as I have for my own more optimistic view. I don’t know.
    • the politics of a UBI, both as to its long-term sustainability and the rate at which it’s paid.  

So I remain agnostic 

I’ve made these points previously. But they never turn up as central to your thinking about UBI. You’re an advocate for UBI and you’ve made up your mind. That’s your prerogative and it’s good that we have advocates in the community arguing for different things I guess. But with your stuff and with most of the other stuff I see advocating a UBI, it simply elides the central issues I’ve outlined above.

 

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Michael Andrew Haines

Nich, thanks for posting this. I’m glad you remain agnostic :)
I don’t think we are as far apart as you suppose. I believe I have refined my understanding of the challenges as a result of our discussions :)
You’re right, the case for a UBI should be made on its merits, before we worry about how it is funded.
Geoff and I emphasize different justifications for the UBI. His focus is the impact of technology driving down the share of wages, requiring people to borrow more to sustain their standard of living. Which I agree is a problem. He is proposing to replace this debt with sovereign money.
My own view is that the problem goes much deeper.
Rationale for UBI
Once, it was the birthright of every person to live off the land.
Since the advent of property rights, money, and the system of paid work, this is no longer possible. As a result…
“Humans are now the only species that need money to survive” (Scott Santens).
While this system has delivered huge benefits for the majority, it has left a substantial minority destitute: those who cannot do paid work, that also have no savings or family support (12–14% of the population, around 3.2 million people in Australia, mostly single women with kids, the aged and disabled, and those between jobs).
It’s a System Problem:
Without money, people are invisible to the market, so the market can never respond. This is bad for them, bad for business, and ultimately, bad for society.
Yet, we have unlimited money: we create the stuff.
In Australia at least, we also have the resources and organizational capability to meet everyone’s basic needs (and much more).
Welfare does not suffice as it is deliberately set below the poverty line to encourage people who can work to take the available jobs.
Raising welfare is not the answer. As the higher the rate, the more rational (not laziness) it is for people to take the benefit in lieu of a low-paid job (the Welfare Trap).
A UBI Offers a System Solution:
A Universal Basic Income restores each person’s birthright, by providing the money required to access the resources they need to survive.
It avoids the welfare trap because people do not lose their UBI if they take on paid work.
It provides a floor to stand on, not a ceiling to achievement.
Pilots from around the world show that with enough to live on, people focus on making their lives and the lives of their dependents better, with little adverse impact on the labour market. In general, women spend more time looking after their children, while others take on more education and training – hardly the worst situation.
Phased Introduction
You caution that no one knows what the real impact of a UBI may be. And I agree.
Taking it slow is exactly the approach I’m recommending. None of us know what the impact will really be on inflation, the labour market, and behaviour.
Inflation may skyrocket, no one may want to work, and all 18 year olds might retire to their bedrooms to play computer games, or take a share house and party-away their UBI!
The recommendation is to start with just $10/week, increasing it at the rate of $25/week every quarter… and see what happens.
The aim would be to get to the Henderson Poverty line over 5 years. This is currently around $500/week.
$10 is enough for food for a day for someone in poverty, so it is meaningful from the start. But it is not going to break the economy, or turn everyone into indolent sloths.
In fact, in today’s environment of rising inflation, a gradual increase in the UBI could be a circuit breaker, providing an effective wage rise for workers, without cost to employers (thus avoiding ‘cost push’ inflation), as well as benefiting those without a job, who are also suffering from rising prices.
By taking it slow, we also give the supply chain time to adapt to the new pattern of demand as it emerges, without causing shortages that drive inflation.
And, importantly, it will let us see what really happens, without having to theorise; all with little risk.
If the negatives appear to outweigh the positives, we can halt any further increase until the problems are countermeasured. The countermeasure may be as simple as leaving the rate where it is until the job market sorts itself out, perhaps with an interest rate rise to help things along.
Targeting the Universal Basic Income
This sounds like an oxymoron… but it’s not :).
Despite being paid to every Adult, the payment would be targeted to those who need it most by:
·       Including the UBI as income when determining welfare payments, and by
·       Recovering the UBI on a sliding scale from earned income. Above AUD80,600 of income, the whole UBI would be recovered.
Rationale for Paying it Universally but Targeting the Net Benefit:
·       Targeting significantly reduces the amount of money required to fund the UBI, while making sure it goes to those who need it most. By treating the UBI as income for welfare, it also means no person can be worse off. While welfare will ‘naturally’ phase out as the rate is raised.
·       Paying it and recovering it may seem in efficient. However, it has the major psychological benefit of making the payment universal (so no stigma). It also acts like ‘basic income insurance’.
Just because you have an income today, does not mean you can’t lose it tomorrow. People lose their income for all sorts of reasons every day: divorce, sickness, a fall in business, natural disasters, disagreements with the boss, their car breaks down and they can’t afford to get it fixed so they can’t get to work, the algorithm denies them shifts, etc.
The UBI provides assurance that if you ever lose all or part of your income, the UBI continues to be paid – no need to apply, no delay. No one looking over your shoulder to see if you ‘qualify’, relieving people of the burden of ‘meeting mutual obligations’, so they are free to do what they know is needed to find themselves a job again (as soon as they can), while caring themselves and their family, as circumstances require. And, no need to tell anyone when you get a job, or how much you are earning (except the tax man, as normal). Again removing ‘stigmatization’.
Making an Informed Decision about Changes to our Economic System

Plainly, new money drives new activity as it is spent into the economy.
If we are to make informed decisions about changes to our economic system, it is therefore vital to understand how new money gets created and allocated.
Unfortunately, most people (even a few economists I have talked with) don’t understand that:

  1. …the majority of money in the modern economy is created by commercial banks making loans”, as explained in this Bank of England article: Money Creation in the Modern Economy
  2. Borrowers then spend the money into the economy to drive new economic activity that meets their needs.

However, there is no natural law that says bank borrowings are the only way new money must be created and allocated.
Given this is the reality…
Funding the UBI
It is proposed to leave the tax system untouched, so again no one can complain that they are disadvantaged. Nor would the UBI be funded by debt, or by taking money from other government programs.
Instead, it would be funded through the issue of new Sovereign Money.
I’m happy if it is decided to fund the net UBI out of tax, rather using Sovereign Money. I just happen to think that using new money is the better path, simply because it requires no changes to any other programs or systems.
·       The UBI would become the ‘base’ method for injecting new money into the economy.
·       By increasing interest rates, we can suppress some bank borrowing. (Ideally, bank borrowing aimed at increasing capacity to meet basic needs should be exempt from any rate rises, so we don’t dampen supply).
·       This will give us the ‘monetary space’ to inject some new money into the economy via the UBI, without causing excessive inflation.
In doing this, overall economic activity should remain at full capacity, but more would be directed to meeting basic needs, and less on other spending.
Like Bank Lending, a UBI is Not Government Spending:
Bank lending occurs under government auspices, but we don’t regard the money created, and spent into the economy by borrowers, as ‘government spending’.
In the same way, the money created by the Reserve Bank, and allocated to all citizens as UBI, should not be regarded as ‘government spending’. It is truly spending by the people, for the people — individually.
Three Ways to Inject New Money into the Economy
We would then be left with a system that injects new money into the economy in three ways:

  1. Universal Basic Income (with the money spent into the economy via individual citizens to meet their needs, as their ‘birthright’).
  2. Government Deficit Spending (with the money spent into the economy to provide additional public goods and services, to the extent agreed – which is the thrust of Modern Monetary Theory)
  3. Bank Borrowing (with the money spent into the economy to meet borrowers needs)

Given we have created a system that requires people to have money to survive, equity would seem to demand that the system ensures basic needs are met above all else.
Four Income Sources
It would also result in each person have four potential sources of income;

  1. A Basic Income paid to everyone to meet their basic needs
  2. Earned Income for the 50% at any time who can do paid work to better themselves and their family, and to provide our goods and services
  3. Welfare (paid from tax) to support the extra needs of children, the aged, and disabled.
  4. Passive Income, for those fortunate enough to have their own savings and/or family support (which for many is currently their ‘basic income’, or in some cases not so ‘basic’.)

Using UBI to Balance the Labour Market:
Once the UBI reaches the Poverty Line, it can become a new more powerful tool to help keep the labour market in dynamic balance.
This can be achieved because each person has a different propensity to take on paid work, depending on their age, commitments, needs, and other income, etc.
As automation and virtualization result in a fall in demand for workers, the UBI can be increased.
As it is raised, individuals will make their own choice to stop looking for work, or to drop out of paid work, to live on the UBI and any other passive income they may have. Once the rate at which jobs are being filled begins to push out beyond ‘standard’ recruitment times, this would signal the need to hold the UBI rate until the market is re-balanced.
It would never be perfect, but it should facilitate the transition to a ‘new normal’ over time.
UBI could be Transformative
A UBI has the potential to eliminate systemic poverty, along with the fear of falling into poverty (for those now living pay cheque to pay cheque).
There are 59 identifiable benefits for individuals, business, the economy, the government and the people in general, as listed the links below:
24 Benefits for Individuals
16 Benefits for Business and the Economy
19 Benefits for Government and the People
Overall, it should result in much less anger and fear in the community, and much more productive effort, less crime, and better health.
Though, the only way to prove this is to do it… starting small. No amount of theorising can demonstrate the reality.

conrad
conrad
7 days ago
Reply to  Nicholas Gruen

Can I suggest that the extra cost of the UBI is taken into account when comparing it with other things too. Notably, as far as I’m aware, the Australia pension scheme is fairly efficient and fairly progressive (indeed welfare in general is — which would be even more so if not for political things that would be hard to get up in a UBI also, e.g., giving 18 year olds that don’t work $500 per week). So the extra cost would be an opportunity cost, and making the scheme less progress would be too (I’d like to see both considered).

conrad
conrad
7 days ago
Reply to  conrad

sorry progress->progressive

John walker
4 days ago
Reply to  conrad

The sovereign money side of the proposal has something of a ‘perpetual motion ? ‘ feel to it as well- Especially if it doesn’t actually result in a significant increase in the total amount of money in circulation .

Not Trampis
8 days ago

Milton Freidman was a great believer in UBI although he called it by another name.
I remain too old and lazy to remember what his arguments were.