On March 23, 2014, Lynn Parramore writes on Nation Of Change:
All over the world, people are talking guaranteeing basic incomes for citizens as a viable policy.
Half of all Canadians want it. The Swiss have had a referendum on it. The American media is all over it: The New York Times’ Annie Lowrey considered basic income as an answer to an economy that leaves too many people behind, while Matt Bruenig and Elizabeth Stoker of the Atlantic wrote about it as a way to reduce poverty.
The idea is not new: In his final book, Martin Luther King Jr. suggested that guaranteeing people money without requiring them to do anything in exchange was a good way for Americans to share in prosperity. In the 1960s and early 1970s, many in the U.S. gave the idea serious consideration. Even Richard Nixon supported a version of it. But by 1980, the political tide shifted to the right and politicians moved their talking points to unfettered markets and individual gain from sharing the wealth and evening the playing field.
Advocates say it’s an idea whose time has finally come. In a world of chronic job insecurity, stagnant wages, boom-and-bust cycles that wipe out ordinary people through no fault of their own, and shredded social safety nets, proponents warn that we have to come up with a way to make sure people can survive regardless of work status or economic conditions. Here are five reasons they give as to why a guaranteed basic income might just be the answer.
1. It would help fight poverty: America is the richest country in the world, yet widespread poverty continues to afflict us. Social Security has arguably been the most successful program for reducing poverty in American history, dramatically cutting poverty among the elderly and keeping tens of millions above the poverty threshold. Why not expand it to all?
Matt Bruenig calculated that by giving everybody a mere $3,000 a year, including children (who would receive the money through their parents), we could potentially cut poverty in half. The program would be simple: you get it no matter how much money you make, which would prevent poor people from having to worry about losing the benefit. With everybody in it together, you get a much larger base of political support (one of the reasons means-testing has always been a back-door way of killing Social Security— it reduces support).
In the 1970s, the small Canadian town of Dauphin ran an experiment through a social policy called “Mincome.” Everybody in the town was allowed to get a minimum cash benefit during the duration of the program. Poverty was eliminated, because people living below the poverty line saw their income boosted through monthly checks. But the results were about more than an official line marking the poverty threshold. Mincome positively impacted the horrible conditions associated with the cycle of poverty. When people had a basic income, they were able to better care for their families, stay healthy and improve their education — all the things that help people stay out of poverty in the future.
2. It could be good for the economy: A basic guaranteed income has the potential to positively impact the economy in several ways, which is why economists from John Kenneth Galbraith to Milton Friedman have advocated it.
For one thing, it could help solve the problem of demand. The great driver of the economy in a capitalist system is something economists call “aggregate demand.” The Econ 101 lesson is simple: when ordinary people have money in their pockets, they spend it on goods and services, which in turn allows businesses to thrive because they are able to invest and to hire more people. Proponents argue that a basic guaranteed income would increase demand, which would help the economy to prosper.
But wait, wouldn’t people get lazy if they had a basic income? One of the things the Mincome researchers wanted to know was whether a guaranteed basic income would cause people to stop working. Despite all the dire predictions that had circulated in academic literature before the experiment, the Mincome effect on number of hours worked was actually quite small — hours dropped 1 percent for men, 3 percent for married women and 5 percent for unmarried women.
The decrease in hours was mostly the result of people taking the time to raise newborns, care for family members, and pursue their education — people did not cut back on work just to loaf around. In addition to activities which would serve as economic investments for the future, the experiment also resulted in things like fewer hospital visits and illnesses, all of which reduce public health costs.
Many argue that a guaranteed basic income is also potentially good for entrepreneurship, making it easier for people to start a small business or switch careers.
3. It could have many benefits to society: Clearly, we want policies that help us create a more stable society where more people can reach their potential and fewer people resort to crime and violence. Advocates say a guaranteed basic income does just that.
Researchers found that during the Mincome years, more people in Dauphin finished high school, more adults pursued education, and students achieved higher test scores. As noted, people got healthier, too: Fewer people visited the hospital, mental illness decreased, and the number of work-related injuries went down. Plus, social ills like domestic abuse dropped.
As a recession hit and the center-left politics of the 1970s shifted rightward in Canada, interest in the Mincome experiment waned. However, Canadian economic researcher Evylen Forget notes that most people who participated in Mincome wish the program had continued, citing benefits like increased opportunity to pursue an education.
Candadians are now reviving the idea, many arguing that such programs would actually encourage people to work because they would eliminate welfare provisions that penalize the poor who take very low-paying or part-time jobs. In Brazil, advocates have pointed outthat a basic guaranteed income could help guard against such scourges as child labor, while Swiss activists make the case that it would help people do more meaningful work, making for happier and better workers.
Philippe Van Parijs, a Belgian philosopher, argues that a basic income is a powerful tool for social justice, allowing everyone, no matter what their circumstances, the possibility to pursue their conception of a good life. He notes that a guaranteed basic income could address some of the issues associated with sexist divisions of labor in which women are expected to do more of unpaid, care-giving work in our society.
4. It might be more efficient than present systems: In the current patchwork of systems confronting poverty, like welfare, food stamps and vouchers, people can fall through the cracks. A guaranteed income could help solve problems caused by rules and restrictions that leave some without subsistence income when they need it.
It’s not just liberals and progressives who like the sound of a simple basic guaranteed income. Something streamlined appeals to conservatives who like versions that could replace existing tax credits and social assistance programs — though it’s important to note that most advocates don’t propose it as a full substitute for existing programs. The American Enterprise Institute’s Charles Murray points out that a streamlined system would obviate the need for people to fill out multiple forms and visit myriad offices to receive benefits. (In his book In Our Hands: A Plan to Replace the Welfare State, Murray suggested an income of $10,000 a year to anyone who was American, over 21 and out of jail.)
5. Let’s not forget simple human dignity: Why is living in dignity not a right? These days, even Americans who get up in the morning every day and report to full-time jobs may not earn enough for a decent standard of living. People like fast-food workers, big-box store employees, caregivers, beauty salon workers, and farm hands often can’t earn enough to feed their families and keep a roof over their heads. Millions have seen no real increase in earnings in decades. Material security, as well as the intangible things that come along with it, like self-esteem and peace of mind, are often out of reach.
A guaranteed basic income is one way to help people to survive with dignity and free them from the humiliation of having to participate in criminal activity and accept abusive work conditions. Because everyone gets it, such a program might serve to eliminate the stigma of a hand-out. Of course, the payment has to be large enough that it helps people actually live in dignity, and some, like economist L. Randall Wray, prefer it as a supplement to something like a jobs guarantee program for this reason.
What’s clear is that our current capitalist system and social safety net have failed too many of us. It may be that in order to confront that epic fail, policy makers will need to get bolder in considering universal guarantees to all citizens.
Such “guaranteed income” schemes are redistributive and must be financed by a tax (open or disguised). While it is true that everyone today suffers from past injustices in terms of property rights, further extracting taxes to pay an annual Citizens Dividend or Social Credit will further destroy private property principles and bolster the State as the effective, if not legal title owner of property. In essence such schemes made ownership meaningless by taking away control (usufruct) through State confiscatory taxation for social purposes. Such schemes accede to the socialist principle that taxes are an exercise of the State’s ultimate property right.
Such schemes would shift property ownership (control) from individuals to the State and usufruct and control the fruits of ownership, and all income and increases in value attributable to property would belong to the State. The State would assume the right to exercise property in landed and other productive capital (effective title; dominion or proprietas) by controlling the fruits of ownership (exercise or use; usufruct), draining and exhausting a man’s means by excessive taxation for social purposes.
What is never addressed is that our country’s founders regarded taxes as a grant from the citizens, and unjust without their consent. Such schemes counter our country’s founding principles of consent of the governed.
The backers of such schemes consider ownership title an irrelevant legal technicality as long as effective title is vested in the State through the State’s control of all land and productive capital by taxing profits. That being the case, taxes would not be a grant from the people to the State to defray legitimate expenses of government, but instead, an exercise of an ultimate property right by the State, to be used for any social purpose, i.e., to provide for individual welfare directly, instead of indirectly by maintaining the common good. In other words, advocates for a basic income for all would use the taxing power for a social purpose. Such a State tax appropriation would utterly destroy private property and is unjust per se. Taxation for social purposes (such as redistribution) in any amount lessens private means to achieve a presumably more equitable distribution of wealth. Such tax extraction measures should only be justified as an expedient in an emergency, with the purpose of keeping people alive and in reasonable health when no other recourse is available––not as the usual way of running society.
The fact is that taxation for “social purposes” accomplishes its ends solely by taking from those with “too much” for redistribution to those who are judged by the authorities as not having enough. This is prohibited under the natural law. The principle of taxing for social purposes as a usual thing instead of as an expedient in an emergency is itself the problem, not how much is taxed or how the tax is administered.
Furthermore, such proposals do not address the issue of concentrated ownership of wealth-creating, income-producing productive capital assets, or its impact on private property principles, but instead takes from those who are productive and redistribute earnings to those who are not or less productive. What should be the solution is to make EVERY citizen productive, so that they do not become dependent on an annual tax-extracted Citizens Dividend or Social Credit nor on wages from toil jobs or State welfare supports, but through owning wealth-creating, income-producing productive capital assets.
As an alternative that does protect private property principles and is market-based, implement the Capital Homestead Act. Here is an explanation of the main part of the proposal:
Right now in the United States, the Federal Reserve creates money by loaning it to banks, who re-loan it multiple times because of fractional banking rules. With Capital Homesteading, money would be created by loaning it directly to citizens at near-zero interest to invest in asset-based economic growth. To build real wealth and also phase out our near-defunct social security scheme, the new full-reserve money would go into a long-term retirement account to be invested in full-dividend-paying shares of qualified successful corporations. That way, money power would be spread to all citizens. The middle class would be invigorated using the principle of compounding interest, instead of being decimated by mushrooming public and personal debt.
For solutions see “Financing Economic Growth With ‘FUTURE SAVINGS’: Solutions To Protect America From Economic Decline” at NationOfChange.org.
In the United States, the reform of the financial system that resulted in the National Banking Act of 1863 restricted the non-rich to the existing (and diminishing) pool of past savings to finance new capital formation and economic development, while the rich could create their own money for the same purpose by issuing bills of exchange. The National Banks and state banks functioned as banks of deposit for the non-rich, severely restricting participation in the economic common good, while they served as banks of issue for the rich, giving them a virtual monopoly over the ownership of new productive capital assets other than homestead land and small ancillary businesses.
Unfortunately, both capitalism and socialism rely on the demonstrably false premise that the only way to finance new productive capital formation is to cut consumption and accumulate money savings; financing for all new productive capital is presumed to come out of the present value of production that was withheld from consumption.
As Harold Moulton demonstrated in The Formation Of Capital (1935), reducing consumption (withholding production from consumption) in order to finance new capital formation harms the financial feasibility of the new productive capital the investor intends to finance. It can even, when the investor realizes that there is insufficient consumer demand to justify the new productive capital formation, prevent the new productive capital from being formed in the first place.
Given that, as Adam Smith said, the sole purpose of production is consumption, one can reasonably conclude that it is contrary to the purpose of production to withhold production from consumption in order to finance new productive capital to increase production. More simply put, if we are not consuming all that is being produced now, of what conceivable use is it to increase production?
That is the “economic dilemma” (as Moulton put it) facing the “capitalist,” or (in socialism) the State if it takes over control of the economy. It should be obvious that new productive capital investment must take place if economic activity is to be sustained. At the same time, the individual investor cannot justify financing the formation of additional new productive capital when there is clearly insufficient demand for what existing productive capital is already producing.
It is, to all appearances, a perfect “Catch 22” situation. If the capitalist invests in new productive capital when there is no demand for what the productive capital will produce, he or she will go bankrupt. If, on the other hand, there is a demand for all that is being produced and more besides, there is little or no possibility of withholding anything from consumption to use in financing new productive capital formation.
Past savings — the present value of past cuts in consumption — are not, however, the only or even the best source of financing for new capital formation. There is also “future savings,” that is, the present value of future increases in production. Just as derivatives (“money”) called mortgages can be created using the present value of existing marketable goods and services as the “underlying” asset backing the derivative, derivatives called bills of exchange can be created using the present value of future marketable products and services as the underlying asset.
Believing — erroneously — that past savings are the only source for financing of new productive capital formation has one of two results. If we believe that the market will take care of things without the State doing more than policing abuses, enforcing contracts, and in general providing a level playing field, we end up with capitalism. Ownership of productive capital must be concentrated in the hands of a private sector elite, for only people whose productive capital assets produce far more than they can consume can afford to finance the formation of new productive capital, thereby providing jobs for the rest of us, to the extent that they are not necessary due to ever-increasing shifts in the technologies of production.
If, however, we believe that the market and private initiative cannot be trusted to take care of things, and that government action is required to both regulate and control the private sector so that everyone will be taken care of adequately and there will be sufficient investment to create enough jobs (whether or not we believe State control will continue to be necessary, or it will wither away), the State must take an ever-increasing role in the economy. That is socialism.
The way to avoid the fallacies of both capitalism and socialism is to realize that new productive capital formation can be financed better using the present value of future increases in production – future savings – than by using the present value of past cuts in consumption – past savings. Reliance on past savings, however (despite its obvious falsity) is accepted as an absolute dogma by all mainstream schools of economics, and virtually all of their offshoots. That is the challenge – to re-educate.
Of course to succeed practically in creating broadened private, individual ownership of FUTURE productive capital formation, there must be a provision to secure investment. This is where collateral insurance comes in (i.e. the provision of sufficient security to support a loan for productive capital acquisition). Because beneficiaries would be enabled to undertake financing on the strength of non-recourse pure capital credit loans from banks and other lenders, the question of collateral or other satisfactory security to support the loans is critical. Banks cannot extend pure capital credit without security to cover the risk of the borrower’s inability to repay the loan. Nor can existing owners be saddled with the risk of business failure. Thus the risk of productive capital investment failure (a risk that is now borne primarily by existing owners, but with considerable governmental back-up mediation through economic intervention by way of taxing, borrowing, monetary, regulatory and other powers) can instead be commercially insured with government reinsurers in reserve if necessary. This would be included as an element in the cost of borrowing in the case of each pure capital credit loan to provide financial compensation to the lenders. Similar insurance mechanisms can be employed as used by the Federal Housing Administration (FHA) to overcome the formidable financial barrier that prevents most people form effective productive capital acquisition. Once we set put on this path to prosperity, opportunity, and economic justice it is an open question whether government involvement (and how much and in what form) is necessary to promote the market provision of pure capital credit insurance. In the writings of binary economist Louis Kelso, he consistently proposed the creation of an agency to operate on the broad principles as practiced by the FHA in providing loan insurance to home buyers. The FHA has experienced decades of profitable success in facilitating the financing of broader home ownership throughout the United States. Instead of financing with insured loans a consumer purchase (a home to live in) we would be financing productive capital asset formation that generates its own earnings out of which to pay back the loan. Capital credit insurance is not a government guarantee. To the contrary, capital credit insurance would be provided only if the premium is competitively attractive in view of the risk insured. Any investment risk that is not insurable on market principles should not be undertaken. The government’s reinsurance corporation would be expected to meet the profitable performance standards of programs like the FHA’s home loan insurance program.
The Agenda for the Just Third Way and the proposed Capital Homestead Act addresses the alternative to schemes for a basic income for all achieved through tax extraction and the coercive powers of the State.
Within the scope of the proposals, the Federal Reserve would stop monetizing unproductive debt, including bailouts of banks “too big to fail” and Wall Street derivatives speculators, and begin creating an asset-backed currency that could enable every man, woman and child to establish a Capital Homestead Account or “CHA” (a super-IRA or asset tax-shelter for citizens) at their local bank to acquire a growing dividend-bearing stock portfolio to supplement their incomes from work and all other sources of income. The CHA would process an equal allocation of productive credit to every citizen exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and creating private sector jobs for local, national and global markets. The shares would be purchased on credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable goods and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy. Risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance, but would not require citizens to reduce their funds for consumption to purchase shares.
The end result is that citizens would become empowered as owners to meet their own consumption needs and government would become more dependent on economically independent citizens, thus reversing current global trends where all citizens will eventually become dependent for their economic well-being on our only legitimate social monopoly – the State – and whatever elite controls the coercive powers of government.
Support for this article was provided by the Center for Economic and Social Justice (www.cesj.org).