Thoughts on Universal Basic Income


Curt Doolittle

1) The province (Prince Edward Island) will conduct an EXPERIMENT in a rebranded expansion of WELFARE: a subsidy for the poor. It is not a UBI – Universal Basic Income. UBI proposal is that every citizen obtains it, and that taxes offset it as income increases. In other words, it places a tax increase on the wealthier people in order to expand subsidies. However, the math remains the same – total tax revenue is 10k per person. 1/3 discretionary (everything the govt does), 1/3 obligatory (medicare, medicaid, social security), and 1/3 military. of which the vast majority goes to salaries and pensions.

2) North did the work against MMT (Modern Monetary Theory) of which UBI is a derivation. His judgement was that any such activity would result in hyperinflation. (But it’s non-trivial to explain why. Although I’ll try to do it justice below.)

3) In theory, money is neutral. Meaning that inflationary money (printing money), will eventually work its way through the economy resulting in inflation. But this definition doesn’t inform us as to the extend of what happens. Yes, prices that CAN adjust do. But prices that CAN’T adjust DON’T. For example, salaries, contracts, leases, mortgages and loans. And so a lot of prices throughout the economy don’t stabilize predictably enough to take risks via salaries, contracts, leases, mortgages and loans. And when prices are not predictable, risk is priced in (prices increase), and contracts are shorter (higher volatility), and defaults are greater (higher costs), and litigations are more extensive, and consumption falls at the same time. So just as the fed tries to target a rate of inflation (as bad as that might be) it can at least offer credit money and fiat money without causing hyperinflation by the inability to organize intertemporal production because of the destruction of the pricing system.

4) It’s simply empirically false that states cannot create runaway inflation by attempts to redistribute through fiat money dilution (inflationary redistribution). Many countries routinely fail because of it. Because the problem it creates is destruction of the pricing system, and destruction of risk taking and trust.

To some degree printing money works only so long as the public cannot ‘sense’ the printing of money on time horizons that affect the production and consumption cycles. And in general the 3% number seems to be the target.

5) Now, printing money for consumption(redistribution of existing purchasing power) and printing money for investment (intertemporal loans against future production) operate successfully as long as the future production is forthcoming from the stimulation of consumption and production. This is why we tend to use the combination of monetary policy(redistribution of purchasing power) and fiscal policy (debt spending). Because while printing money does us some good it is a weak lever, and is prone to privatization of the commons (financialization) that we all despise. Fiscal policy is a better lever but it is more prone to political corruption. And to some degree we have played the financial sector and the political sector off on one another as a sort of balance of power.

But what we haven’t tried is distributing liquidity directly to consumers instead of as a multiplier through the financial system. So if we sell 1b $$ to the financial system at 2%, then they sell at a 10% reserve that’s roughly 10b in credit capacity (at a minimum because much of that money will be again resold to consumers as consumer credit at another multiplier). And then if we say that the interest will roughly double the initial price of the good, resulting in 20B of revenues, we sort of have to ask the question “why does the financial sector do any good for consumers whose credit risk is a statistical certainty?”. In other words, why don’t we just distribute 10-20B of liquidity right to consumers?

My position is that we cannot PROMISE people any fixed redistribution, but what we CAN do is take the trillions that we distribute into the financial system and instead distribute it to consumers (citizens).

6) During the 2008-2009 crisis, only two of us (me -who is meaningless – and one economist who unfortunately died before he could rally support – advocated for direct redistribution from the treasury by paying down mortgages proportionate to the value of the home (and leaving a credit balance for those who had been good at paying off their homes, plus 50k for those who purchased a home in the next calendar year). This would have cost less than the 4T we had spent in that time period. And it would have prevented the radical repricing of everything worldwide that caused the crash. And who would have paid for it? The financial sector would have lost as yet unearned income. Which is certainly moral from any perspective.

7) The problem with these systems is that they create a profound hazard. My view would be that we need to reform immigration dramatically, and NOT offer this to people who have come here illegally unless they return to their home nations for 7-10 years – and this includes all anchor babies and immigrants since the (illegal and immoral) 1965 immigration act (socialist import act).

8) The benefit of the redistribution to citizens of any necessary liquidity is that it will collapse the influence of the financial sector, and instead of using the financial sector as a competitor to the state, it will create all the POSITIVE incentives in the populace to (a) resist immigration, (b) resist government spending (c) resist increasing the government. So this will exchange the power of the financial sector as a competitor to the state for the power of the people as a competitor to the state.

9) Also, my opinion, is that if we collapse enough of the state we can mandate that high income earners redirect income to the commons instead of consumption thereby weakening the local state.

So I think that the general idea that we can redistribute liquidity and taxes to the population in order to stimulate consumption in stead of funding the financial sector. I think there will be consequences to the financial sector – all of which are good for mankind and for us.

But as far as I know, UBI is just rebranded welfare. MMT is logically impossible and we do not know whether it is empirically impossible but the risk is so profound I don’t see anyone taking it (honestly).

I do see my alternative CALCULABLE solution as not only possible but desirable.

The downside of any of these strategies is that (a) we create a moral hazard by creating a dependence upon an income we cannot be sure is possible to sustain (the liberal AND libertarian fallacy of growth). And (b) politicians will try to buy off the population even more so than they do now, so that this must not be touchable by the politicians and only done by the fed. (c) that we do not know the consequences of doing such things because we never can konw them. And that reversing it is hard. (e) the money must be distributed irregularly (quarterly or yearly) so that people don’t live from check to check in the case that there IS a shock. (f) that this money must be unattachable by debtors and the state. In other words, it is not money that anyone can take from you for any reason. It is for your survival not your comfort.

That’s my position on the matter.

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5 comments

  • Pingback: Thoughts on Universal Basic Income | The Libertarian Ideal

  • There are a number of serious problems with a universal basic l income. To begin with there is the cost and the problems with that are so great the others can be disregarded . To be of any practical use it would have to be enough to live on. In the UK that would probably have to be at least £15,000 for each adult, housing costs being what they are. There are around 45 million adults. That would be £625 billions. Then there would be the cost of the children plus all the other things that government spend taxes on. As the UK government spends less than £800 billion a year in total the figures for a UBI clearly do not stack up. Moreover, where would the tax come from to maintain the present rate of tax income?

    • If we were to confine it to £10,000 per household, of which there are about 30m, that would bring the bill down to about £300bn, which would be a good replacement for all state transfer payments. I see no reason why people should be paid extra if they choose to have children, or live in areas of high rent. The purpose of a universal income should be to let people survive, or be a top up for very low incomes, not to let them live in anything approaching comfort. Bear in mind that, since they are often inflated by housing benefit payments, residential rents would fall somewhat in most areas if that support were removed.

      This proposal would not work all else being equal. But it would work as part of a general hacking away at controls that prevent people from getting little jobs, or starting little businesses.

      As for households with large numbers of children, I suggest that there might be indirect benefits I prefer not to set out in detail from capping support.

      • The problem with placing it at £10,000 is that it would not provide the means to live. If someone could not get a job, or even a job which still provided an inadequate income when combined with the £10,000, where would that leave them and any dependants they might have? Would you let them starve, live on the streets and so forth? I suspect from your remark about help for large families not, in which case you would have to pay them benefits which would have to be monetary – whether in the form of cash or vouchers – and hence not “indirect” because that would be the only way they could get the basics of life such as food, shelter, clothes and energy.

        Will the £10,000 be counted as taxable income if that money plus any earned income takes the total income over the tax threshold? What would you do with National Insurance?

        Perhaps an even more fundamental problem with any plan for a universal basic income is where will the tax to pay it come from? The fact that a UBI is being given serious consideration at all by some countries is simply a reflection of their anxiety over robots and AI systems demolishing jobs for humans. If robots do demolish jobs wholesale, as I am sure they will if given free rein, then the tax base contracts mightily. The state would not be able to pay even the £10,000 per head.

        • Because I am still thinking about welfare, without having reached any defensible conclusion, I will leave this debate to others.

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