MARKET-ORIENTED UBI THAT SOLVES THE ‘NO-RIDER’ PROBLEM— WITHOUT FUNDING or REDISTRIBUTION

A short version is posted here:

https://medium.com/@m.haines_81949/if-the-idle-rich-can-have-money-without-working-why-not-the-rest-of-us-a5e9ea450dc5

This post is for those who want to dig a bit deeper.

Most people are familiar with the ‘free-rider’ problem. This arises as a result of the private use of common resources (the air, rivers and ocean, etc). Because each person can use the commons without cost, it can lead to degradation of the resource, eg through over-fishing, or pollution. The market cannot solve this problem because the commons is free to use. It requires the community to set and enforce the rules.

Less well recognised is the ‘no-rider’ problem. This is another failure that the traditional market cannot address. It arises when people have no money to express their needs, so the market never responds to satisfy them.

Quite simply, without money, its impossible to get a ride in the market economy.

This paper explains the nature of the problem and offers a unique solution involving a Market-oriented Universal Basic Income, or MUBI. It uses market mechanisms to give everyone the money they require to express their basic needs (in the market), without taking anything from anyone else.

Unlike all other proposals for a UBI, the MUBI requires no external source of funding. It instead relies upon an aspect of the monetary system that is well-established, yet little understood by the wider community. It enables us to inject money into the economy via each citizen to meet their basic needs (directly boosting business and employment); and to keep it circulating — without borrowing or igniting inflation.

It offers the best of capitalism and socialism combined!

Further, MUBI need not be established wholesale, with the attendant risks of failure and unintended adverse consequences. It can instead be started at a very modest level, such as $10/week per person, and then increased as market conditions prove its viability.

At the end, the paper also invites the reader to support a Kickstarter project to develop a demonstration tool, conceived 80 years ago by futurist and SF writer Robert A. Heinlein — to help everyone better understand how the system works in practice.

Why a Universal Basic Income (UBI)

Many credible sources predict a massive upsurge in job loss in the 2020s due to AI and automation, possibly reaching 40 percent of the entire workforce. Even during the Great Depression, unemployment levels never exceeded 25 percent.

Others argue that the dislocation will only be temporary, as new work opportunities emerge, just as large scale employment in agriculture gave way to new jobs in manufacturing, and then new service industries. This is a theme repeated in The optimist’s guide to the robot apocalypse that also argues for automation to compensate for an aging population who cannot work, who will also need greater care.

There is little doubt that new jobs will emerge. However, there is no guarantee that they will pay as well as the jobs that are lost. While some may pay better, recent history suggests many more will be at the low end of the scale, potentially dropping the standard of living for a large section of the community — even as our capacity to produce improves.

Then again, AI automation will likely go on dropping prices too, so a lower income may not mean a drop in a person’s standard of living — as long as they have an income.

These arguments and counter-arguments may (or may not) be true of the future.

What’s certain is the speed of change is much greater this time around, making any adjustment process much more problematic.

In the immediate term, the consequences will be severe from at least four perspectives:

1. Individuals and their families (who have no income to pay for the necessities of life).
2. Society as a whole (due to an upsurge in crime, health problems, and so forth)
3. Often overlooked — all manner of Businesses (with B2C businesses facing the prospect of demand for their offerings drying up, with flow-on effects throughout the B2B supply chain, adding to unemployment in a vicious cycle), and finally…
4. Government (which will see lower revenues as a result of lower wages and profits, at the very time demand for welfare is rising).

Any one of these would potentially be an enormous problem for society, and perhaps even destabilizing. If we get one, we will almost surely get all four.

The paper Ten Responses to the Technological Unemployment Problem outlines a range of responses (explained in the paper):

1. THERE IS NO PROBLEM; TECHNOLOGICAL UNEMPLOYMENT IS A MYTH
2. UNCONDITIONAL BASIC INCOME
3. OPT OUT OF CAPITALISM AND TAKE ADVANTAGE OF DECENTRALIZED TECHNOLOGIES
4. RESOURCE BASED ECONOMY (OR AUTOMATION SOCIALISM?)
5. WEALTH REDISTRIBUTION ACCORDING TO AN INCENTIVE SYSTEM
6. WORK TOGETHER WITH THE MACHINES
7. SMALL SCALE POLICY ADJUSTMENTS DESIGNED TO ENCOURAGE EDUCATION AND FOSTER INNOVATION
8. GET THROUGH THIS TRANSITIONAL PERIOD AS FAST AS POSSIBLE
9. OPTIMISTIC LIBERTARIAN
10. ISSUES LIKE TECHNOLOGICAL UNEMPLOYMENT ARE DWARFED BY EXISTENTIAL RISK

Apart from numbers 1 and 10, which are not really responses, none of the suggested countermeasures are necessarily mutually exclusive. Nor is the list exhaustive.

The main point in favour of a Universal Basic Income is that it alone completely solves the ‘no-rider’ problem, and can be implemented quickly — with universal effect within each country; provided it can be implemented in a way that addresses the legitimate concerns that people have raised.

Concerns about a ‘Conventional’ UBI

Conventional approaches to UBI suffer from a number of deficiencies.

First, how can the UBI be paid for without generating inflation or requiring massive redistribution of wealth, or huge deficits (any of which is certain to spark significant and sophisticated opposition)?

Secondly, how can a UBI be implemented in a way that minimizes or eliminates any presumed side effects, such a increased drug use or laziness?

Thirdly, how can a UBI be implemented so that those who have historically opposed such social welfare schemes, instead understand themselves and society as a whole to be major beneficiaries, along with the poor?

Fourthly, how do you prevent double dipping, while ensuring everyone gets their entitlement — even in places with little infrastructure or sophisticated financial systems.

The present proposal will successfully address the above concerns.

The UBI is not a New Idea, with Long-standing Debates on Both Sides

Before we get into the detail, it is important to acknowledge that the idea of a UBI has a long history, stretching back to Thomas Spence in the UK and Thomas Paine in America in the late 1700's.

Over the centuries, there have been many arguments made for and against it. More recently…

Phil Andrews has mounted an interesting philosophical argument in favour in Universal Basic Income: The Maslow Argument

Scott Santens explains why a UBI is not Socialism and is, in fact, the epitome of Capitalism in his paper: If You Think Basic Income is “Free Money” or Socialism, Think Again. He also shows how a UBI could be funded by reallocating monies from existing welfare programs.

Marshall Brain further develops the arguments for a UBI and offers a range of other ways in which it could be funded.

The Basic Income Earth Network (BIEN) is another great resource that links to global initiatives aimed at developing a UBI.

Simon Sarris puts a contrary point of view: After Universal Basic Income, The Flood, as does Henning Meyer in Five Reasons Why A Basic Income Won’t Solve Technological Unemployment.

This paper is short on data, as those by Scott Santens, Marshall Brain, BIEN and Simon Sarris either provide or cite a wealth of data to support their arguments, which this paper builds on.

Some of the arguments against relate to the fact that a UBI (alone) won’t solve homelessness, or the drug and alcohol problem, or gambling addiction, or unhealthy lifestyles, or a lack of education; and it won’t. But it may mitigate those problems, especially when combined with enlightened support programs that treat the root causes, rather than the symptoms.

For those concerned that work provides ‘meaning’ as well as ‘money’, the UBI does not stop us offering ‘job guarantees’, as suggested by Meyer. If there is real work (not ‘make work’) to be done, anyone will be free to boost their living standard even further by accepting the work.

The problem with job guarantees is that they don’t cover those who cannot work, or their unpaid carers.

Others suggest we just need to help people to transition to new jobs, by providing retraining schemes, temporary income support and help with relocation expenses, and so on. Again, there is no reason why specific programs cannot work in parallel, each focusing on a different aspect of the problem. Of course, such schemes assume the person can work, though many cannot.

Another concern is that (some) people are inherently lazy and won’t work if they get ‘free money’. Yet, the evidence cited by Scott Santens shows that in practice this is not the case when the money is given unconditionally.

There is some evidence cited by Simon Sarris that some people on welfare just ‘sit around watching TV’. But what else is there to do when you have barely enough money to live on? Of course, they could get off their bum and find a job… except it costs money to get to interviews, and besides, they just lose benefits and there is no guarantee the job will last and then they are back to square one, re-applying for the benefits they just lost! The system is stacked against them.

Some cite the increase in disability claims as another rort that shows how ‘lazy people’ milk the system. Yet, applying for the highest possible benefit when you cannot get work is a perfectly rational response. It is also perfectly rational (though soul destroying) to then sit around watching TV, as any attempt to do more could see your ‘disability’ claim denied.

And then there is the argument that we are just taking money that was going to the poor and giving it to everyone, leaving the poor worse off. Or, that redistribution from hardworking people to ‘lazy good-for-nothings’ is simply theft and counter-productive; or we cannot afford it. Or all of the above.

But it does not have to be this way. We can set it up so people who can work have every incentive to find more work (to add to the social good and improve their standard of living), while the system underpins their basic needs… without taking anything from anyone else.

Lack of Money (not simply Lack of Jobs) is the Real Driver for the UBI

My argument for the UBI is very simple. It is the same one that Scott Santens has used:

Imagine you are walking downtown and feeling a bit hungry, you reach into your pocket and realise you have left your wallet at home: no money, no sandwich. But of course, that’s only a temporary problem.

But what if it’s not? What if every day you have no money at all? How will you eat, or get around… how will you survive?

In a market economy: no money means you have zero ability to signal your needs… or have them satisfied.

Who are all these People who have No Income?

Well, they are over 50% of the population in developed countries:

• young
• old
• incapacitated
• their unpaid carers (mostly family)
• those lacking the skills and knowledge required by the market — with many more jobs at increasing risk from AI and automation, this is likely to become a fast growing cohort.

In most cases, the lack of income is ‘temporary’ (though often lasting years). The young grow up, the old die, the incapacitated recover (though not all), the unskilled retrain, and carers get to go back to work.

In the meantime, how do all these people survive?

Where Do People who Cannot Work Get the Money they Need to Survive?

There are only a limited number of ways to get money while you cannot work:

1. Savings, or selling or borrowing against assets — with those most at risk having little in the way of savings or assets, this is not a viable alternative for tens of millions of people in the US alone.
2. Family (and friends) — much less certain nowadays due to family breakdown and low wages (for those who are working) to share around.
3. Charity — (including begging) creates second class citizens, with large amounts of money eaten up in ‘running the charity’.
4. Tax — also creates second class citizens and requires politicians and bureaucrats to decide who should get how much under what conditions, with large amounts spent on running the system. It also creates a ‘poverty trap’ due to the loss of benefits as income is earned.
5. Crime — a rational response to exclusion

As well, tens of millions in the US, who work for minimum wages, are only marginally better off than not working, with earnings (especially for families) still below the ‘poverty line’. For some, this situation is also temporary. But for many it is not. To say they just need to lift themselves up is to ignore the reality that there are only so many higher paying jobs.

The UBI Solves One Problem — which Helps to Mitigate Many Others

A UBI does not solve all problems. Of itself, it doesn’t solve homelessness or addiction, or escalation in rent or health care costs. Nor will it result in a better educated population, nor will it help retrain people for a new career. At least not without other specific initiatives.

What it does solve directly is one over arching problem: the lack of cash to express your needs in the market.

It simply means that, even without a paid job, each day you can reach into your wallet and know you are not going to starve, that you can afford appropriate clothing and public transport, perhaps even a secondhand car and petrol to look for work (attend interviews), the weekly rent (if we watch out for gouging), and yes, even a phone, a computer and TV, as well as basic health care and access to education (both increasingly online, hence the need for a computer). Stuff to survive in a modern city.

A UBI will not change the relative position of anyone in society. Nor will it put a ceiling on the incentive to work. It actually frees people mentally to contemplate working — given they can afford the transport to get there, and not have to worry about finding or begging what they need to live that day.

It simply lifts the floor.

The problem is how to fund it.

Funding the UBI

Most proposals seek to re-allocate taxes and replace existing welfare programs. But this is not necessary. Nor is it desirable, given it is impossible to know the impacts on specific people of replacing their welfare payments with a UBI.

For this reason, and all the reasons that Simon Sarris states, all existing welfare programs should stay in place.

The UBI should simply reduce any welfare entitlements, as though it was earned income. In time, the UBI should supplant unemployment benefits entirely. All other welfare programs should also naturally phase down (though not out), as the UBI level increases over time. This will result in a tax saving.

So, if we are not re-distributing existing welfare, does that mean we need to increase taxes or charges on current incomes?

No, it does not.

The ability to pay a UBI comes through specialization and automation: enabling us to make more for less, with fewer people in the supply chain.

Specialization, automation (and globalization) has led to the creation of our current ‘leisured’ classes: those rich enough not to have to work, or who work ‘playing and administering sports’, or doing ‘creative jobs’ (in film and TV and the arts) and all the ‘service industries’ such as beauty and massage, and the manufacture of trinkets that do not actually supply any of our basic needs, as well as those on age and disability pensions and unemployment benefits, together with most of our children into their late teens. In the developed world, we have been supporting hundreds of millions of these people (including me) in increasing numbers over the last 100 years, solely due to our collective ability to make what everyone needs without their help. This ability is about to skyrocket through the use of artificial intelligence and robotics, as well as new materials and additive manufacturing techniques.

The problem with automation is that it breaks the link between earning money via work, and spending the money earned to purchase our needs.

Even though the automated supply chain can provide the same volume of goods and services as before automation, it will not do so unless people have the same money to express their demand.

The question remains: where does the money come from to pay people who are no longer needed in the supply chain, as well as those who cannot work at all (young, old, incapacitated and their unpaid carers)?

The answer is simple:

The same place all money comes from: ‘the thin air’.

To some people this may seem an outrageous claim. But it’s true. All money is essentially created through the banking system ‘out of thin air’.

Money Creation… and Destruction

The process is described in this Bank of England paper:

It is as simple as making two entries in the books of the bank: debit loan in the name of the borrower, and credit deposit in the same name for the same amount.

The first entry creates the debt that the borrower must repay, while the second entry creates the money they can draw down. The two entries keep the banks books in balance.

If the bank does not have the cash on hand to meet any deposit withdrawal, they can borrow it from another bank; or from the central bank who can literally print it (or most usually just make its own electronic entries to create the money).

This new money is injected into the economy as it is spent by the borrower — boosting demand, which drives additional supply (and/or inflation, if the economy is near or at full capacity).

As the loan gives the borrower a unique right to spend money they have not earned, it is only proper that they should repay it out of future earnings. Once the money has been repaid, they and society are square. They will have paid back what they first took out when they spent the proceeds of the loan.

As the loan is repaid, the money does not go to the bank. The entries are simply reversed in the books of the bank and the money goes back into the thin air from which it came.

The bank only gets the interest. This goes to pay its costs, including a margin for defaults, and its profit. Profit is simply the value added by the bank in supplying and organizing the people, equipment, processes, facilities and energy to qualify borrowers, manage the loans and enforce repayment; and to run the payments system. This is a hugely beneficial function that has been degraded by the amalgamation of investment banking with commercial banking, and is about to be disrupted by ‘Fintech’. (But that’s another whole topic).

Regardless of a UBI pumping money into the economy for consumption, loans/borrowings will still be a vital part of the system for the purchase of assets.

Borrowing provides governments, business and individuals with the ability to enjoy the fruits of an asset (bridge, machine or house) while paying for it out of income earned — as it is used. (Take the case of a bridge. To pay for it out of current revenue during the years it is built would be to disadvantage current taxpayers over future taxpayers who would get the use of the bridge without paying for it. By borrowing and paying the loan off over the life of the bridge, taxpayers share the cost according to the value it provides them. Similarly, the buyer of a house gets to enjoy the benefits of home ownership while working to pay off the loan).

As repayments take money out of the economy, in order for the economy to grow, new loans must exceed repayments on any day. This is why, under the current system, world debt must grow to maintain economic growth. (As later discussed, this ‘growth’ will have to become ‘circular’, to sustain a diverse and hospitable biosphere).

Central banks have also created money ‘out of thin air’ to buy existing securities from investors. This process is called Quantitative Easing. It has been used to inject liquidity into the banking system to remove the threat of bank runs during the Global Financial Crisis (and since, to keep equity markets from falling). Most of the money has been reinvested, bidding up asset prices, with little flowing to the real economy. This money will be destroyed as Central Banks reverse the process, either selling the securities back into the market, or waiting until the securities mature and are repaid.

With this understanding that ALL money is created ‘out of thin air’ (and destroyed by reversing the entries that created it), we can see that there are a number of ways we could issue it.

1. via bank loans that have to be repaid out of future work and/or investment. This is a perfectly legitimate process.
2. in consideration for an asset (as with QE). This process, while legitimate, has proven to have very little impact on the real economy

But these are not the only ways. We could also issue it:

1. for work done, by having the government commission the work, eg building a new bridge. While this is possible, printing money for governments to spend is not a good idea as it runs the risk of ‘pork barrelling’. This risk can be mitigated only if governments are forced to borrow to fund assets over their effective life, and to fund recurrent expenditure (including loan repayments) out of tax.
2. to the poor. The difficulty is that we have to assess who is poor, with all the same problems of creating second-class citizens and poverty traps that attend existing welfare programs.
3. to everyone equally as a UBI…

But that’ll just lead to runaway inflation! I hear you cry.

Not necessarily, and certainly not immediately. The extra sales generated by the UBI will first lead producers to expand capacity, generating extra income. The impact of this extra income on inflation depends on where it flows and what it is spent on.

Its a truism that money flows up, much faster than it trickles down.

Historically, the resulting increase in profit will flow first to top executives and shareholders. And as it does, much of it is removed from the the ‘real economy’. Instead, it is invested, pushing up the price of assets and, in particular, securities — without impacting demand for most goods and services.

Regardless, managing inflation is not a new problem.

Managing Inflation

Central Banks have two objectives: to keep unemployment and inflation low.

If bank lending injects too much new money into the system, outpacing the growth in our productive capacity, it can ignite inflation.

Central Banks use the cash rate (at which commercial banks lend to and borrow from it) to manage their twin objectives as best they can: increasing the cash rate if inflation looks to be a danger, and dropping the rate if employment is weak. (Though in recent years, the link between inflation and employment appears to have been broken, reducing the effectiveness of this tool).

If Central Banks are also given responsibility for the UBI we will simply be giving them an additional more targeted tool to stimulate the economy (in keeping with their employment objective).

We can also give them a complementary tool to damp the economy more directly than the cash rate: an Inflation Tax. The money raised by the Inflation Tax would not go into government coffers. It would be written back into the thin air from which the UBI came.

Importantly, the Inflation Tax would not be an extra tax on current incomes. It would merely take out some of the new money being pumped in via the UBI — to keep the money circulating: pumped in, taken out and pumped in again, round and round.

This circulation is fundamental to how the economy works.

The Circular Flow of Money

Each week people need money to spend — to signal their need for food and other goods and services. But once they have spent it, they no longer have it to spend the next week. This means we have to inject new money into the economy as a UBI every week.

The money injected via the UBI does not disappear as it is spent. It goes into the hands of those who provide the goods and services, who then have it to spend. This is not a problem if the money just flows up into bank accounts, or to buy securities.

It is a problem as and when it is spent to boost demand beyond the capacity of the global economy to respond sustainably, as this has both consequences for inflation, and for the degradation of the environment. The point at which this happens cannot be predicted.

Fortunately, we don’t need to make predictions.

[edit] as Tim Knowles has rightly said, this is not correct… as I in fact acknowledge in the section headed ‘What’s not to like’!

What I meant to say was that we don’t need to make predictions about ‘inflation’. We can start small and just see what happens without much risk to the economy. Though the risk from ever increasing demand to the environment remains to be addressed as a matter of urgency!

A Cautionary Approach to Introducing a Market-oriented UBI

The Central Bank can start small, paying a UBI of (say) $10 per week per person, and gradually increase it — until there is a clear signal from the market that the rate has reached its limit. This will occur if and when inflation kicks in. While inflation remains below target, the Central Bank would continue quarterly increases. Otherwise, it would freeze the UBI and revisit next quarter.

Given this market mechanism we could term it a Market-based UBI (MUBI).

While there is a risk that excessive inflation may appear quite quickly, both globalization and technology have been pushing prices down. This trend should continue, enabling us to make more for less, to meet the extra demand generated by the MUBI. As well, there is still a huge amount of ‘idle capacity’ across the world. Ask many companies if they could increase production without increasing prices and the answer will be a resounding yes. In many cases (such as health and education) AI and mobile technology is also likely to drive substantial price reductions over the next decade.

Since the MUBI would be paid to everyone, unlike a loan to a specific person, it would not need to be repaid. It would simply represent a permanent increase in the money supply… week after week.

As noted, while the money from the MUBI is flowing in at the bottom to everyone, it does not stay there. As soon as it is spent, it flows up into the hands of workers and more into the hands of the higher paid executives and owners of the factors of production who see their returns increase from the extra demand generated by the MUBI.

This suggests that the simplest and most equitable way to take money out is to tax a set percentage of all spending (an Inflation Tax). Again, this can be done on a ‘trial and error’ basis, starting with a small percentage on consumer goods and services and see what happens to inflation. (Similar to how Central Banks now manage interest rate changes, and as proposed for the MUBI).

If you don’t spend, it means you have contributed value (via work and/or investment) and not consumed it, so there is no social cost in deferring tax until the money is spent.

The money raised via the Inflation Tax would be written back into the thin air from which the MUBI is created.

The sole aim of the Inflation Tax is to take money out of the economy — to keep the money supply ‘in balance’ with our growing productive capacity — to ensure low inflation.

The Inflation Tax will be relatively easy to implement where a Goods and Services Tax is already in place, at it would simply represent a change in the rate, with the increase going to the Central Bank to be written off.

The Magic of a Flat Amount MUBI and Flat % Inflation Tax

A percentage tax on spending may seem regressive, but combined with the MUBI it is not.

Even though everyone gets the same amount of MUBI and pays the same percentage tax (as necessary) on every dollar they spend; the combination is a Net Progressive System, wherein those at the bottom get most of the benefit from the NEW MONEY — which is what we want.

A crucial advantage of this system is that the progressivity is attained without using different tax rates.

The practical significance is that, because there is only one tax rate, the system cannot be manipulated to favor one group over another.

[The following example illustrates the progressive nature of the combined effect of the MUBI and the Inflation tax:

Imagine a MUBI of $12,500 and an Inflation Tax of 25% on spending (just to make the maths easy — the expected rate could be much much lower).

We can look at tax as a percentage of income, or a percentage of spending.

$2,500 tax on an income of $12,500 = 20% of Income. Alternatively, after tax you would get $10,000 to spend (12,500–2,500). The $2,500 tax then equates to 25% on spending.

That is, a 20% income tax is the same in this case as a 25% tax on all spending.

With a MUBI of $12,500 and a 25% tax on spending, if you have no other income you go from zero to $10,000 to spend. That is, you pay no net tax, but get a net benefit.

Someone who is earning $100,000, would then have $112,500 (including the MUBI). 20% of this gives an income tax of $22,500, leaving a net of $90,000 to spend. (22,500/90,000 = 25% tax on spending).

In this case, the net tax on their original earnings would be $10,000 (100,000 pre-MUBI income - 90,000 to spend post MUBI) — equals a net tax of 10% of pre-MUBI income.

Someone earning $1,000,000, would have $1,012,500 to spend after the MUBI. They would pay $202,500 tax leaving a net of (1,012,500–202,500) = $810,000. Based on pre-MUBI income the effective tax paid would be (1,000,000–810,000) = $190,000 or 19% of pre-MUBI income.

The higher the income, the higher the net tax — up to a limit (in this case) of 20% of income. That is, under this system, the maximum net tax rate always approaches (but never reaches) the income tax rate.

Importantly however, it may be expected that over time, earnings will also increase due to the extra demand generated by the MUBI.]

This system has one aim: to put money into the hands of those who do not have it (or enough of it), so they can buy what they need to live on — without having to assess who those people are, and without killing the incentive to work…

Doing it in a way that treats everyone the same: same MUBI and same % Inflation Tax rate.

An aside: The Benefits of Taxing Spending

As everything produced ultimately gets consumed, it should make no difference in terms of equity whether we tax all income (which represents the value of production) or all spending (which represents the value of consumption).

Tax would be much easier to administer if all current taxes were stopped and all incomes (wages, rent, fees, interest, dividends, etc) were paid gross into your bank account(s), with tax taken as a percentage on any withdrawal. (To avoid double taxation, it would require a system of rebates on the resale of assets, and on the proceeds of loans and gifts).

Then we could have:

• a percentage deducted to pay our local rates (as determined by our council),
• another percentage to pay our State tax (as determined by our State), and
• another to pay our Federal tax, and
• another to pay the Inflation Tax (which would go to the Central Bank to be written off).

The Council and State rates would depend on our principal place of residence.

Everyone would then have a direct common measure of the monies required to fund each arm of government.

Importantly. an increase (or drop) would have the same percentage impact on everyone living in the same locality, regardless of their income.

Combined with a MUBI, the system would provide a floor that eliminates any perceived regressive effects of the tax on spending (as shown in the example above).

This approach has the added benefit of removing tax from the decision-making process (as no business would expense tax). It would also capture spending on imports with zero additional administration.

Levies could still be applied to price the cost of anti-social behaviour (eg smoking health costs), with the money raised solely to educate and mitigate the effects of the behaviour. This way, income from the levy would reduce as the behaviour is modified, but so would the need for spending on mitigation. It would be a virtuous diminishing spiral; rather than addicting government to the revenue, as now so often happens with such levies that go into general revenue.

A topic for another day.

While the MUBI solves the No-rider Problem, it is not a Panacea

Just because inflation kicks in, does not mean that the combination of the MUBI and welfare is sufficient to deliver a basic lifestyle.

If it is not sufficient, we will need to go on increasing the MUBI and deal with the inflation it could generate via the Inflation Tax.

Specific programs will still be required to alleviate homelessness and drug and alcohol addiction, and a lack of education and other social ills. Though evidence from around the world (as cited by Santens and others) is that the MUBI will certainly help, and not hinder.

We may also need to look at ways to share around the available work, for example, making it easy to work ‘part-time’, with the MUBI providing the floor.

So what will happen as we gradually increase the MUBI?

Impact of the MUBI

For the rich, it will just be another tiny number in their bank account. It will make zero difference to their spending, meaning it will make zero difference to the rest of us that they receive it. (Though they will benefit from the extra spending the MUBI generates within the economy as a whole, as their businesses expand to provide the extra goods and services demanded).

Others will spend their MUBI immediately on stuff they really need (or want), boosting business and employment. This will reduce social ills and societal costs, including homelessness, poor healthcare, and crime. It will make people feel safer quitting a job to start a business, or to learn a new trade.

As the rate is increased, those with other income and/or lesser needs will cut back their hours of work, or drop out of work altogether to pursue other interests… caring for family, inventing, playing sport and all manner of games, cultural interests, volunteering, socializing, house and garden maintenance, growing their own food and cooking it, playing in VR, managing their investments, reading and learning and writing and making videos, engaging in civic activities… whatever. None of us can complain because they are only getting the same MUBI that we are getting, while paying the same percentage tax (as required).

Those whose wants are greater, or who have greater family responsibilities can then step into the vacated jobs, without loss of their MUBI.

At some point however, the labour market will tighten, as more people decide to reduce their paid work in favour of other activities. It would mean that any further increase in the MUBI could lead to a labour shortage which could push up real wages, pushing up prices. This is no bad thing if it happens gradually. Higher wages traditionally correlate with improved community measures across the board. And, if an employer cannot afford the wages, the good or service won’t get made, or it will be produced using robots. No one is guaranteed work or a business. But everyone should be (and can be) guaranteed a basic lifestyle, with every incentive to do better.

Once we reach an acceptable minimum, the Central Bank’s task will be to hold the MUBI and Inflation Tax, making fine adjustments to ensure it meets its twin objectives of low unemployment and low inflation, in keeping with our ever-growing productive capacity.

As with interest rates, the combination of the MUBI and Inflation Tax will be a balancing act, that will never be perfect. But it does not have to be perfect. It just has to work. Like all aspects of the economy, it will be subject to improvement with experience, better understanding, and AI guidance.

Of course, this is all speculation.

The beauty of starting small is that we don’t have to speculate when we come to implementing a MUBI. We can just do it and see what happens. If for some strange reason a major problem does start to emerge, we just stop increasing the MUBI.

The worst that will have happened is that people have got a bit more money to spend and inflation kicked up a bit.

A Win for Everyone

The most likely scenario is that everyone wins:

• The poor get a bit more in their pocket without having to go through hoops. There is no need to change any welfare scheme.
  Due solely to the extra income paid via the MUBI some recipients will lose some benefits under the existing terms of any means tested scheme. However, they will still be better off for the higher income provided by the MUBI. And, unlike many means tested/work-based schemes, the MUBI will be permanent.
  As the MUBI increases further, it will further reduce dependence on welfare. And, unlike welfare, it gives everyone an incentive to boost their incomes from work, as they get to keep it all (bar tax that everyone pays). A huge boost for self-esteem. No more ‘second class citizen’. No more fear that if they lose their job, they have nothing to fall back on.
• Everyone else gets a boost in income too. This may be translated into more demand, and/or more time caring for family, as well as social, sporting, cultural and civic activities, etc.; keeping in mind that these are some of the most meaningful human activities. People would have more time and mental energy for such service under MUBI, as well as perhaps to start their own small business to meet local needs or, online, even a niche global community.
• With a floor in place, people may also spend more time learning new knowledge to be be applied in the production of new goods or services — vital at a time when new information is exploding exponentially.
• More people get employed to provide the extra goods and services demanded.
• Business prospers and the rich get richer (as always — and no bad thing as long as we are moving from ‘have and have-nots’, to ‘haves and have-mores’)
• Government has reduced welfare, while its tax take will be higher due to the increase in incomes and profits generated by the MUBI as it is spent into the economy — helping to reduce pressure on the deficit.
• Welfare and government spending can be re-focused over time to improve and beautify the natural and built environment across our cities and suburbs, and for other socially beneficial programs.
• It may also reduce social ills and societal costs, including homelessness, poor healthcare, even drug addiction and crime. It will make people feel safer quitting a job to start a business, or to learn a new trade.
• Central Banks get a couple of extra tools to meet their unemployment and inflation objectives.

Remaining Challenges

Apart for simply agreeing to do it, the biggest challenges remain ‘identity’ and ‘distribution’, especially in less well developed regions.

No only do we need to know that money is not ‘double spent’ or ‘counterfeit’, we also need to know that the recipient has been allocated their share and no more.

Across the developing world, new approaches like M-pesa are showing how it is possible to use cheap telephony to distribute ‘money’. Combined with cheap distributed renewable energy this will allow for remote distribution.

As well, there are now many new ‘blockchain’ initiatives aimed at solving the identity problem by putting each person back in control of their own identity — in a way that allows others to rely on the claims they make. A key part of this problem is ‘proof of life’, that is also being addressed.

The links are are not endorsements or acknowledgement that the approaches even work as claimed. They are offered merely as ‘illustrations’ of the problems being worked on.

Until these wider problems are solved, the MUBI may need to be restricted to developed countries and limited areas/numbers in developing countries (as now being done with Manna, a crytpo based UBI).

What’s not to like?

The biggest risk is that the new demand could strip the planet bare. The best way to mitigate this risk to the biosphere is to speed up the transition to a ‘circular economy’.

These are two TED talks that put the threats to the biosphere in perspective:

And some steps along the way:

What if you could turn plastic trash into cash?

Another risk is that any country implementing a MUBI could become a magnet for immigrants. However, this can be managed by limiting inflows, and by providing a qualifying period for access to the MUBI.

The Market is not the Problem. It is part of the Solution

Others believe that the problem is the ‘market system’ itself, and that a MUBI would simply underpin a bad system that emphasizes competition over collaboration.

It’s true that competition is central to the market. But it is far from bad.

On the creative side, inventors and entrepreneurs are driven to conceive of ‘better’ products and services and/or ‘better’ processes to produce them. This is essentially a mental process that has resulted in all the advances we now benefit from.

Competition in the market is also by and large a mental process. It exists first in the head of the buyer, when deciding which is the product or service that ‘best’ meets their needs.

Competition between producers is also vital to ensure the lowest cost and highest quality; and to also ensure the most efficient use of resources. This happens via Adam Smith’s ‘Invisible Hand’:

When a person works and/or invests to produce a good or service, they add value to society’s resources. The amount of value they (and all suppliers in the process) contribute is represented by the money the buyer pays.

The money is simply ‘information’. It records the value of the goods and/or services provided by the seller to the buyer.

Importantly, it allows the seller to take out of society the same amount of value (not more or less) — when they spend the money.

It is vital that this value is ‘fair’. If it is too little, the seller is shortchanged. If it is too much, the buyer loses out.

This is where the ‘market’ and Smith’s ‘Hand’ comes in.

The buyer wants to pay the lowest possible price, but is forced to bid up in competition with other buyers. Sellers want to maximise the price, but are forced by other sellers to bid down. This process also weeds out the least efficient producers, to ensure optimum allocation of our resources.

The price that clears the market can be regarded as ‘fair value’, subject to some major provisos: that there is a large number of buyers and sellers bargaining in good faith (without collusion or fraud), that each party acts rationally and has perfect knowledge of all factors affecting the market, and that each has equal bargaining power which is exercised with due regard for the public good!

Obviously, these ideals rarely exist in the real world. Fortunately, in most cases, it works ‘well enough’. However it does require an appropriate governance framework and nudge strategies to encourage open competition and to protect both the commons and individual rights. It is here that we fall down.

While competition is vital to its operation, it is a mistake to equate ‘the market’ and capitalism solely, or even primarily, with competition.

Of course, producers do spend large amounts competing to influence each buyer’s decision via advertising and marketing. But the amount of resources consumed in doing so are minuscule compared to the resources employed in the creation and delivery process… which is entirely collaborative along the whole supply chain from the mine, sea and farm, to factory, warehouse and shop.

Once conceived, it takes millions of people from across the globe collaborating to support a product’s production and delivery (including the design and manufacture of the equipment that makes it, all the way back to the mine and farm, as well as those who provide all the services to support everyone who works along the whole supply chain, and in the supply chains that support them), using knowledge accumulated over the whole of human history!

Most human endeavour is expended collaboratively. Only a tiny (but vital) proportion is devoted to competition.

Of course, the system is not perfect. It is often subverted by big business and powerful interests that use unfair practices and manipulate legislation to reduce competition and monopolize the supply chain. This is where the challenge lies — not the market per se.

Two Problems the Market Cannot Solve.

As asserted at the start, there are two problems the market cannot solve.

One is the ‘free-rider’ problem that allows people to consume common goods and services (like the biosphere) without paying for them (eg by polluting a river, or over-fishing, etc). Tax provides one way of mitigating this problem, by forcing everyone to meet a common cost. Another way is to put a price on the use of the commons, for example by pricing carbon. Another is to develop nudge strategies to encourage desired behaviour; while the most common method is to outlaw and punish anti-social activities. As discussed, in the Naoko Ishi video above, the ideal is to have the community police its own common resources (even on a global level), via behavioural ‘norms’ —
though this requires near universal awareness of the problem. Another is to find market mechanisms to protect the commons by turning ‘waste’ into a resource, as David Katz proposes.

This ‘free-rider’ problem has to be addressed in parallel with the second problem, if we are to avoid catastrophic degradation.

The second problem is the ‘no-rider’ problem.

This is where people lack the money they require to signal their needs in the market because they cannot work in the production process: the young, old, incapacitated, their unpaid carers, and those who lack the skills required by the market.

The MUBI offers a way to solve this last problem, without taking anything from anyone else.

By solving this one problem in a fairly automatic fashion, societies will be able to redirect their scarce resources towards solving other problems (such as homelessness and drug addiction) while evolving towards a ‘circular economy’ that delivers sustainable technological abundance, without ‘waste’.

While it would be ideal to simply jump from today’s scarcity-based systems to those of abundance, that is not going to happen. Indeed, if technological unemployment in the 2020s reaches the levels some are forecasting, society may collapse before abundance is attained.

MUBI gives us a bridge to a new kind of world. One that fosters self-reliance and innovation while ensuring those who cannot participate in the production process can still enjoy sufficient of its fruits to live a meaningful life — without taking anything from anyone.

Envisioning the Future

What that life may ultimately look like is anybody’s guess. Jonathan Kolber has offered one possibility in his book: A Celebration Society. This is not utopia, but a jumping off point for looking at how a society may function in a world of ‘abundance’. There are of course many other ideas emerging to imagine this future… but first we have to get there.

Some foresee a time when we won’t need money. I’m not so sure. Money is just information about the things we value, which have an inherent ‘scarcity’, It also provides a tool for measuring (albeit imperfectly) a person’s contribution to creating goods and services of ‘value’.

It is human nature to value what is rare, and to manufacture rarity simply for the pleasure of possessing something that is unique… even if it is nothing more than a table at an exclusive restaurant, or more substantially a penthouse overlooking the river.

The MUBI does not have to concern itself with individual wants and needs or even ‘value’, and certainly not ‘entitlement’. It simply provides each person with the means to signal their own basic needs, leaving it to the (regulated) market to satisfy them — based on the ‘value’ that each person perceives in any exchange.

Kickstarter

Hopefully, this paper will have explained enough to ignite interest in the idea, though it may still leave you wondering just how it would work in practice.

To solve this problem, we are proposing to set up a Kickstarter campaign to fund development of an on-line tool and board game that allows people to understand:

• how money is created and destroyed,
• that money sitting in a bank account is just a number and is of no use until it is spent.
• that to be useful, money must circulate
• that if you don’t have money, you cannot participate in the market
• that giving every one a MUBI does not change the relative position of people in society and can encourage work
• that taxing the extra income generated by the MUBI, still leaves people better off as a result of the added turnover it generates
• that the combination of a flat amount MUBi and a flat % tax on spending is progressive, even though the tax on every dollar earned is the same!
• that the problem is not that the rich have too much money, it is that the poor don’t have enough, and…
• the best way to solve the ‘no-rider’ problem is to give everyone extra to decide how best to meet their own needs.
• that we don’t have to take anything from anyone to make the world better for everyone.