If the ‘idle rich’ can have money without working, why not the rest of us?
“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” ― Franklin D. Roosevelt
There is a lot of talk nowadays about the Universal Basic Income (UBI)… an amount of money paid to every citizen each week — regardless of any other income they receive.
Why do we need a UBI?
Without money, people are invisible to the market. It means that the market cannot respond to their needs, even though it has the (latent) capacity.
Around 50% of the population have no direct access to money: the young, old, incapacitated and their unpaid carers, as well as those who lack the skills required by the market.
Though, this is not a static group: the young grow up, the old die, the incapacitated get well, or (ultimately) die, the unskilled re-skill and many carers go back to work when those they care for no longer need care.
To be replaced by others caring for the newly born, aged and incapacitated, that in total remains a fairly constant percentage of the population.
However, the problem is likely to get worse, before it gets better, as the speed of technological change threatens to destroy jobs faster than people can retrain and re-deploy over the next couple of decades.
Technology of course is not the problem. It is actually the solution… to the problem of ‘drudgery’.
As effectively unlimited sources of clean energy, raw materials, and software are developed in the decades to come, this will enable an economy of automated abundance.
People will not need to work to produce the necessities.
The ‘worsening problem’ is the lack of money to consume the necessities, as displaced workers and their dependents lose their source of income.
The only way that this 50+% (and potentially growing) fluid group of people can get money is via:
- savings (but most people have very little savings)
- family (much less certain with family breakdown, while minimum wages leave little to share, and no one likes a ‘sponger’ who is seen as ‘second class’)
- charity (creating both bureaucracy and second class citizens)
- tax (creating both bureaucracy and second class citizens)
- crime (a rational response to exclusion)
The UBI solves the ‘money’ problem for this group by providing a ‘basic income’ for everyone. In the process, reducing crime and eliminating the stain of ‘second-class citizenship’.
However, it raises three ‘basic’ concerns:
- how can we afford it?
- won’t it engender inflation?
- won’t it engender dissolute idleness? And the related concern: if everyone is being paid to do nothing, who will do the work required to provide the things and services we need?
Taking the last concern first.
When we look at ‘the rich’, often it seems that they are a special class of people. Yet, many who have ‘made it’ will admit that they are not especially intelligent or talented compared to others who are equally (or better) qualified, and who have worked just as hard, who are not wealthy. Those who ‘succeed’ are in the right place at the right time with the right ideas. Chance plays a huge part. As everyone makes different choices, most will fail to realize their dreams of wealth for all sorts of reasons. For a fortunate few, their choices will prove ‘the right course’ — given the myriad of choices being made by other people.
As the rich are really just like many of us, except with money, what do their lives tell us about ‘idleness’?
While it is true that some rich spend their lives in meaningless pursuits, many still work on projects and passions that interest them, which also benefit the wider community. And many work very hard in their businesses that serve us all.
Indeed, most of the wealth of the rich (e.g. Jeff Bezos) is in the businesses they own (e.g. Amazon) that provide real value to the rest of us. The owners simply provide the ‘controlling mind’. And, if they decide unwisely, if they fail to deliver what people want at the prices people can afford, they (the rich) lose. (As an aside, in these circumstances, taxing their wealth and giving it to someone else who has not earned it, seems counter productive. This is not to say that we should not tax their income, along with everyone else, in order to provide common goods and services).
As for the ‘trophy homes, cars, boats and planes’ purchased by the rich, while they may have huge ‘prices’, the resources (concrete, steel, minerals, fibre, food, water, etc and human services) that the rich consume for their own enjoyment, are minuscule compared to the total real wealth of the world (our natural, built, human, technological and organizational resources).
Once these assets have been created they cannot easily be turned back into anything that is more useful for the general population.
However, there is something else that the rich have which is of major importance that the poor don’t have: money!
Money turns dreams and desires into goods and services. It directs how our resources are to be allocated and to what ends.
As this article aims to show, the problem is not that the rich have too much money. It is that the poor don’t have enough.
Imagine if you have no money to do anything or go anywhere. Imagine if the only work available pays barely enough to survive and every dollar you earn, reduces another welfare benefit, sapping your incentive.
Being poor is hard work.
Just getting around from job interview to job interview takes time and money. Finding your next meal and paying the bills is hugely stressful when the money has run out. Which can and does happen on a daily basis for people living pay cheque to pay cheque who lose their job, or fall ill, or simply fail to get a shift.
Experience shows that if people have the money to do more than ‘sit around’, if they can engage in social and other pursuits that cost money to enjoy; many (most?) also want to pursue fulfilling and meaningful lives — even if they are not paid for what they do. This includes ‘learning new knowledge to create new things and processes’, or ‘creating new knowledge through research’, or ‘new cultural or sporting achievements’, or ‘caring for family and community’, etc.
In fact, even today, 50% (or more) of valuable work is not paid (eg caring for family, and other volunteer work). This percentage will simply rise with the UBI… to the benefit of our children, elderly, incapacitated and their unpaid carers, as well as more broadly — as people are freed to pursue more creative endeavors.
Of course, some on the UBI may spend most of their time playing computer games or engaging in other dissolute or criminal behaviours. (Though research shows many such behaviours are aimed at alleviating stress as a result of ‘living on the edge’. Improve the circumstances, and the behaviour disappears).
Regardless, because the UBI is the ‘base’, it will simply mean that if you put little in, you get little out. And since everyone on the UBI (including you) will have the same choice, what’s the concern?
Incentive to Work
Of course, as well as having money to pay for things and services, we also require workers to produce the things and services that people need.
If we pay everyone, what’s to stop them just slacking off?
The answer is there is nothing.
However, everyone has a different incentive to work — perhaps for the meaning it provides, or for the companionship it offers, or for the simple pleasure of it, or for the extra money it offers that can be spent on other goods and services.
This difference in everyone’s ‘work ethic’ can be exploited to design a UBI that keeps the labour market in balance and inflation in check.
Creating a Market-oriented Universal Basic Income (MOUBI)
By starting small (say just $10 per week per person), we can go on increasing the UBI until we achieve our twin aims of ‘full employment and low inflation’. This is an objective measure. It requires no moral judgement. It also leaves everyone free to decide at what point they will stop looking for ‘paid work’ and do other things.
Over the course of the first year, it may be possible to increase the amount in quarterly increments to perhaps $100 per week. Though this is just a guess. The point of the proposal is that we don’t ‘theorise’ or ‘run models’ or ‘guess’… we just experiment… making small steps and seeing what happens.
At some point, the number of people who have the necessary skills (or can be trained) and who want to keep working, will be (roughly) balanced by the demand for workers.
At that point, those not in ‘paid work’ will be doing other things by choice. No one can complain about those not in ‘paid work’ for two simple reasons. By definition, there is no paid work for them to do — given the market is in balance. And, everyone has the same choice to not do ‘paid work’, and live on the UBI.
If you want more than the base, you have to work for it.
But if there is no work available, the base must get raised until someone decides it is enough for them, and they either stop looking for work, or drop out of work, leaving a spot for someone who wants it.
While it will never be perfect, the opportunity is to create an ‘ever-shifting dynamic balance’, where the MOUBI is lifted to absorb the growing numbers of people made redundant through technology — until they can retrain for other paid work (as it appears), as well as providing for those who cannot provide for themselves (young, old incapacitated and their unpaid carers).
As new work appears, pay for the work will need to be set at a rate to attract people to do it. In this case, the pay will not need to cover the base living standard, as that will be provided via the MOUBI. This should be a saving for businesses seeking new workers.
But where does the money come from?
The same place all money comes from!
Paying for the MOUBI
New money is constantly created in the form of bank loans, and is destroyed as the loans are repaid. (See this Bank of England paper for a full explanation)
The net increase in borrowing represents a net increase in the money supply that drives growth in the economy as borrowers spend the newly created money to meet their needs. This growth comes from the engagement of idle natural, built and human resources, as well as new efficiencies coming from constantly improving materials, technology and processes.
Most of this borrowing is for cars, consumers spending, education, health and homes.
Funding all growth from borrowing just sets up a growing burden that inevitably leads to loan defaults when interest rates rise, triggering the next recession.
Instead, we can just as easily create new money and pay it as a MOUBI to everyone who would spend it on: cars, consumers spending, education, health and homes!
Given everyone gets the same amount of ‘newly created money’, no one can complain that they are disadvantaged.
This would not stop people borrowing for homes and other assets, though it would likely curtail borrowing for consumption. Hardly a bad thing.
The Flow of Money
There is a basic misunderstanding when it comes to a UBI :)
Most people see it as a ‘reallocation’ from Rich to Poor, or from Working to non-Working. They see the money flowing ‘down’.
In fact, money flows up much faster than it trickles down!
As soon as the MOUBI is received, it will be spent by most people to signal what they want the market to provide to meet their needs.
The money goes straight into the hands of business, that spends it on wages, salaries and expenses. The money will continue to ‘go round’… though, over time, all money flows up into the hands of executives (in the form of increases in salary and bonuses) and owners (in the form of profits) as a result of the increased turnover.
Once in the hands of higher paid executives and the rich, most of the money flows out of the real economy into stocks and bonds and other securities and property, helping to keep asset prices growing. This increase in price is largely irrelevant to the rest of us, as the rich (as a group) already own the securities and assets. The increase in price is nothing more than a paper profit.
As Quantitative Easing has proven, very little money ‘trickles down’ from the asset markets into the real economy, though some gets spent in upgrading productive capacity — where there is demand.
Of course, some of the extra income will get spent on homes and other ‘trophy assets’ that does bleed into the wider economy… but comparatively little.
Managing Inflation and Unemployment
Given this flow of money from the real economy into the investment/financial sector, it means that we can go on pumping in more money via the UBI (to signal extra demand, spurring extra investment that provides extra supply) without increasing inflation in goods and services in the real economy — at least to start.
Of course, at some stage, inflation may kick in.
However, there is no certainty that this will happen due to ‘technological deflation’, where radical efficiencies are continuing to push prices down for goods and services.
If inflation does start to kick in, it will be necessary to halt the gradual increase in the MOUBI and assess if at that stage the MOUBI is sufficient for a person to live on. This is a moral judgment, made at the community level. It is not directed at any one person. No one needs to decide if ‘you’ are ‘deserving’, or not.
If the MOUBI is not considered sufficient to live on, then we will have to make a judgement about the extra that is required. This can be done by looking at the basket of goods and services we expect people to have at their disposal. In a modern economy, this will include a mobile phone with high speed access, a balanced diet, clothing, shelter, transport and some entertainment, etc.
To prevent the extra creating inflation, the MOUBI can continue to be increased gradually to the decided limit, while applying flat % tax on all consumer spending. The aim of this tax is to ensure the demand generated by the higher MOUBI is moderated as it circulates through the economy.
As noted, the MOUBI will naturally flow up into the hands of higher paid executives, owners and investors, providing them extra income that will be taxed at the same rate as everyone else… as they spend it.
The money raised through the tax would be written back into the thin air from which it came… damping general demand across all income levels.
The effect of a gradually increasing flat amount MOUBI and flat % tax on spending is to shift ‘new demand’ to lower/zero income earners. That is, even though everyone is treated the same, the benefit of the new money flows mostly to the low end… which is where we want it. It does this without taking anything from anyone, as it is all ‘new money’. It just means that the rich get less than they would otherwise get as a result of the increased turnover. What they get in return is some increase in net income, and far more importantly, a more creative, safe and secure world for themselves and their children.
Some people believe that a ‘job guarantee’ is better, as it ‘forces people to be employed doing something rather than nothing’. However, what could be more soul destroying and wasteful than doing ‘make work’.
If there is real work to be done, say repairing infrastructure or beautifying a city, by all means lets include that work as part of ‘the job market’.
But let’s not create work just to ‘keep people employed’.
Already, many administrative jobs add little or no value, or actually destroy value by creating inefficiencies. Online social is also a big ‘time waster’ that fills in hours at work.
How much richer we will all be if we can release people from mindless drudgery or make-work, or just time-wasting on social media because their work does not fill in a day, and they can’t do the things they would rather be doing because they have to ‘show up’; while ensuring that the work that needs to be done gets done… willingly!
The Benefits of MOUBI
Effectively, the MOUBI provides new money to signal latent demand that can be met from ‘idle resources and efficiencies’ — just as new bank borrowing provides new money to signal unmet demand… but without the risk of recession from excessive borrowing.
The extra money boosts demand, boosting business, increasing employment as well as incomes, especially for higher paid executives and owners.
It also frees people to choose the sort of ‘work’ they are best suited to (both paid and unpaid), while ensuring that the work that needs doing gets done.
It eliminates poverty, without taking anything from anyone else, and removes the stigma of being a ‘second-class’ citizen.
There is no need to change any existing welfare that is income based. It just means treating the MOUBI as income, so as the MOUBI is increased, welfare will naturally reduce; enabling long term reduction in the tax required to pay the benefits and the bureaucracy that manages them.
Through the provision of a MOUBI, mental and physical health will very likely be improved, and crime reduced — improving individual, family and community well-being.
Employers can be released from paying a minimum wage required to fully support a person. They will only have to pay sufficient to attract people to take the work. While this may push up total income (UBI + wage), the cost to employers ought to be lower.
There really isn’t anything that’s not to like :)
The key idea is to stop worrying about the ‘theory’: ‘it may increase inflation’, ‘it may cause people to stop working’.
No one (including ‘me’) really knows.
By starting small and seeing what happens we can stop guessing and actually experiment without any major downsides. The worst that can happen is most people get a bit more to spend to meet their daily needs, others get employed to satisfy the extra demand, while the increased turnover adds to the income of many people. Inflation may pick up —but that is what all the Central Banks have been trying to achieve!
A more extensive discussion of the MOUBI is posted here