Op-Ed; Opinion

Basic income will be at the core of monetary policy in the 21st century

To tackle spiraling deflationary trends, governments and central banks will soon have no other choice but to resort to printing money and giving it directly to the people.

Article by John Aziz, originally published on azionomics.com under the title “Universal Basic Income Is Inevitable, Unavoidable, and Incoming.”

The last time I saw universal basic income discussed on television, it was laughed away by a Conservative MP as an absurd idea. The government giving away wads of cash responsibility-free to the entire population sounds entirely fantastical in this austerity-bound age, where “we just don’t have the money” is repeated endlessly as a mantra. Money, they say, does not grow on trees. (Only as figures on the screen of a computer).

In this world, universal basic income seems like a rather distant prospect. Yes, there are some proposals, like Finland which is set to start local experiments in 2017 and Switzerland which is holding a referendum on universal basic income next month. I don’t expect the vote to pass. The current political climate is just too patriarchal. We live in a world where free choice is unfashionable. The mass media demonizes the poor as feckless and too lazy and ignorant to make good choices about how to spend their income. Better that the government spend huge chunks of GDP employing bureaucrats to administer tests, to moralize on the virtues of work, and sanction the profligate.

But this world is fast changing, and the more I study the basic facts of economic life in the early 21st century, the more inevitable universal basic income begins to seem.

And no, it’s not because of the robots that are coming to take our jobs, as Erik Brynjolfsson suggests in his excellent The Second Machine Age. While automation is a major economic disruptor that will transform our economy, assuming that robots will dissolve jobs entirely is just buying into the same Lump of Labour fallacy that the Luddites fell for. Automation frees humans from drudgery and opens up the economy to new opportunities. Where once vast swathes of the population toiled in the fields as subsistence farmers, mechanization allowed these people to become industrial workers, and their descendants to become information and creative workers.

As today’s industries are decimated, and as the market price of media falls closer and closer toward zero, new avenues will be opened up. New industries will be born in a neverending cycle of creative destruction. Yes, perhaps universal basic income will help ease the current transition that we are going through, but the transition is not the reason why universal basic income is inevitable.

Welcome to the world of hyperdeflation

So why is it inevitable? Take a look at Japan, and now the eurozone: economies where consumer price deflation has become an ongoing and entrenched reality. This occurrence has been married to economic stagnation and continued dips into recession. In Japan — which has been in the trap for over two decades — debt levels in the economy have remained high. The debt isn’t being inflated away as it would under a more “normal” rate of growth and inflation. And even in the countries that have avoided outright deflationary spirals, like the UK and the United States, inflation has been very low.

The most major reason, I am coming to believe, is rising efficiency and the growing superabundance of stuff. Cars are becoming more fuel efficient. Homes are becoming more fuel efficient. Vast quantities of solar energy and fracked oil are coming online. China’s growing economy continues to pump out vast quantities of consumer goods. And it’s not just this: people are better educated than ever before, and equipped with incredibly powerful productivity resources like laptops, iPads and smartphones. Information and media has fallen to an essentially free price. If price inflation is a function of the growth of the money supply against growth in the total amount of goods and services produced, then it is very clear why deflation and lowflation have become a problem in the developed world, even with central banks struggling to push out money to reinflate the credit bubble that burst in 2008.

Much, much more is coming down the pipeline. At the core of this As the cost of superabundant and super-accessible solar continues to fall, and as battery efficiencies continue to increase the price of energy for heating, lighting, cooking and transportation (e.g. self-driving electric cars, delivery trucks, and ultimately planes) is being slowly but powerfully pushed toward zero. Heck, if the cost of renewables continue to fall, and advances in AI and automation continue, in thirty or forty years most housework and yardwork will be renewables-powered, and done by robot. Water crises can be alleviated by solar-powered desalination, and resource pressures by solar-powered robot miners.

And just as computers and the internet have made huge quantities of media (such as this blog) free for users, 3-D printers and disassemblers will push the production of stuff much closer to free. People will simply be able to download blueprints from the internet, put their trash into a disassembler and print out new items. Obviously, this won’t work anytime soon for complex objects like smartphones, but every technology company in the world is hustling and grinding for more efficiency in their manufacturing processes. Not to mention that as more and more stuff is manufactured, and as we become more environmentally conscious and efficient at recycling, this huge global stockpile of stuff acts as another deflationary pressure.

hyper-deflation

These deflationary pressures will gradually seep into services as more and more processes become automated and powered by efficiency increasing machines, drones and robots. This will gradually come to encompass the old inflationary bugbears of medical care, educational costs and construction and maintenance costs. Of course, I don’t expect this dislocation to result in permanent incurable unemployment. People will find stuff to do, and new fields will open up, many of which we are yet to imagine. But the price trend is clear to me: lots and lots of lowflation and deflation. This, ultimately, is at the heart of capitalism. The race for efficiency. The race to do more with less (including less productivity). The race for the lowest costs.

I’ve written about this before. I jokingly called it “hyperdeflation.”

Global Japanization

And the obvious outcome, at the very least, is global Japan. This, of course, is not a complete disaster. Japan remains a relatively rich and stable country, even after twenty years of deflation. But Japan’s high level of debt — and particularly government debt — does pose a major concern. Yes, as a sovereign currency issuer borrowing in its own currency the Japanese government runs no risk of actual default. But slow growth and deflation are stagnationary. And without growth and inflation, the government will have to raise taxes to cover the deficit, spiking the punchbowl and continuing the cycle of debt deflation. And of course, all of the Bank of Japan’s attempts at reigniting inflation and inflating away that debt through complicated monetary operations in financial markets have up until now proven pretty ineffectual.

This is where some form of universal basic income comes in: ultimately, the most direct stimulus for lifting inflation and triggering productive economic activity is putting cash in the people’s hands. What I am suggesting is nothing less than printing money and giving it away to people — as opposed to trying to push it out through the complicated and convoluted transmission mechanism of financial sector lending. This will ultimately become governments’ major backstop against debt deflation, as well as the temporary joblessness and economic inequality created by technological acceleration. Everything else, thus far, has been pushing on a string. And the deflationary pressure is only going to become stronger as efficiency rises and rises.

Throw enough newly-created money into the economy, inject inflation, and nominal tax revenues can rise to cover the debt load. Similarly, if inflation gets too high, cut back on the money-creation or take money out of circulation and bring inflation into check, just as central banks have done for the last century.

The biggest obstacle to this, in my view, is the interests of those with lots of money, who like deflation because it increases their purchasing power. But in the end, rich people aren’t just sitting on hoards of cash. Most of them do have businesses that would benefit from their clients having higher incomes so as to increase spending, and thus their incomes. Indeed, in a debt-deflationary spiral with default cascades, many of these rentiers would face the same ruin as their clients, as their clients default on their obligations.

And yes, I know that there are legal obstacles to fully-blown ‘helicopter money‘, chiefly the notion of central bank independence. But I am an advocate of central bank independence, for a variety of reasons. Indeed, I don’t think that universal basic income should be a function of fiscal spending at all, not least because I think that dispassionate and economically literate central bankers tend to be better managers of monetary expansion and contraction than politically motivated — and generally less economically literate — politicians. So everything I am describing can and should be envisioned as a function of monetary policy. Indeed, what I am advocating for is a new set of core monetary policy tools for the 21st century.

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The views expressed in this Op-Ed piece are solely those of the author and do not necessarily represent the view of Basic Income News or BIEN. BIEN and Basic Income News do not endorse any particular policy, but Basic Income News welcomes discussion from all points of view in its Op-Ed section.

7 comments

  • godenich

    “To tackle spiraling deflationary trends, governments and central banks will soon have no other choice but to resort to printing money and giving it directly to the people.”

    Whether governments or central banks print money (drop helicopter money) for everyone or just the unemployed, an inflation tax is imposed on working families. That’s not a good idea because it reduces support from working families for the basic income initiative. A similar case can be made for QE, ZIRP or NIRP that papers over recessions and gives money to a less pitiable variety of actors at the expense of most everyone else. There are, indeed, other choices that do not compromise the independence of central banks, whether you may like them or not.

    To improve a working citizen’s financial life, businesses can raise wages for exemplary service or governments can lower taxes. Helping the unemployed may be satisfactorily funded through taxation. Some governments in advanced economies, like the USA, can raise taxes for the safety net by broadening the tax base and, at the same time, lowering taxes for each citizen with an apt tax system[1-3]. That would help the employed. Excepting medical care services, an unconditional, working-age individual citizen’s negative income tax[4] for the roughly 45mn under the $12K individual federal poverty level may largely be funded by replacing the current welfare system[5]. That may help the unemployed and working poor.

    Abolishing poverty for the unemployed and raising the living standard for the employed is a worthy goal for civilization. Removing the social stigma for not participating in the labor pool of a market economy has little moral or economic benefit. In practice, it would make it harder for parents to encourage their children to work hard at school to better their own lives, as well as the lives of others around them in our society. Eliminating poverty helps to eliminate the informal sector[6] that competes with the formal sector that funds a limited government, which in turn, protects our basic rights in society. Raising the living standards of the employed also raises the relative poverty level of the unemployed. One must take careful note that employed and unemployed citizens are not the same people over time. It is a shame not to participate in this praiseworthy enterprise. Remember that one of the goals of the Royal Society of Arts (think Benjamin Franklin and Adam Smith) was to alleviate poverty, not to remove social stigma*. It is folly to think that job opportunities will cease to exist in the future, but we must cope with great technological disruptions and a frugal form of basic income may help smooth the transition during these times of uncertainty.

    * The RSA’s mission expressed in the founding charter was to “embolden enterprise, enlarge science, refine art, improve our manufacturers and extend our commerce”, but also of the need to alleviate poverty and secure full employment. – Wikipedia

    [1] The APT Tax | Youtube
    https://www.youtube.com/watch?v=fG8jngOwbpE
    [2] Taxation for the 21ST Century: the automated payment transaction (APT) tax | Edgar L. Feige | 2000
    http://econwpa.repec.org/eps/pe/papers/0106/0106001.pdf
    [3] ON THE CONTRARY; Dreaming Out Loud: One Tiny Little Tax | NYT| Daniel Akst |2003
    http://www.nytimes.com/2003/02/02/business/on-the-contrary-dreaming-out-loud-one-tiny-little-tax.html
    [5] Negative Income Tax Theory Explained | Youtube
    https://www.youtube.com/watch?v=zwR3g5WyKS4
    [5] CRS Report: Welfare Spending the Largest Item in the Federal Budget | Jeff Sessions | 2012
    http://www.budget.senate.gov/republican/public/index.cfm/files/serve/?File_id=34919307-6286-47ab-b114-2fd5bcedfeb5
    [6] A Classical Theory of the Informal Sector | Gibson | Manchester School | 1994
    https://www.uvm.edu/~wgibson/Research/informal.pdf

    • johanes agricola

      that is absurd. do free roads impose an inflation tax on working families? would it be more efficient to meter every square of sidewalk then? UBI is about freeing up contradictions in the system. There is ALREADY UBI, in the budgets and expenditures of any government- the only question is which priorities are most efficient.

      Taking the United States federal government as example, they already spend well over 3 trillion dollars a year. To provide 200 million registered voters with 10k annual is merely a reform in spending targets. Most people already experience a great deal of State subsidy, indirect or direct.

  • C. Spillard

    Here in the UK we have the MPC (Monetary Policy Committee) who meet once a month to set interest rates. They’re told to meet a particular rate of inflation (I think it’s presently 2%) and then left to get on with it.

    It seems to me such people would be admirably-placed to set the monthly amount of money to be put into the system.

  • who is this ghost writer?

  • koreakiwi

    Agreed. Who is the author?

  • People are going to debate about whether or not to have a basic income until we will all decide to just throw away money altogether. Then after we throw away our counting systems we will not be able to track how many people there are on the planet. We will have over population. There should be an X amount of money per person regardless if you work or not. Think of it as two extremes. Which one works? No money no accounting or Everyone having money and everyone is accounted. Bankers and statisticians and Governments can have fun modeling their world at the same time everyone else doing their thing.

    Right now only those that are alive want to live and work. But, if you get laid off due to factories or technology being too damn efficient then your DEAD from homelessness or OIL wars or whatever.

    So, bottom line is use computers to now track everyone one for an income. In the 1980’s is when spread sheets where invented, called Visi-Calc. The Bankers of the World did not have this when the Federal Reserve was founded. They had to do it all by paper and hand. But, now computers can now make it possible to give everyone a utopia dream. Then the Internet was popularized by Microsoft Windows and the Personal Computers. Unix was popularize by Linux. Windows runs the Clients and Linux runs the web servers.

    EBT + SSN = Basic Income.

    It will be the end of paper money. Paper is too easy to counterfeit wage wars sell drugs and everything illegal.

  • The Real Reason Universal Dividend and Retail Discount Policies Are Correct and Necessary In Economics

    Because science is awakening to the integrated/integrative nature of the cosmos and of science itself, and economic and monetary theory are almost entirely fragmented, involved in monopoly, ego and power at the expense of the freedom of the individual, of enterprise and the free flowingness of the entire system; and in order to have workable modern economies and to avoid war in an era of intelligent and devastating weapons universal dividend and retail discount policies are the integrative and resolving policies for economics and as a beginning logical process…..for every problem above.

    A philosophy of Wisdom itself is in fact necessary for modern man, and a new philosophy of Wisdom’s pinnacle concept grace as in gifting for economics.

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