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Response: Money for nothing

The following is a critical response to Brookings’ “Money for nothing: Why a universal basic income is a step too far,” by Isabel Sawhill.

Isabel Sawhill wrote a short essay about basic income, arguing that it may be a step too far. To me, what has been “too far” is precisely this present day Kafkaesque system of oppression, where poverty runs rampant (even in the so-called “rich” countries), levels of inequality are breaking records, all while societal and environmental stress reach all-time highs. Nonetheless, the article deserves a response because Sawhill manages to aggregate the most common criticisms/preconceptions regarding basic income: that we cannot afford it, that the wealthiest should not be “helped” and that without obligation people do not meaningfully contribute to society (a nuance on the trendy “people will just be lazy” argument).

So let us deconstruct each of these arguments.

“(…) logic is inescapable: either we have to spend additional trillions providing income grants to all Americans or we have to limit assistance to those who need it most.”

This logic is not inescapable. In fact, it is wrong. Financing a basic income does not just amount to thinking of an amount for the grant (say $1000 per month), multiplying it by the country’s population (319 million people) and then paying the bill (in this case, $319 billion per month, or $3.828 trillion per year). That is very bad math. A more sensible tax policy will transfer a part of the taxes collected from the relatively wealthier to those relatively poorer. Actually, the former will be net-payers of basic income, and the latter will be net-receivers of basic income. Depending on the taxation levels at a certain moment in time, this redistribution of income can even be done without any supplementary cost.

Another fallacy is this idea that a basic income could “limit assistance to those who need it most”. How would that even be possible, if the basic income is enough for basic human needs, and is universal and unconditional? Would it not then provide the assistance to those in need?1 It will, but only in a much better way than in the present system: it would do it without policing, without stigmatizing, without controlling and with much less bureaucracy. In fact, part of the money necessary to finance basic income will come from savings in conditional social assistance grants that have become obsolete, mainly because beneficiaries no longer meet their requirements (mostly means-tests). Furthermore, there are too many targeted social safety net policies in the US, which nevertheless fail to effectively eradicate poverty. In an analysis by Karl Widerquist, around 7 percent of workers live in poverty, as do 22 percent of children. The idea is that basic income can circumvent all of these conditional assistance programs, providing universal unconditional support, and reducing social assistance complexity, bureaucracy and cost.

“One option is to provide unconditional payments along the lines of a UBI, but to phase it out as income rises”

As long as one looks at basic income as an income redistribution scheme, this is just stating the obvious. As income rises, and taxes paid also rise, then on a net basis people will of course be paying for basic income, not receiving.

“Liberals fear that such unconditional assistance would be unpopular and would be an easy target for elimination in the face of budget pressures.”

Fear has never been a wise consultant, but, philosophy aside, there is no evidence that basic income would be unpopular in the US, even considering the precocious opposition from leading political figures. Plus, in the face of budgetary pressures, I do not see why basic income would be any more likely to be subject to cuts or to be targeted for elimination compared to other social security policies. Actually, as a wider policy than targeted programs, and one that would make some of these targeted programs obsolete, basic income would likely be more difficult to eliminate since more would be at stake (in comparison to just losing a tax benefit or food stamps eligibility).

“(…) poor and jobless are lacking more than just cash. They may be addicted to drugs or alcohol, suffer from mental health issues, have criminal records, or have difficulty functioning in a complex society. Money may be needed but money by itself does not cure such ills.”

Now let’s think a bit about this. What can bring on addiction or addictive behaviours? What can cause mental health issues? What can lead to criminal behaviour?

Addictions may come into a person’s life for a multitude of reasons: past traumas, family issues, health problems, professional pressure…and poverty. Poverty has been extensively shown (ex.: A primer on Social Problems, Effects of Poverty) to be a generator of many social problems, including malnutrition, health issues, economic distress and crime. So it is obvious that poverty bears a feedback relation to trauma, family unrest, health and professional pressure, although it is not the only cause of social ills — rich people also share some of society’s problems. Addiction specialists, like Katarzyna Gajewska, are also not convinced that basic income can have an exacerbating effect on addictive behaviour, due to its multifaceted nature. Meanwhile, no basic income trial test to date has found significant increases in the use of addictive substances due to unconditional cash transfers (Scott Santens, 2016). As for mental health issues, in fact, the Canadian “Mincome” experiment has found a correlation between basic income and reduced hospitalizations due to mental illness, as described in the relatively recent report by Evelyn Forget. And as for crime, hard data from the basic income pilot study in Namibia has shown a 42 percent decrease in the crime rate attributable to the distribution of an unconditional basic income for nine months.

Somehow Isabel resists the idea of a basic income on the grounds that it stems from a flawed assumption that money alone can cure society. But, looking at this evidence from the “cause” perspective, lack of money – that is poverty – is indeed at least partially causing these problems of addiction, mental illness and crime. And so money, although not a cure in itself, is bound to substantially reduce these social illnesses.

“A humane and wealthy society should provide the disadvantaged with adequate services and support. But there is nothing wrong with making assistance conditional on individuals fulfilling some obligation whether it is work, training, getting treatment, or living in a supportive but supervised environment.”

There is, actually, something wrong about a conditional social programs. Social Security in the US is very complex, particularly due to means-tested criteria. Plus, there is evidence that social security programs can lead to stigmatization (to which political and media discourse also contributes in an important way). Moreover, the worry that people will just stop working without a work obligation is unfounded – all basic income experiments to date have shown little to no work reduction on average. That’s despite the fact that most research tells us that people work too much (particularly in the US), and that is a bad thing generally. So a cut in average worked hours would actually be welcomed. And this is not even discussing the type of work performed (useful or not, meaningful or not, benefiting society or not).

“In the end, the biggest problem with a universal basic income may not be its costs or its distributive implications, but the flawed assumption that money cures all ills.“

Indeed. Money is not everything. But too many people suffer the consequences of not having enough of it on a daily basis (around 24 million in the USA alone), which is totally unnecessary and utterly avoidable. And while not having enough money makes people stressed and desperate to find more of it just to meet their basic needs, they are not enjoying the non-monetary parts of life: quality time with family and friends, leisure, acquiring meaningful knowledge, participating in public/cultural life, volunteering and so on.

 

More information at:

Isabel Sawhill, 2016. “Money for nothing: why a basic income is a step too far”, Brookings, June 15th 2016

Steven E. Barkan, 2012. “A primer on social problems”, Creative Commons 3.0 licence, November 29th 2012

Scott Santens, 2016. “Universal basic income is the best tool to fight poverty”, February 6th 2016

Evelyn L. Forget, 2011. “The town without poverty”, February 2011

Tyler Prochazka, 2016. “Beyond temptation: scholar discusses addiction and basic income”, January 28th 2016

Claudia and Dirk Haarmann, 2015. “Relief through cash – impact assessment of the emergency cash grant in Namibia”, July 2015

Karen Rowlingson, 2011. “Both inequality and poverty cause health and social problems – they are forces that need to be tackled together”, September 22nd 2011

Anup Shah, 2014. “Causes of Poverty”, September 28th 2014

Kate Bell, 2013. “Poverty, social security and stigma”, Poverty nº144 10-13 (Child Poverty Action Group)

Sarath Green Carmichael, 2015. “The research is clear: long hours backfire for people and for companies”, August 19th 2015

Notes:

1 – That’s not to say that special needs would not be attended to, like disabilities or disease supplements. For those special needs, basic income just needs to be topped up with an extra amount which can satisfy them.

About Andre Coelho

André Coelho has written 149 articles.

Activist. Engineer. Musician. For the more beautiful world our hearts know it’s possible.

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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.

4 comments

  • Andy Kashen

    I wish more authors at BIEN and others advocating UBI would take the time to understand the nature of money, its creation in the public and private sectors, and its destruction via taxation and other means like paying off debt – both public and private. They need to carefully study Modern Monetary Theory (MMT) and affiliated theories in the New-Keynesian sphere, e.g., Prof. Steven Keen, to develop truly good arguments against those who say “there isn’t enough money” or that taxes must be raised, or that there must be massive redistribution of income. Those are all lies but even most UBI-supporters don’t know that.

    In reality, taxes implemented by a currency issuer like the US are not needed to pay for government or its programs. A currency-sovereign government can print (physically and electronically) all the money needed to run all its programs including a reasonable UBI. Taxes are one of many tactics that are needed to prevent inflation by destroying excess higher-velocity money. As long as the quantities of money printed do not significantly exceed the ability to supply the resources that money can buy, be they human or physical, inflation will be low. When inflation increases our response should be to reduce money-printing and/or increase taxes or extinguish debts. We have been in a demand-constrained economy for almost a decade with no end in sight, partly due to demographic trends, partly due to productivity increases due to automation, and many other factors. Future historians will know that we passed up the biggest free lunch in history worrying about phantoms like the “National Debt” that could be extinguished as well, if enough of us only understood it is possible.

    Until UBI proponents understand the nature of money and educate the general public who are, by-and-large, completely ignorant of these facts and possibilities, I doubt the UBI movement will really begin to take off AND succeed. In fact, a UBI that relies solely on tax redistribution is a dead-end zero-sum game. We should be maximizing the productivity of all human and physical resources, not artificially constraining them via ignorance. That is the path to real growth for rich and poor alike as well as ou best bet to reduce deliterious inequality (not all inequality is bad).

  • Stephen Stillwell

    I’d like to reframe the argument, addressing the begged question: Is a UBI money for nothing?

    In the context of joint ownership of the planet, a share of the profit made from the exploitation of the planet, is a reasonable return on jointly held property, and not money for nothing. For this to be a valid argument though, the structure to provide the return must be global.

    An actual social contract, one that is signed and accepted, would reasonably include this, as well as some compensation for the surrender of freedoms for cooperation.

    As for funding, please consider the effects of requiring sovereign debt to be backed with Commons shares.

    Accepting that a Commons share may be claimed by each adult human, one only, that will cease to exist on the humans death, and shall be deposited in trust with a local financial institution along with execution of a social contract.

    This would create a human backed economic system, as opposed to precious metals or full faith and credit/fiat.

    Each share is backed by a human being, and provides a secure interest in society/the planet. Aside from the reasonable notion that all humans have some value, a person with a million dollar trust fund and a basic income, is certainly worth at least a million dollars.

    The example I use of a share being worth $1 million USD is derived from that target of $1 thousand/mo basic income, and an interest rate that is compatible with a sustainable system, but not simply for a country that can already afford it.

    The recognition of this value would make $1 million times the population available to finance sovereign debt, at a sustainable rate. 1.25% is within the generally accepted notion that 2% growth is sustainable. This capital would be invested by the local banks, and while a majority would likely need to be invested in government securities, whatever portion that can be prudently invested in the community will be available.

    This relatively simple change would provide global economic enfranchisement. 

    In order to be enfranchised in a capitalistic society, one must have some minimum level of secure capital. This is how society can secure the public capital, provide a basic income, establish each person’s relationship with society as a sovereign individual, while stabilizing trade and exchange.

    A basic income is a vote in capitalism, what gets produced, by whom, what projects can attract sufficient support.

    The suggested system, for consideration, arbitrarily values the human Capital at $1 million USD equivalent times the adult population, so about $6 quadrillion. One might observe that this much wealth does not exist, and would take centuries to create the way money/wealth is currently created.

    We can also observe that this much debt, distributed as suggested, can sustainably be repaid or serviced, and represents a far more reasonable valuation of our society. The maintenance of this debt will create, and make available, sufficient new capital globally, without “poor” countries, or “poor” individuals, having to beg for overpriced loans.

    Also observe that the structure is not funded with capital, it only makes credit available, and is funded with income.

    At the inception, current sovereign debt is being serviced, so the limited income stream exists, it will just be diverted to service Commons shares, and current sovereign debt holders will need to reinvest, stimulating economic activity.

    Current sovereign debt would return about $10/month, $20 if secure corporate government debt is included, (observing that corporations are governments subordinate to their charters) which would be significant in many parts of the world. Individuals could borrow a significant fraction, but maximum return would likely require states to borrow all remaining shares.

    The expansion of the structure to increase Basic Income can proceed as Capital valuation increases, along with income/revenue, and means tested welfare programs will phase out.

    The structure does these things without interfering with any government, though the people will be significantly more empowered to affect whatever changes they desire, and we may expect human desires to be more rational, with the establishment of a rational relationship between and among humans and governments. 

    In order for a Basic Income to be paid, the money has to be collected.
    In any given state, the rules for collecting money vary, and change, this will not change, but the arguments will.

    Instead of directly taxing and paying citizens, each state/sovereign entity, will collect funds to make the payments on their sovereign debt, and each human will receive payment from their bank, as interest on their share.

    In this way, the argument becomes; “How can we collect sufficient revenue to support the debt we have to our citizens?” As opposed to; “How will we collect enough more taxes to support the lazy bums who cause such a drain on my personal finances?”

    The actual social contracts will specify the responsibility of government to protect and support the Commons, through rational action, and by making regular sovereign debt payments. This is the place, and context for tax reform.

    Each sovereign entity will acquire a treasury/secure investment along with acceptance of their debt, and this treasury will be sufficient, when prudently applied, to produce more than enough income to make the payments. (Interest payments could be made for five years without collecting additional taxes, and >90% of the treasury would still be on deposit, or like the US where the current debt is already nearly 10% of the suggested debt, there are plenty of sources for the required revenue.)

    In this way each human will receive equal interest payments from sovereign debt. 

    This establishes the sovereignty of each human. 

    As a sovereign entity, each individual would have access to sovereign debt for home, farm, or secure interest in employment, relative to a portion of the value of their Share.

    For illustration, a share with a value of $1 million would return about $1 thousand/month, if it all was borrowed, at a growth sustainable rate around 1.25%. 

    I suspect that a nation with 1 million residents could borrow the entire $1 trillion (equivalent) of resident shares as reserve cash and devise a plan to increase revenue by the $12 billion/yr (equivalent) required to pay the interest. The U.S. example of a $268 trillion debt, a $250 trillion treasury, and $3 trillion annual interest payment seems equally optimistic. Mind that these suggested national interest payments would be reduced by any debt borrowed by state, local, and individual sovereigns.

    If a similar system was attempted in a single state, the currency of that state would be devalued, as other countries will not accept at full value a diluted currency. With all currencies tied to the Commons, and the proportional increase in wealth flow in all states, all currencies will be expanded simultaneously, proportional to population, creating disadvantage to no one, exchange rates and trade can stabilize.

    Rightly noted that money creating countries could engineer this for themselves, this would globally democratize the ability to create money

    The value of a share need not fluctuate, and sets a natural sovereign debt limit. The return on a share though, would depend on how much of that value is borrowed. The ideal state, I suppose, would be for the entire value to be loaned interest only, maintaining the basic economic activity and the state of indebtedness owed by the various states to the individuals who comprise them, and to the Commons.

    The increased spending on basic needs will necessarily reduce the cost of providing them.

    Since the spending of money is restricted by the availability of materials and labor, and “full employment” is restricted by the availability of money, recognizing and distributing the value of the Commons in this way would simply “fill the reservoir” so the world economic system may act more like a “Free Market.” This restriction, and most familiar others, can enable an orderly increase in money supply, with most new money in reserves and increased valuation.

    This is not intended to repair any other structural problems, or inequities. These are valuable pursuits, and we must be constantly working to improve. This just creates the structure to recognize the sovereignty of each person, and provide remuneration for cooperation, and the use of common property.

    Thanks so much for your kind indulgence,

    • Jay Shumway

      Great Comments Stephen!! I am not an economist, but the ideas that you have posted seem that they have genuine merit!! Your ideas will be the basis of new research upon which I will embark!! Have a great day!!

  • Roy Drew

    As a conceptual tool could the notion of ownership of the planet be extended to one of no ownership of the planet in the same way as no one owns the air we breathe.
    Although admittedly it is surprising that under capitalism a way has not been found to actually privatize it as has been done with other natural planet given resources such as water,,electricity and the very ground we stand on..
    All humans and their forebears contribute or have contributed to the commonwealth to a greater or less degree.The greater degree being if one is descended from slaves.
    A share of what all human existence has created is a Human or Natural Right.

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