Ellen Brown: “How to Fund a Universal Basic Income Without Increasing Taxes or Inflation”

Ellen Brown. Credit to: Signs Of The Times

Writing for Common Dreams, Ellen Brown makes a case for how Universal Basic Income can be achieved without increasing Taxes or Inflation. At first glance, most will consider this not to be possible, but Ellen argues that through quantitative easing, in which money flows directly into the real economy instead of being put into banks, the opposite may turn out to be true. In line with her reasoning, the author quotes Nobel prize-winning economist, Joseph Stiglitz:

“When the government spends more and invests in the economy, that money circulates, and recirculates again and again. So not only does it create jobs once: the investment creates jobs multiple times.”

As a consequence of this economic growth, tax and fiscal revenues increase while demands for unemployment benefits and social programs to help the poor, which are paid by the government, go down. All this strengthens a country’s fiscal position. On the other hand, one might assert that getting “new money” into the economy, supply would grow too large and consumer prices shoot up irreversibly, leaving the central bank unable to retrieve its investment. At this point Ellen quotes Prof. Stiglitz again, who states that money issued by the government, through UBI, simply returns to it in fiscal revenues.

Ellen further elaborates this in the light of the “velocity of money”, the number of times a dollar is traded in a year, which in a good economy is around seven, which means that on each dollar, taxes will be paid seven times, as it changes hands. $1,00 traded seven times on a 26 percent tax results in $1,82 back to the government, more than it initially put out. Also, it is generally taught in economics class that, from the formula “MV = Py”, when velocity of money (V) and the quantity of goods sold (y) are constant, adding money (M) will drive prices up (P). What is not taught, as Prof. John Harvey, quoted by Ellen, pinpoints, is that V and y are not constant, meaning that demand and supply rise together, leaving prices unchanged.

Applying this logic, Ellen sets forth that new demand must precede new supply, that is, employers will add the workers needed to create more supply, once they know there is demand for their goods and services. This has implications for unemployment, for example, which is at 9,4 percent in the US as of January 2017, a condition which at the rise of many innovations may get worse.

Nevertheless, a concern with hyperinflation is thrown around in opposition to this form of injecting money into the economy, to which Ellen Brown quotes Prof. Michael Hudson, who states that most cases of hyperinflation in history stemmed from foreign debt services collapsing the exchange rate, not domestic spending, calling upon the example of post World War I Germany.

In short, UBI can create more demand and drive new productivity by paying a dividend for living in the 21st century, when automation frees us time to engage in more meaningful pursuits.

More information at:

Ellen Brown, “How to fund a Universal Basic Income without increasing taxes or inflation”, Common Dreams, 4^th October 2017