The views expressed below and in the UBI Podcast do not necessarily express those of Basic Income Earth Network, or BI News.
While school choice and basic income advocates may not always see eye to eye, they may have more in common than they realize.
In my new UBI Podcast series, I interviewed Emily Runge, an education policy researcher for the Show-Me Institute. Runge advocates that the government provide parents more choice in how their children is educated, including providing families cash grants for education.
UBI Podcast tinyurl.com/UBIpodcast
The way Runge described her advocacy for school choice parallels much of the rhetoric that basic income advocates use.
“The overlap that I see, is there’s a recognition that there are vulnerable populations and the status quo is working against them. And the way the government treats them, for example the public school system, is not always the best.”
The intention of school choice, Runge said, is to allow individuals to decide what is best for their families and children.
“With the school choice movement, and the Universal Basic Income movement, is we are empowering individuals, giving them more agency, and this is a more innovative way to deal with problems that we see,” she said.
Arizona recently signed into law America’s first ever universal education savings account (ESA) program. This system will eventually allow any student to apply for a state-funded savings account that can be spent on education services, including tuition, online services, tutoring, and education materials. In theory, this will unlock a host of degree paths and careers for low-income families.
High school students can receive up to $5,000 per year in their ESA, and $4,600 is available for K-8.
For now, the number of students that can enroll in an ESA is capped at 5,500. Children with disabilities can receive a higher cash grant, depending on the services needed.
Runge said a universal ESA may be the ultimate goal, and other school choice offerings should also be pursued. In the meantime, Runge said that there are many good public schools that should be allowed to continue to operate.
The choice, she said, should be given to the parents not the government.
“Instead of children being assigned to a particular school, we advocate that money should follow the child,” she said.
As it stands, Runge said those with a lot of wealth can afford school choice, it is vulnerable and low-income populations that do not have the choice.
The intersection between poverty and education disparities is well known. And children of wealthy parents certainly have more opportunities for a superior education, simply because they have the cash to pay for these services.
Like basic income, an ESA has the potential to shift power from bureaucrats to individuals. There would still be conditions on the money, as ESA cash would necessarily be ear-marked for education, although the choices would be infinitely more for poor families in the status quo.
However, there are likely many basic income advocates that are skeptical of a cash-grant system when it comes to education. And there are likely many school choice advocates that are skeptical of no-strings attached cash grants to families.
Nonetheless, there should be more discussions between movements, such as basic income and school choice, on the areas that they overlap and how both can achieve their goal of empowering all families regardless of their background and situation.
This opinion solely represents the view of the author and is not necessarily the view of Basic Income News or BIEN. BI News does not endorse any particular petition or policy.
A Problem
One of the difficulties in talking about universal income is that the arguments lack punch because we discuss them in the abstract. The “People’s Dividend” (PD) petition on Change.org tries to correct that problem by asking people to sign a petition and call Congress to take action. The PD petition is different because it uses real numbers:
$27 trillion, the personal net worth of the one percent wealthiest (PNW1). Naturally, high net worth individuals have very different needs to low-income individuals which is why insurers like Jeff Bernard might be better equipped to assist them when it comes to insurance.
$1.5 trillion per year, the annual growth of the personal net worth of that same one percent
$4,500 per person, if the $1.5 trillion was re-distributed to all 333 million people in the U.S.
The PD petition proposes that the IRS annually harvest the growth of the wealth of the one percent and distribute it every year to every adult and child in the U.S. without conditions. It also urges people to take two specific actions to make that happen: 1) sign the petition and 2) call Congress.
Please Sign the Petition
If you read the petition first, or watch the video that introduces it, you will have a sufficient background for this article. Here is a link for the People’s Dividend Petition. Feel free to sign the petition while you are there.
Fun with Numbers
Before we go into the details of the proposal, it may be enlightening to compare some of the numbers given above to other things.
$27 trillion (PNW1) is:
about 686 percent of the Federal Budget ($3.9 trillion)
about 136 percent of the federal debt ($19.8 trillion)
about 143 percent of GDP ($18.9 trillion)
$81,000 per person in the U.S.
$1.5 trillion (the annual growth of PNW1) is:
38 percent of the Federal Budget ($3.9 trillion)
256 percent of the U.S. Defense budget ($585 billion)
253 percent of the annual Federal deficit ($592 billion)
$4,500 per person in the U.S.
$4,500 per person is:
one-third of the poverty level for 1 person, which is $11,880
$18,000 or three-fourths of the poverty level for a family of 4 persons, which is $24,300
one-seventh of the median wage for workers in the U.S.
$450 million of added income for the population of Flint, MI, a city of 100,000 people
$3 billion of added income for the population of Washington, DC, a city of 675,000 people
$36 million of added income to the 8,000 homeless people in Washington, D.C., which is equal to one-third of Washington, D.C.’s 2017 affordable housing budget of $100 million
Are These Numbers Reliable?
The Forbes list of U.S. billionaires, as of March 21, 2017, identified 565 U.S. billionaires with a combined net worth of $2.8 trillion. This contradicts the established fact that “the personal net worth of the one percent wealthiest (PNW1) is actually $27 trillion. A lot of what is written in the popular press about wealth and income grossly understates PNW1. Fortunately, the World Wealth and Income database (located here) is pulling back the covers on this issue. WID.world has authoritative statistics on wealth and income going back 100 years. That is where the data that supports the People’s Dividend came from. Online access to the WID.world database has been available since 2011. However, economists have been laboring on it for thirty years or more and they deserve great credit for their results. This resource makes it possible for a non-economist like me to grasp wealth inequality trends.
With WID.world data, we can avoid erroneously limiting the wealthiest one percent of U.S. citizens to those found on the Forbes billionaires list. For example, an extrapolation of WID.world data from 2013 to 2017, indicates that the one percent includes all households with over $5 million in net worth. There are about 1,670,000 such households. I estimate that their total wealth in 2017 is $27 trillion, with an annual increase of $1.5 trillion projected. The important result that follows from getting the numbers right is that the size of the People’s Dividend payment gets large enough for people to notice. $4,500 per person is significant. That is the result when you divide the growth of $1.5 trillion by the entire U.S. population. The proposal takes data seriously and the petition includes a link, also given here, to all of my calculations and sources here.
Making It Real
Because the People’s Dividend idea is formulated as an actionable petition with known dollar results for individuals, it makes the numbers behind the universal income/wealth inequality discussion more real. For example, a person knows that their payment would be $4,500, with 99 percent paying no wealth tax. They also know whether their household net worth is above $5 million and, therefore, they know if they are in the 99%.
It is also immediately apparent to many that $27 trillion is simply too much money for one percent of the population to have when 50 percent of the population has so little. For those less easily convinced that that is too much inequity, consider the fact that the one percent’s share of total U.S. wealth has grown from 25 percent in 1982 to 40 percent in 2017. If the one percent’s share keeps growing one point every 2.3 years, then in 23 years it will grow 10 more points to 50 percent of total U.S. wealth. By 2040, the one percent would have as much wealth, 50 percent, as everyone else in the U.S. put together. I think, at that amount, almost everyone would agree that would be much too much.
The purpose of asking people to sign the petition and contact their one Congressional Representative and their two Senators is to encourage them to think about this data, and, in the process, have it become more real for them.
High Points of the People’s Dividend
The $4,500 PD Payment
The $4,500 per person goes to everyone in the U.S., but only households with PNW greater than $5 million pay the tax. A household of 2 people worth $5.1 million would pay $7,800 and receive $9,000. This means that slightly more than 99 percent of the people would be better off financially. This should make it easier to get a majority of voters in favor of PD.
The PD goes on year after year.
The $4,500 is tax-free, so a dollar of the People’s Dividend is worth more to people who pay income taxes than a dollar of ordinary income.
$4,500 is equal to about one-third of the poverty level for 1 person, which is $11,880. However, for a family of 4, $18,000 in PD payments is about three-quarters of the poverty level for a family of 4 persons, which is $24,300. Therefore, it would be a significant poverty fighter.
The PD potentially adds a big boost to local economies. In Washington, DC, for example, a city of 675,000, the total PD payments to the population would equal $3 billion per year. This is equal to about 24 percent of the city’s 2017 budget of $13.8 billion.
The PD is paid to everyone, including the one percent. Therefore, no apparatus for measuring need is needed, and virtually all the $1.5 trillion collected can go to the people.
The PD would be paid out monthly like a social security check to provide a steady flow of income year around.
The PD amount would vary up or down, depending on how fast the PNW1 is growing or decreasing, as it might if stock markets decline. Therefore, the PD amount is not guaranteed to be the same from year to year. This feature helps avoid deficit spending because the PD is always equal to the amount of wealth tax collected. To smooth the change in the PD amounts from year to year a moving average of collections might be used.
Alaska’s permanent fund dividend in 2016 was $1,022 per person. The PD would be more than four times that. Seehere.
The Wealth Tax
The wealth tax is calculated so that it is equal to the year to year growth in the PNW1, estimated to be $1.5 trillion. Therefore, it represents the increase in PNW1 after the one percent has spent all they want to and paid all their taxes.
The intention is to keep the wealth tax equal to the growth so that the amount of wealth does not decrease and kill the goose (PNW1) that lays the golden egg (PD).
A good part of PNW1 is composed of stocks and bonds whose value can decrease in a market slump. If that happens, then the wealth tax rate would be reduced for a few years, but not eliminated, in order to allow the wealth to recover. You can see from the green and orange chart in the video that the 2008 recession caused everyone’s PNW to decrease. However, by 2013, everyone except the 50 percent least wealthy had recovered.
The wealth tax applies only to every dollar over the household wealth threshold necessary to be part of the one percent. This is $5 million in 2017. A household with PNW of $5,000,001 would pay 7.8 cents in wealth tax. A household with PNW of $6,000,000 would pay $78,000 tax on the $1,000,000 of wealth over and above $5,000,000.
The $5 million threshold amounts to about $500 billion leaving only $1 trillion to tax. The $1 trillion is taxed at 7.8 percent but the overall tax is 5.5 percent of PNW1. PNW1 grows on average 5.5 percent a year so the tax is equal to the growth.
The Amount of PNW1
It is better to tax wealth than income because only “realized” income counts for income taxes, but increase in asset values results in increased wealth tax revenues whether the gain is “realized” through a sale or not.
Capital gains are taxed at a lower rate when it comes to income taxes. Consequently, a lot of big earners take their compensation in the form of shares of stock. In this way, they reduce their income taxes, but a wealth tax would neutralize this tax avoidance strategy.
The PNW1 amount is a comprehensive measure of the wealth inequality and considers: the effects of all other tax laws; economic forces, such as automation and globalization that reduce the share of profits going to labor; changes in government expenditures for health care and other social programs; right to work laws that weaken labor’s position; and all of the other factors that increase or reduce the concentration of wealth in the one percent. As such, it is an easy litmus test for inequality and a measure we should all watch carefully.
Because the WID.world data only went until 2013, I estimated the 2017 amounts using the historical compounded growth rate of 5.5 percent.
But it should not be necessary to estimate wealth amounts. Therefore, an important feature of the PD petition is that it would direct the U.S. Treasury to collect wealth data promptly and directly from banks, brokerage services and other wealth depositories, so that the public could see the PNW1 amount and other wealth distribution amounts shortly after the end of the calendar year.
The petition requests Congress to appropriate extra money to the Treasury to create a wealth reporting system and a reliable means to track down wealth hidden in various tax havens.
Not mentioned in the petition, but a necessary addition, would be for Congress to provide funds to Treasury to negotiate tax treaties with other countries to prevent other countries from giving our one percent a better tax deal than the U.S. This is necessary to prevent all of our “one percenters” from fleeing to other countries to avoid the wealth tax.
By taxing personal wealth, the PD proposal avoids interfering in the taxation of corporations. If they become more profitable, then the shares owned by the one percent increase in value and the wealth tax harvests more.
Obstacles
There are several possible obstacles that might undermine a campaign for getting this petition signed. First, the ideas of universal income and the magnitude of wealth inequality are not well-known by the general public. Second, it might seem too “pie in the sky”, at least initially. Third, many might buy into the common belief that any “giveaway” will ruin the moral fiber of the country and encourage laziness. I am convinced, however, that with enough support, especially from individuals widely admired and trusted such as the Pope, Oprah or Bono, momentum could be achieved. Anyone reading this article with good ideas for getting people on board, please contact me at toclarkson@gmail.com.
Please Sign the Petition
Meanwhile, be sure to sign the petition, if you agree with it, and get one or two others to do the same – People’s Dividend Petition. Once people realize that they have skin in this game and that change is possible we may see some of these proposals become a reality.
As the debate about basic income heats up around the world, two documentary filmmakers are trying to bring the human element to the forefront.
Deia Schlosberg and Conrad Shaw are producing an ambitious documentary, “Bootstraps – A Basic Income Film”, that will follow a group of real people around the United States who will receive a basic income for two years.
I recently interviewed Schlosberg and Shaw as part of the new BI News Podcast series. Schlosberg said she wanted to do something different from existing basic income documentaries.
“I didn’t want to make another film that was just describing it and talking about the theory, I wanted to follow individual people and tell stories about individuals, and connect with the audience that way,” Schlosberg said.
Shaw said this project will be distinct from existing basic income trials, and will fund a basic income for around 15 to 20 individuals selected for the documentary.
From those a “handful” will be selected with the most “compelling stories,” Schlosberg said. Their intention is to stop the “othering” that takes place in society, they said.
“The problem we see with the pilots that are going on…is that they are very localized,” Shaw said. While this will allow the research to be more rigorous, he said, it makes it more difficult to present an inclusive ‘American pitch’ with people from all over the country.
The team is in the process of fundraising and is in the early stages of selecting participants for the basic income. Those that are part of the mailing list for the film will be eligible for a drawing that will allow them to nominate someone to be part of the film and receive a basic income.
As of now, they hope to start handing out the basic income this summer and release the documentary in time to be “part of the election discussion” in 2020.
Schlosberg has worked on films in the past, including “Backyard” and “How to Let Go of the World and Love all the Things Climate Can’t Change,” but she said this documentary will be a unique experience following individuals for two years.
Already, Shaw and Schlosberg have found potential participants for the film including a homeless man from the east coast who was released from prison, and a man in Boston who is still in prison and declined parole because he is “afraid” of not being able to reintegrate into society.
“With those we are exploring recidivism and how basic income could ameliorate that issue on a huge scale,” Schlosberg said.
The goal, they said, is to get people from all different backgrounds, locations, and occupations so “they can watch the film and relate.”
In administering the basic income, they said they are currently looking for an outside organization to partner with on this aspect.
In making this documentary, they want to discover whether critics are correct in that basic income will make recipients lazy, or if it will encourage positive change.
“How does it change someone’s day to day with a little extra security and a little extra power over their lives?” Schlosberg asked.
A Universal Basic Income (UBI) is a periodic cash payment unconditionally delivered to all on an individual basis, without mean-test or work requirement. A Universal Minimum Income (UMI) would be a UBI set at a level to ensure everyone has at least a minimum income sufficient to keep body and soul together. This would engender personal freedom. If we add to this public health & education, and other targeted benefits for the disabled for example, it would be a wonderful situation. What would it take?
The math is simple. If we have to pay out a UBI at X% of average income, then it will cost at least the same X% of GDP. The proportionality is clear.
Population x Average income
= Total income of country (GDP)
Population x UBI of X% of Average income
= X% of total income of country
We must first establish what should be the target level of Minimum Income. A simplistic definition would be to take a percentage of average income. The idea here is that if on average citizens are earning a certain amount, then a percentage of that average could represent the poverty line. Let’s assume we set the poverty line at 60% of the average income, and target a UMI at that level.
In practical terms, the US average family income in 2015 was $92,673. A UBI of 10% would be $9,267 per family, clearly not sufficient to create personal freedom. Similarly in India, per capita income in 2016 was Rs. 93,231. A UBI at 10% would be a meager Rs. 9,323.
It could be argued that, if average income is calculated by simply dividing GDP by total population, growing inequality and robotisation will distort that average by sequestering income in the hands of the very rich, swelling the perceived average income by increasing GDP while the actual income of an average citizen remains much lower. In order to deal with this issue, the Organisation for Economic Co-operation and Development (OECD) defines relative poverty for developed nations as 60% of the median income level. To calculate the median, we first list every person in ascending order of income. We then find the midpoint, and the income associated with it. Finally, we calculate 60% of this income to work out the relative poverty level.
The US median family income in 2015 was $70,697, or 76% of the average income of $92,673. The relative poverty line is 60% of the median income or $42,418. This works out to 45.8% of GDP (60% * 76%). It is still completely utopian to imagine the US could pay out nearly half its GDP as a UBI.
Suppose we use the World Bank definition of extreme poverty, $1.90 per day. By simple multiplication, for the US to provide a UMI at this level would require $57 per person each month. Not quite enough to survive on, but it would still cost the US government $221bn each year (pop of 318.9 million). In the Indian context, the World Bank’s poverty line is Rs. 28.71 (at PPP exchange rate of 15.11). A UMI would pay out Rs. 10,478 per person per year, for a total of Rs. 13,119 billion a year. This is more than 10% of India’s GDP, and is 61% of India’s entire 2017 Union Budget of Rs. 21,470 billion.
The essential proportionality of a UBI as a percentage of per capita income, requiring the same percentage of GDP to finance it, creates the dilemma facing UMI. If we wish to achieve a minimum income level, then targeting seems unavoidable. We may decide to keep goal of universality (everyone receives UBI) while giving up the goal of minimum income (the amount is enough to live on). Even then, it is clear that for any meaningful level of UBI, there needs to be substantive discussion of the financing source. Even a UBI of 1% of per capita income, a small amount for most individuals, would require 1% of GDP to finance, a very significant amount for any government. A UBI of 10% of GDP would likely require an entirely new financing mechanism.
In view of this simple mathematical challenge, the Basic Income movement would be well advised to pay closer attention to the funding mechanism. The success of UBI depends on the practical and political feasibility of the funding mechanism. And if such a mechanism is found, we would still have to explain why universality is preferable to targeting. It is likely that the only successful UBIs will be those where universality is a logical, political or legal necessity. This has been the case with the two most significant examples of UBI, Alaska’s Permanent Fund Dividend and Iran’s UBI in lieu of fuel subsidies.
About the author:Rahul Basu is a member of the Goenchi Mati Movement, which asks for minerals to be treated as a shared inheritance. Mining is the sale of the family gold. For fair mining, there must be zero loss mining, saving all mineral money in a permanent fund, and distribute the real income only as Citizens’ Dividend.
As someone interested in basic income (BI), I read a fair amount about the topic. I read pieces by supporters and opponents, as well as those who might be considered more neutral. I’m often struck by the degree of uncertainty concerning implementation of BI.
A popular argument for BI these days is based on concerns about the possibility of mass technological unemployment. Some in the “tech industry” contend that BI will become necessary as automation replaces more and more human laborers in the years to come. This has led to a debate among economists and others regarding whether automation will result in a net loss of jobs (for humans) big enough to warrant the need for something like BI. Both sides of this debate bring evidence to make their cases. But in the end, we simply don’t know for certain if and when automation will lead to a net loss of jobs for us human beings.
Assuming BI might be implemented in a society which would still require a fair amount of human labor power, we’d like to know what impact BI would have on people’s inclination to sell their labor or, more commonly, “work.” A BI could affect labor supply in at least two ways.
One is that people who received an income they didn’t have to work for may be inclined to work less. The second possible effect has to do with how BI would be financed. If it were financed by an increase in income taxes, this could also reduce labor supply. The reason is that a large proportion of many people’s incomes are earnings, meaning that an income tax is largely a wage tax. A higher wage tax has two possible effects on labor supply.
On the one hand, such an increase could cause people to work less because with the higher tax (and all else equal) their take home pay is smaller than it was before, creating an incentive to work less. On the other hand, a smaller take home pay means one would have to work more than before to maintain their standard of living. This would create an incentive for people to work more not less. If BI were implemented, we have no way of knowing which of these effects would dominate the other.
Leaving the labor market (but still related to it), another area of uncertainty has to do with how people would spend their time, assuming they did reduce their labor supply. Opponents of BI worry that people would use their time “unproductively”, while proponents tend to argue that individuals would engage in more care work or pursue “self-actualization” through pursuing education, writing poetry, starting a business, and the like. But if we’re being honest, regardless of which side of the debate we’re on, we must admit that we don’t have much of an idea what the relative proportion of unproductive to productive activities would be, assuming we could even agree on how to categorize activities as unproductive or productive.
A third area of uncertainty is related to personal relations and household composition. BI could have an effect on who lives with whom, who marries whom, who has kids or not (as well as how many to have), etc. As a society, we obviously differ when it comes to our values about such matters, meaning we might differ on the desirability of BI. But we don’t really know for sure how implementation of BI would affect “family life.”
Now I’m not saying we’re completely in the dark when it comes to questions of BI’s effect on labor supply, use of non-wage time, etc. Economists, sociologists, and others can draw on theory to help us think through these matters. And, by this point, there’ve been several experiments/studies (as well as more recent “startup” studies) which offer a lens on what might happen if BI were implemented. But we should be careful not to overestimate how much help we can receive from such experts, as well as the studies that have been (and are being) conducted.
Considering the many BI experiments (as well as proposed ones) around the world, we need to be cautious about what lessons might be learned. The philosopher Nancy Cartwright, well known for her work in the philosophy of science, has a phrase that’s quite relevant to this discussion: “it works somewhere.” Cartwright frequently utters this phrase within the context of discussing randomized controlled trials (RCTs), the so called gold standard of empirical research in the social sciences. Her point is that even if a well-designed RCT shows that a policy works in one context, that doesn’t necessarily mean it’ll work in another one. This is relevant to BI studies because they’re being conducted, or proposed, in a variety of different contexts. So if we find out that something works in India or Finland, that doesn’t mean it’ll work in Japan or the U.S. In the article cited above, Cartwright goes into great detail about why generalizing experimental findings from one context to another can be so difficult. For those interested in what we might learn from BI experiments, I think her work is quite instructive.
When engineers design systems, such as buildings, bridges, etc., they also must face uncertainties. To be double sure of the approaches that they take, many engineers tend to avail the services of engineering consultancy firms, so that they can rest easy knowing they are backed up by the same opinion. However, they don’t know for sure what loads the systems will end up having to bear, they don’t know if there will be earthquakes, they don’t know how forceful the winds will be, etc. One of the things engineers do to deal with such uncertainties is to include safety factors in their designs.
For example, suppose an engineer is designing a structure and wind, seismic, and other data indicate that it’ll have to bear a load of 1000 kg. Suppose also that the engineer wants a safety factor of five. Then the load which the structure should be able to bear isn’t 1000 kg but 5×1000 = 5000 kg. So a safety factor is a multiple used to increase the strength or robustness of a system beyond that which is thought to be required to account for uncertainty in what’s thought to be required.
Those of us designing policies don’t have the luxury of being able to use simple equations, which include safety factors, the way engineers do. But perhaps we should adopt a similar safety factor mentality. Implementation of BI would be a complicated undertaking, involving a great deal of uncertainty. Perhaps BI supporters should consider how to increase its robustness in response to labor supply reductions, as well as other unanticipated effects. I admit I’m not exactly sure how to do this. But I believe it’s something worth thinking about.
Alaska’s Permanent Fund, Dividend and the central idea that minerals are a shared inheritance have inspired numerous social and political movements across the globe. The Goenchi Mati (“Goan Earth”) Movement in Goa, India, of which I am a part, has drawn from the experiences of Norway and Alaska with their permanent funds.
Our core principles are (a) minerals are owned by the state as a trustee for the people and especially future generations (Public Trust doctrine); (b) minerals are inherited assets and our duty is to ensure that future generations have access to the minerals or their value (Intergenerational Equity principle); (c) mining is essentially a sale of minerals, hence we must ensure zero loss mining – in other words, the full value (the sale value minus all extraction costs and a reasonable profit for the extractor)[1] must be received by the state as trustee; (d) everything received must be saved in the Permanent Fund, which must also be inflation proofed, ensuring the capital is safeguarded; and (e) any real income from the Permanent Fund must only be distributed as a Citizen’s Dividend, a right of ownership over the minerals and the Permanent Fund.
It is not clear if Alaska has received the full value of its oil; whether zero loss mining was achieved. Any loss is a loss to everyone equally. It is simply a per head wealth tax imposed on everyone, with the oil companies making merry. Based on data in India and other parts of the world, we anticipate a majority of the value of the oil has been captured by the oil companies. If this is the case, it is a loss that will be borne by future generations of Alaskans. A close examination is potentially warranted, and additional taxes on oil may be necessary to ensure zero loss mining.
When we sell an inheritance, we must invest everything in a new non-wasting asset of equal value. Traditionally, inheritances are held in precious stones, precious metals or land. These assets retain their value over generations. The Permanent Fund is a recent innovation designed to replicate this function. Inflation proofing is essential in order to ensure that the fund retains the real value of the natural resources in perpetuity. While over 50 such funds exist around the planet, Norway and Alaska are the exemplars.
In contrast, infrastructure is a wasting asset, it depreciates or reduces in value over time. Even investments in health and education perish with the beneficiary. Hence, a diversion of oil money from the Permanent Fund to the budget eventually cheats future generations of their inheritance. Only a fiscal rule of saving 100% of the oil money ensures that the present generation does not cheat their children and all future generations.
Norway, the other exemplar of natural resource management, follows the fiscal rule of saving all money from oil in the Government Pension Fund Global. Norway inflation proofs its fund by regularly estimating the long term after-inflation (real) return on their fund, and capping the distribution below this level based on the 5 year average fund balance.
Imagine taxing everyone equally, rich or poor. It is almost impossible to legislate a per head tax – a tax on existence – in a democracy. It is clearly unfair. Yet, the current proposals in Alaska to divert some of the income of the Permanent Fund to the state budget is equivalent to a per head tax (to the extent of the lost dividend). Put simply, a legislation to tax everyone $1,000 would never pass. Yet, this is exactly equivalent to reducing the dividend by $1,000 and paying that amount to the budget.
Alaska’s current budget troubles stem from a central misconception of the nature of oil money. Government accounting treats it as “windfall revenue”. Yet, it is obviously the sale of the family gold. Jay Hammond’s first experience with natural resources was with salmon runs in Alaska’s Bristol Bay. As long as salmon runs are managed sustainably, the money is revenue, equivalent to the fruit of the natural resource.
Mining is unsustainable. Every barrel of oil extracted is one less in the ground. While Jay Hammond managed to see through the deceptive government accounting, his initial proposal to save 50% of the oil money did not go far enough. Eventually, only 25% of the oil money was saved, and 75% treated as revenue in the Alaska budget.
The impact is obvious. Alaska’s budget soared from $3 bn in 2005 to $8 bn in 2013 on the back of the China boom. Expenditures followed. The crash has thrown the budget into turmoil. However, if Alaska had treated all the oil money as a sale of the family gold and saved it, the ballooning of the budget wouldn’t have occurred.
It is a difficult time to consider saving all the oil money into the Permanent Fund, and only paying out a dividend without any diversion to the budget. Yet, it is the only ethical course of action. Any legislative proposal worth examining must mandate that this comes to pass within a limited time frame. Otherwise, Alaska will continue to suffer from budget volatility due to oil price fluctuations, and this issue will recur.
Alaska’s Permanent Fund Dividend is the largest example of a Citizen’s Dividend as well as Universal Basic Income in the world. A central idea of the Goenchi Mati principles is that the Citizen’s Dividend creates the link, financial and emotional, between the individual, their shared inheritance and their moral obligations to future generations. The expectation is individuals safeguarding their dividend would by extension safeguard the Permanent Fund and the overall mineral value. The current Alaska budget crisis is a second test of this seminal idea of Jay Hammond.
The world watches with bated breath. Will Alaskans come out in large numbers to protect their children and future generations? Will individual interest and morality triumph as Jay Hammond predicted? Or will another beacon of what is fair, just and right in this world succumb?
About the author:
Rahul Basu is a member of the Goenchi Mati Movement, which advocates fair mining in the state of Goa.
