Op-Ed; Opinion

I see no plan: Basic income as purchasing power

During the 20th century, the increase in purchasing power of the workers in Western Europe was negotiated by the labour unions and paid for by the spectacular increase in productivity of agriculture and industry: we made more and better products with less workers. This yielded generous increases of net salaries and on top of that it allowed governments to pay for schools and health care. This resulted in the general belief that the wealth of a nation is the result of labour, because it paid not only for salaries, but also for social security and other government spending. Since then, the world elite believes that labour participation is the basis of our social security system and our wealth.

There are a few problems with this belief, however.

The first problem is that with the collapse of communism in 1989, the size of the economy grew from 1 billion participants (Europe, the US, Japan and a few small countries) to 6 billion. Cheap labour supply became abundant while the world wide bargaining power of labour unions became irrelevant. Many manufacturing companies moved their production to low cost countries. The “low cost” of these countries was mainly due to the insignificant tax on labour there, compared to Western Europe, where the labour tax was between 100 and 200% of the (higher) net salaries. The saving of the high labour tax was a major cost reduction driver for companies which moved their production, much more than the net salaries of the highly qualified, well trained, loyal, productive local workers which lost their jobs. Political Europe was sleeping apparently, not realising that the corresponding financing of the social security was moving away with the factories.

The second problem is that increasingly machines, robots and computers used in production of goods and services decrease the need for human workers.

The third problem is that social security contributions from the rapidly increasing public and subsidised employment are not real, because the wallet which collects them is the same wallet which pays them: the state.

The fourth problem is that life expectancy is growing, affecting the cost for the state paid pensions. Since health care cost is much higher in old age, the cost of state paid health care increases as well.

The fifth problem is that income from savings is trending toward zero. Citizens owning property are mostly excluded from social aid provided by the state, since they are supposed to derive an income from their property. This induces a new type of poverty. Moreover, the decrease in income from capital affects overall consumer spending, also within the working class.

As a consequence, the purchasing power of the working class has stalled in Western Europe and the US since 2000. This is hidden in the national accounts because in those figures the “income” which households derive from labour is the “gross” income including social security contributions and income taxes. The latter have risen.

Some political parties start to plead the reduction of social security benefits, which would be the start of a negative spiral.

The labour tax based system is structurally unstable. When sales decrease due to economic slowdown and workers are laid off, their income decreases so they buy less leading to further sales decreases and job losses in other businesses. The “Labour Church” will tell you that the central bank then should decrease the interest rate to stimulate investment and spending. This is speculative and slow to start effect. In any case, the interest rate is now zero and hence cannot be reduced anymore. The “Labour Church” system is in deep trouble. They seem to hope for a miracle: I see no “Plan”.

There is however one stabilising factor, our social security, which makes people continue to spend money when they have no work. This hints to the fact that “Purchasing Power” could be the solution to our stalled economic system. When the economy weakens, we should inject additional purchasing power into the economy. When the economy gets overheated, we could reduce the purchasing power injection.

Purchasing Power injection, Basic Income, should replace “labour” as the motor and regulator of our economic system. The distributed purchasing power generates spending, entrepreneurship and work for those who want to earn more money. Tax on labour can only be an auxiliary source of funding if we want such a system to be stable.

Basic Income supporters are a minority still. But we have a Plan.

 

About Roland Duchatelet

Roland Duchatelet has written 10 articles.

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.

5 comments

  • Joe

    Good article, well written!

  • Steve Godenich

    Succinctly, a minimum income*, financed by a tiny indirect flat tax[1] on all economic transactions[2], would provide a welcome measure of relief to the incomes for citizens and to the revenues for business during creative destruction in a Schumpeterian business cycle[3] of the domestic economy**. For cross-border trade, any reluctantly advised protectionist import tax would be needed only to discourage large, persisting trade deficits and needs be carefully implemented to prevent increased taxes on individual citizens and businesses, prevent losses of government tax revenues and prevent reduction of purchasing power for normal goods and services required by consumers and producers in the domestic economy. Note that medical goods & services are required for citizens in addition to the above and a cut-over to any such system would require a phase out or generous one-time sovereign buy-out of any adversely-affected citizen stakeholders in the old system, e.g., SS/Medicare contributors and recipients.

    Regulation of vertical integration would need to be balanced between efficient mass production and opportunities for embryonic entrepreneurial innovation & niche business to flower. Extreme wealth concentration would need to be regulated to ensure proper liquidity in the domestic economy, avoid inflationary & deflationary shocks from sudden, massive-injections & massive-withdrawls of capital into & out-of the domestic economy, avoid monopolization of land***, as well as avoiding political misadventures and civil unrest. Note that distinct national economies currently provide roughly 200 ongoing laboratories of politico-economic exploration at various stages of development and help insulate national economies against external shocks that may otherwise cascade into global economic failure, i.e. a basic level of national economic independence is desirable if not taken to extremes provisioned by adequate raw materials and manufactures.

    * More precisely, this would be a revenue-neutral, poverty-level, individual citizen’s tapering minimum income that self-adjusts to employment in the business cycle.
    ** In a federal government, tax revenues would be divvied out in real-time to individual states, provinces, cantons, etc., prescribed by legislation.
    *** Local property taxes or local Henry George land-value taxes may be considered.

    [1] APT Tax | Youtube
    https://www.youtube.com/watch?v=fG8jngOwbpE
    [2] Intraday Liquidity Flows | FRBNY Payment Risks Committee | 2012
    https://www.newyorkfed.org/medialibrary/microsites/prc/files/prc_120329.pdf
    [3] Schumpeter’s Capitalism
    https://www.youtube.com/watch?v=ZMedun0TQ_o

  • I disagree that payments should be reduced when the economy is “overheating”. What if my consumption hasn’t increased? Basic income should be about freedom, not shaky economic models with “output gaps” pulled from equations with error bars a mile wide because they rely on tenuous assumptions about labor and scarcity. Do not try to please orthodox economists by adopting their badly flawed models. Argue for basic income as an alternative to mainstream economics. That’s my advice 🙂

    • Ian Kilby

      Agree the model being used since the 70s are precisely what got us where we are today UBI has to be part of a new way of thinking about value. Happy to argue we need UBI as an alternative to mainstream economics:-)

  • I would go further in that the real wages of the working class have flatlined since 1970 in USA and 1980 in Europe. Otherwise, wholeheartedly agree!

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