by Guest Contributor | Mar 25, 2016 | Opinion
By Johanna Perkiö
First published on January 25, 2016, by Kela, the Finnish government agency in charge of welfare benefits. The original article is available here.
With the expressed commitment of the Prime minister Juha Sipilä’s centre-to-right Government to conduct an experiment to evaluate the effects of a basic income system, the idea of a universal basic income has come to the forefront of the Finnish political discourse. Discussions centring on the idea of a universally guaranteed basic income have a long and varied history in the Finnish political arena, and several initiatives and practical models have been made public since the 1980s.
A recent working paper published by the Finnish Social Insurance Institution (Kela) charts the history of the basic income debate and outlines solutions put forward for a true basic income system or one that bears some features of a universal basic income. The working paper will be used as background to analysis preparing the ground for the planned basic income experiment.
An idea with a long history
The working paper begins by presenting the history of ideas behind the discussion on a universal basic income or citizen’s wage, the latter being a term which is often used alongside ’basic income’ in the Finnish debate.
The way in which a universal basic income is conceptualized and the goals that are attached to it have varied throughout the years. In the 1980s, a universal basic income was presented as a response to unemployment caused by a decline in industrial employment and as a way to achieve meaningful participation in society for individuals outside the labour market. In the aftermath of the economic depression of the 1990s, discussion turned towards the potential of the universal basic income to increase flexibility in the labour market and to offer support to those in irregular and low-wage work. In the 21st century, the universal basic income has been discussed mainly in terms of improving incentives for work and as a way to provide economic security to those who are self-employed or employed only intermittently.
Various models for a universal basic income system have emerged from both political and academic sources. The models differ with regard to the level of the proposed income, eligibility for it, and how it would relate to the rest of the welfare system, as well as in terms of how the reform should be funded and what would be its main objectives. In addition to actual basic income models, a number of other social security reforms have been proposed that somewhat resemble a universal basic income system. The objectives that the universal basic income and other similar reforms have been proposed to meet include streamlining the benefits system, simplifying administrative structures, eliminating disincentives that have to do with the interplay between various benefits, and preventing needy persons from falling between the cracks of the welfare system.
Most of the proposals published in Finland are partial basic income models where the level of provision would be so low as to necessitate supplemental income-tested benefits, which usually means at least housing benefits. Also insurance-based income-related benefits would be left intact.
A number of alternatives exist for funding a basic income system. Generally, a reform of income taxation is proposed, which would entail clawing back via the tax system the additional money that those with medium and large incomes would gain under the basic income system. Income taxes could be accompanied by other direct and indirect taxes or fiscal policy measures. Shifting the emphasis in funding away from income taxes would make it possible to reduce marginal tax rates, which are perceived as a disincentive.
Recent proposals for a universal basic income reform
Most recently, theoretical models for a universal basic income system have been put forward by the Green Party (in 2007/2014) and the Left Alliance (in 2011). Under the Green Party model, all persons of working age who are covered by the Finnish residence-based social security system would receive a basic income of EUR 560. This would be financed by taxing annual earnings of less than EUR 50,000 at a rate of 41 percent and any earnings above that at 49 percent. Investment income under EUR 40,000 per year would be taxed at 33 percent and at 35 percent above that. Additional funding would come from raising the property tax rate and from reducing environmentally harmful tax subsidies. The model also incorporates a small basic tax deduction for individuals with low earnings in order to incentivize employment.
Under the model proposed by the Left Alliance, all persons of working age would receive a basic income of EUR 620 per month. This could be supplemented by an additional EUR 130 which is subject to welfare eligibility conditions. The basic income would be financed by taxing earnings and investment income on a progressive scale of 30-57 percent.
Under both models, supplementary provision would be available in the form of housing benefits, additional payments under the social assistance programme, and certain earnings-related benefits. Microsimulation analyses show both models to reduce poverty and income disparity by a small amount. The Left Alliance model has a greater impact on poverty and income disparity because of the proposed higher level of basic income and supplemental welfare provision and the progressive tax rates outlined in the model. Other analyses show that the desired effects of the basic income models described above, especially in regard to creating greater incentives for employment, might not necessarily be achieved. This is due to reciprocal effects between the various forms of welfare.
A handful of models for reforming the social security system with certain similarities to a universal basic income have been published in recent years. The ”basic account” model advanced in 2014 by Libera, a Finnish think tank, is founded on the idea of a loan-based system of social provision. Under this model, each person would receive an initial payment of EUR 20,000 which would be deposited into their personal account and which they would grow by paying 10 percent of their income taxes into the account. The model would allow unlimited withdrawals as long as the account remained at least at its initial level, or EUR 400 per month should the account dip below the initial balance. The account could have a negative balance of any amount, and any deficit would be forgiven when the account-holder reaches the age of 65 years. Means-tested welfare benefits could be retained to supplement the basic account. According to Libera, by adjusting the parameters of the model it can be aligned more closely with either side of the political spectrum.
Also the model put forward in autumn 2015 by the Christian Democratic Party, which it refers to as ”active welfare”, includes the idea of an individual citizen’s account to which both salaries and social security payments would be deposited. This model is akin to a universal basic income in the sense that it would consolidate all welfare benefits into a single form of support which (unlike the basic income) would be means tested. Taxes and benefit payments would be adjusted in real time according to each person’s current level of income so as to retain financial incentives for work.
The ”general security” model proposed by the Social Democratic Youth Organization consists of three tiers: the lowest is a means-tested but automatically disbursed guaranteed income, which functions in the same way as a negative income tax; the middle tier is a conditional “general” income; and the highest tier is an ”active” income provided in reward for taking personal initiative in improving one’s employability. Also under this model, there is real-time coordination between earned income, social security and taxation so as to ensure that any amount of gainful employment will always provide additional income.
The challenge of removing disincentives
An analysis of the universal basic income models proposed shows that each of the models require further development if they are to eliminate the disincentives in the way of employment. Because the welfare system is complex, and there would still remain benefits which supplement the basic income, the desired incentivizing effects might not be achieved. One potential solution to this would be to adjust the link between earnings and benefits, most importantly housing benefits (or even to include housing benefits in the basic income scheme), and a suitably high level of basic income that would prevent continual need for social assistance. Any incremental amounts paid for dependent children should also be factored into the proposed models for a universal basic income.
One possibility would be a negative income tax system offering benefits only to those under a certain income limit and reducing, on a sliding scale, the amount of income transfers as personal income increases. A proposed national registry of incomes, allowing the real-time tracking of incomes from any source, would make this possible. Compared to a proper basic income, a system based on negative income tax would be more responsive, for example, to fluctuations in housing costs or to the type or amount of assistance needed as family circumstances change.
Among the effects that a universal basic income system would be likely to produce, the most interesting are obviously those which are of a dynamic nature, i.e., related to the behaviour of people and enterprises. The experiment planned by the Government will go some way towards meeting the need for such information. It is quite likely, however, that many of the psychological, social and structural effects of a universal basic income system will not emerge during the two-year experiment. The choice of model included in the experiment, as well as the overall economic situation, naturally will also affect the final results. Still, the experiment is an important step towards creating a more functional system of basic welfare provision.
Source: Perkiö, Johanna (2016) Suomalainen perustulokeskustelu ja mallit. (Public debate and proposed models for a universal basic income system in Finland.) Kelan työpapereita.
Johanna Perkiö is a basic income expert and a doctoral student at the University of Tampere (Finland).
by Guest Contributor | Mar 17, 2016 | News
Italy needs to introduce a Guaranteed Minimum Income as soon as possible, following the example of other European countries. This is the central message of the letter published below, addressed to the Italian government and signed by sixty economists and scholars from Italy, France, Germany, United Kingdom, Finland, Sweden, Belgium, Netherlands, Greece, Spain and United States, among others.
The letter was published on February 26 in the Italian daily L’Unità. The promoters of the initiative are Ugo Colombino, economist at the University of Turin, and Giovanni Perazzoli, welfare expert and author of the book “Contro La Miseria. Viaggio nell’Europa del nuovo welfare”.
Italy does not have measures of income support and unemployment welfare comparable to those in place across Europe: Arbeitlosgeld II in Germany, Revenu de solidarité active in France, Jobseeker allowance in the UK, etc. International institutions like the IMF and the European Commission are putting pressure on Italy to adopt similar welfare measures. The position of the Italian government remains unclear. Much has been done to reduce the gap with the rest of Europe, although such actions have not received significant media attention. It is important to remember various local initiatives, draft bills by some political parties, the work of several parliamentary committees and proposals from think tanks like “Alliance against poverty”, “LaVoce.info”, “Basic Income Network Italy”. Small but significant new measures are contained in the 2016 Budget Law, for example the national extension of the experiment with measures supporting active inclusion, also known as SIA.
We believe this is the right moment for the Italian government to give a new push in this neglected area. A reform that aligns unemployment welfare with other universal systems in Europe cannot be postponed any longer. With the establishment of the Onofri Commission in 1996, sponsored by the then Prime Minister Romano Prodi, it seemed that we were just one step away from this much needed reform. Almost twenty years passed since the failure of that initiative, and the situation today is more or less as it was then. Meanwhile many changes occurred in the rest of Europe, leaving Italy further behind. While some countries contemplate experimenting with a radical option like an Unconditional Basic Income (see for instance Netherlands and Finland), in Italy there is no Guaranteed Minimum Income (GMI) comparable to other European countries. Welfare reform in the rest of Europe did not undermine the universal principle of unemployment welfare: no political party in these countries would renounce that. A GMI for the unemployed is not a new form of welfare that needs more testing and calibration. By adopting a GMI, the Italian government would not move into unknown territory, but simply introduce something that has been a central pillar of the European social model for decades (but also Australia and Canada, among others). The measure finds consensus across the political spectrum, from liberalism to nearly every section of the left, certainly the reformist left.
Research has proven that universal welfare forms like the GMI reduce dependency in favour of efficiency. They produce incentives to work and complement a culture of work, rather than denying it. IMF director Christine Lagarde underlined that if Italy wants to grow again, it needs to introduce a “welfare reform that institutes a universal unemployment subsidy”, to complement the recent measures introduced by the Jobs Act. The European Commission and the European Parliament also saw the introduction of a GMI as something necessary.
A common objection is that unemployment subsidies can increase illegal work. But in the rest of Europe the GMI works as a key barrier against illegal work. Employment centres can in fact monitor those who receive a subsidy, preventing them from working illegally. A small percentage of rule-breaking is to be expected, but this does not undermine the general efficiency of the mechanism. Because the GMI is a form of universalist welfare, it does not discourage job search, but rather increases incentives and opportunities for job seekers, be it by having the income to hire a professional resume service to help them, or by financially supporting them through these times. Leaving social assistance is easier because one has the certainty that a basic safety net is there if needed. Vice versa, time-bound subsidies produce a negative incentive: people become dependent on the subsidy and tend to work illegally or not work at all, until the subsidy is stopped. Universal benefits produce less distortions than selective ones.
Italy does not have employment centres of the kind found in France, Germany, UK etc. This is an item that the Italian government has already put in its agenda, and that needs to be solved. In an advanced economy, job search cannot be left to newspaper ads, word of mouth, or family acquaintances. A developed country needs to set up an efficient network of employment centres. To make them work, there is a need for universal unemployment welfare, or else mediation will always be conducted by other actors with particularistic effects unfairly favouring some groups over others.
There are two other arguments showing that universal welfare increases the willingness to work. The first is that international comparisons and empirical evidence show that universal welfare reduces risk aversion, and favours reskilling, mobility and individual entrepreneurship. The second is that if welfare is not clearly distinct from work, work itself becomes a form of welfare. These forms of work become a significant burden on state coffers, lead to welfare dependency, and undermine real work, because people that are assigned certain roles and tasks are not necessarily selected on the basis of merit.
We need to avoid adopting diluted mechanisms compared to other well-tested European examples. Welfare that is exclusively targeted at the very poor falls under these undesirable measures. It fosters dependency, and research shows that families in poverty, when receiving selective benefits, will continue to remain poor exactly to continue receiving benefits. As elsewhere in Europe, A GMI would only work if it is directed at individuals, rather than families, and is administered on a universal basis.
The Italian social protection budget is comparable in size to that of other European countries. But Italy spends much more than others in pensions, without actually having a better and fairer pension system. We know that this system needs adjustments. It is clear, however, that we cannot build a new intergenerational consensus without conducting a general overhaul of welfare. After WWII, Italy did not take up the option of adopting a universal unemployment welfare of the kind that, starting from United Kingdom, was adopted by all other European countries. A discussion took place in 1947 with the D’Aragona Commission. It is likely that for the same reason Article 38 of the Italian Constitution leaves open the option of introducing a universal welfare on Beveridge’s model. Article 1 of the Constitution does not impede the adoption of a GMI, but rather stresses the need for it. In the countries that adopt such universal forms, work culture is strengthened. A GMI is a safety net that enables the improvement of work, freeing it from the uncertainty of selective welfare benefits.
A reformist and modernising agenda cannot leave out such important changes. We understand the significant financial and political challenges faced by the Italian government. We appreciate the institution of a national fund to fight poverty and social exclusion, introduced in the 2016 Budget – even though available funds are limited, targeted beneficiaries few, and selection criteria problematic. Even if nothing more can be done at the moment, it would be important for the Italian government to commit to a long-term vision on these pressing issues. The path ahead is a shift away from the old principles of selective welfare, which has been made obsolete by the current economic realities.
The signatories
| Abatemarco Antonio |
University of Salerno |
| Addabbo Tindara |
University of Modena |
| Baldini Massimo |
University of Modena |
| Berton Fabio |
University of Torino |
| Bettio Francesca |
University of Siena |
| Boero Gianna |
University of Warwick |
| Cappellari Lorenzo |
University of Milano |
| Carpinelli Giovanni |
Fondazione Gramsci, Torino |
| Chiappero Enrica |
University of Pavia |
| Colombino Ugo |
University of Torino |
| Contini Bruno |
University of Torino |
| D’Amato Marcello |
University of Salerno |
| Dardanoni Valentino |
University of Palermo |
| Decoster André |
University of Leuven |
| Del Boca Daniela |
University of Torino |
| Destefanis Sergio |
University of Salerno |
| Di Tommaso Maria Laura |
University of Torino |
| Figari Francesco |
University of Varese |
| Fitzroy Felix |
University of St. Andrews, UK |
| Francesconi Marco |
University of Essex |
| Hartog Joop |
University of Amsterdam |
| Jantti Markus |
University of Stoccolma |
| Labeaga José |
University of Madrid |
| Laterza Vito |
University of Oslo |
| Lucifora Claudio |
University of Milano |
| Marchionatti Roberto |
University of Torino |
| Matsaganis Manos |
University of Atene |
| Musté Marcello |
University of Roma |
| Nese Annamaria |
University of Salerno |
| Ottoz Elisabetta |
University of Torino |
| Pacelli Lia |
University of Torino |
| Palea Vera |
University of Torino |
| Pasqua Silvia |
University of Torino |
| Peichl Andreas |
University of Mannheim |
| Peragine Vito |
University of Bari |
| Perali Federico |
University of Verona |
| Perazzoli Giovanni |
Roma |
| Piccoli Luca |
Università delle Isole Baleari |
| Privileggi Fabio |
University of Torino |
| Ramos Xavier |
University of Barcelona |
| Ravagli Letizia |
University of IRPET Firenze |
| Razzolini Tiziano |
University of Siena |
| Rettore Enrico |
University of Trento |
| Santillo Marco |
University of Salerno |
| Sau Lino |
University of Torino |
| Scacciavillani Fabio |
Oman Investment Fund |
| Somaini Francesco |
University of Lecce |
| Spadaro Amedeo |
Università delle Isole Baleari |
| Stancanelli Elena |
University of Parigi |
| Steiner Viktor |
University of Berlino |
| Strom Steinar |
University of Torino e Oslo |
| Trannoy Alain |
University of Aix-Marseille |
| Trivellato Ugo |
University of Padova |
| Tsakloglou Panos |
University of Atene |
| Tuomala Matti |
University of Tampere |
| van Parijs Philippe |
University of Louvain |
| Visentin Mauro |
University of Sassari |
| Widerquist Karl |
Georgetown University, Qatar |
| Devicienti Francesco |
University of Torino |
by Guest Contributor | Mar 8, 2016 | Opinion
By Liane Gale and Ann Withorn
for the Basic Income Woman Action Group (BIWAG)
Since 1909, International Women’s Day has been a day for recognizing women’s economic, political and social achievements. Yet over the past century, March 8 Women’s Day celebrations have revealed tensions between feminists, socialists and anarchists about the meaning of women’s roles in society. Feminists saw full equality through equal participation in the polity as the major way women would gain power. Socialists argued that full inclusion of women as workers within a self-aware proletariat was the way for women to achieve solidarity, and therefore power. Anarchists envisioned women’s liberation as based on learning new ways of living and loving, so that a new way organizing society would become possible.
Today, we view the Basic Income Guarantee (BIG) as a means to transcend such historic differences. BIG offers a way for women to achieve basic economic security outside of the labor market. It firmly denies that only certain activities done outside the home and community should be rewarded, much less be the chief source of one’s respect and social value in society. With a meaningful basic income as a secure base for living, women everywhere should be more able to live a life without fear, and of their own design.
If basic income could fundamentally change the lives and fates of women and girls, and with it the fate of humanity, then why is this not widely discussed in the community? One case in point is the appeal by Martha Beéry to the national media agency in Switzerland to invoke bias towards male views in a panel on basic income on national television in 2012 that only included men. The decision was in her favor, but the inclusion of women’s points of view in regards to basic income has been slow both in mainstream and social media. Despite this, recently we have seen a welcome surge of contributions about the economic and social realities of women, that often offer basic income as a solution to some of the disadvantages women face.
These analyses include calls to elevate the value of care work and other contributions to society (such as community work), which are underpaid or not paid at all, and as a result do not elicit much respect by a society which largely equates money-making abilities with importance and status. Organizations, such as the Care Revolution Netzwerk, that is active in German-speaking countries, Mothers at Home Matter from the UK, and initiators and supporters of the “Leap Manifesto: A Call For a Canada Based on Caring for the Earth and One Another” are all grassroots efforts to change the current narrative. With the Basic Income Woman Action Group (BIWAG), we strive to contribute to this international effort. To that end, we are facilitating national and international conference calls with interested members and maintain a BIWAG Facebook Group.
The program of the 15th Annual North American Basic Income Congress in Winnipeg, Canada (May 12-15) is especially attentive to women’s concerns and to enhancing women’s roles in the movement. More than half of the planning committee members are women. Dr. Felicia Kornbluh, professor of Gender Studies, writer, welfare rights advocate and member of the Vermont Commission on Women, will give a keynote on “Two, Three, Many Precariats: Basic Income and the Fight for Gender, Class and Disability Justice”. Two other keynotes will also be given by women. At least sixteen panel presentations and speakers will be directly addressing links between basic income and women. In addition, three BIWAG sponsored roundtables will allow serious time for discussion of “Women’s Roles within the Basic Income Movement”, “Basic Income and the Care-Centered Economy”, and “Basic Income’s Role in Ending Violence Against Women.” A panel on the Color of Poverty and speakers from the Aboriginal Council of Winnipeg will also bring much immediacy to the event.
The 2016 theme of International Women’s Day includes the goals of ending all forms of discrimination and violence against all women and girls everywhere, and we believe that a basic income would be a firm step into the direction of a more humane world for all.
To learn more about BIWAG or to get involved, please join our Facebook group or contact us at withorn.ann@gmail.com or liane.gale@gmail.com.
Recent contributions on women and basic income, and closely related issues and causes:
Nicole M. Aschoff, “Feminism Against Capitalism,” Jacobin, February 29, 2016.
Allissa Battistoni, “Why Women’s Work is Key to a Just and Sustainable Future,” Feministing, August 6, 2015.
Alyssa Battistoni, “Why Establishing a Guaranteed Income for All Can Help Prevent Environmental Catastrophe,”, Alternet (reprinted from Jacobin), February 19, 2014.
Madeleine Bunting, “Who Will Care for Us in the Future? Watch Out for the Rise of the Robots,” The Guardian, March 6, 2016.
Petra Buskins, “‘Flexibility’ Won’t Stop Women Retiring In Poverty,” New Matilda, October 30, 2015.
Liane Gale and Ann Withorn, “Basic Income Women Action Group”, Google Hangout, hosted by Marlen Vargas Del Razo, Living Income Guaranteed, Streamed Live, August 23, 2013.
Claire Cain Miller, “How Society Pays When Women’s Work is Unpaid,” New York Times, February 22, 2016.
Helen Ninnies, “As Rental Prices Rise, Women Stay in Bad Relationships to Survive,” Broadly, February 20, 2016.
Vanessa Olorenshaw, “Mothers at Home Matter and the Politics of Mothering – When Maternal Care is Taboo and Politicians Have No Clue,” Huffington Post U.K., March 17, 2015.
Meera Lee Patel: “Idea: All Work Deserves Pay,” Fast Company, January 20, 2016.
Ina Praetorius: “The Care-Centered Economy: Rediscovering What Has Been Taken for Granted,” e-book published by Heinrich Böll Stiftung, April 7, 2015.
Judith Shulevitz: “It’s Payback Time for Women,” New York Times, January 8, 2016.
by Guest Contributor | Feb 17, 2016 | News
The Globe and Mail, Canada’s main centrist newspaper, reported on Friday 5 February 2016 that a federal government minister “is interested in the idea of a guaranteed [minimum] income.” Mr. Jean-Yves Duclos, the new Minister of Families, Children and Social Development, said, “I’m personally pleased that people are interested in the idea.” Mr. Duclos has a mandate to develop a federal poverty-reduction strategy.
Mr. Duclos is part of the Liberal Party of Canada, which won a parliamentary majority in the October 2015 federal election. The Liberal Party’s progressive electoral platform enabled the party to replace the Conservative party on the left and win many seats previously held by the New Democratic Party (Canada’s social democratic party) on the left. Key election promises included deficit spending to stimulate economic growth, the legalization of marijuana, electoral reform, a concerted effort to tackle climate change and a comprehensive national poverty-reduction strategy. Their strong parliamentary majority has given the party a clear mandate to pursue this progressive agenda in earnest.
However, although efforts to reduce poverty feature prominently in the official Liberal platform, a guaranteed minimum income did not. It is therefore unlikely to form part of Mr. Duclos’ national poverty-reduction strategy during the government’s current four-year term. Nevertheless, The Globe and Mail suggests that Mr. Duclos’ comments could lead to the idea’s inclusion in a future Liberal Party election manifesto. His comments would also seem to have substantial support among Liberal Party members with the 2014 Liberal Party Convention producing two major policy resolutions on a basic income.
Furthermore, the introduction of a federal guaranteed minimum income might not be such a difficult sell with Canada’s provincial governments, all of which would have to participate in such an initiative. It was announced in January 2016 that Mr. François Blais, Québec’s new Minister of Employment and Social Solidarity, will work towards introducing a provincial guaranteed minimum income. Meanwhile, the Liberal Party of Manitoba has pledged to introduce two guaranteed minimum income pilot projects if the party wins the provincial elections in April 2016.
Written by: Jon West
For more details on this story see:
Bill Curry, “Guaranteed income has merit as a national policy, minister says,” The Globe and Mail. February 5, 2016.
Credit picture CC UNU-WIDER
by Guest Contributor | Feb 15, 2016 | Opinion
Funding basic income through taxation is costly. At the same time, low consumer demand is a major worry. The European Central Bank could kill two birds with one stone by giving money directly to citizens.
Guest post by Teemu Muhonen, originally posted on taloussanomat.fi
Translation by Petri Flander
Finnish social welfare agency KELA’s basic income experiment has got plenty of attention in Finland and elsewhere. This is not surprising: in recent years various proposals for a basic income have been submitted by a growing number of scientists, politicians and non-governmental organizations in several countries.
According to a study by the Municipal Development Foundation, 51 percent of the Finnish population supports basic income. Last year, even greater support was found on surveys in France and the Spanish region of Catalonia.
The popularity of unconditional basic income can be explained by the fact that it can be argued from various standpoints: the left is attracted to the idea of eliminating poverty and making citizens freer; the right wants to simply welfare benefits, and encourage people to get out of benefits and take up whatever work is available.
There are problems with basic income models that still need attention. The most common of which was brought up last week In an interview on the Finnish public broadcaster Yle, history professor Juha Siltala brought up one of the most common objections: “We should really consider a basic income that you can really live on. But who pays it then?”
When KELA hinted that they might pay up to 800 euros per month, unconditional and tax-free, to participants in their basic income pilot, Canadian professor James Milligan dismissed the idea as “typical fiscal nonsense.” According to Milligan, if the amount was given to the whole population, it would require doubling the Finnish tax rate.
But what if a universal basic income is funded by other means, in addition to taxation?
The ECB to the rescue
In recent years, the European Central Bank (ECB) has tried to support the eurozone’s lagging inflation through “quantitative easing” (QE), a measure used by other central banks as well. The ECB has been buying securities from institutional investors such as banks, using large amounts of fresh money.
So far, national economies have not responded as hoped: despite the increase in the value of securities, consumer prices have stagnated.
Last year the leader of the British Labour Party Jeremy Corbyn promoted the idea of “People’s QE” in which the Bank of England would channel money directly to citizens, not banks.
The proposal received wide support, and many people believe the ECB should follow suit. Even former IMF chief economist Olivier Blanchard praised the idea.
The expression that Corbyn used is misleading, however, because in his proposal the money is not channeled directly to the public, but to government, which then uses it to stimulate the economy through infrastructure projects and other measures.
Another model was suggested by a group of 19 economists, who signed a letter published in the Financial Times (FT) in March last year. They proposed that the money should be given directly to citizens of the eurozone countries. The idea was to use ECB money to give 175 euros per month to each citizen for 19 months.
Economist Milton Friedman once called this kind of payments “helicopter money”: it is as if the money is just thrown at people from the sky, with no strings attached. Effectively, what the FT letter proposed was a eurozone-wide unconditional basic income paid by the ECB.
One problem with helicopter money is inflation
If the ECB funds infrastructure investment and fiscal policy, it strengthens the position of states substantially. The impact of a pan-European basic income would be the opposite. It would transfer a substantial part of social security funding from states to the ECB. In addition, allocation of money would be determined by citizens, not governments.
The FT letter did not call for a permanent and comprehensive basic income. After all, 175 euros per month is a significant sum in the poorest countries of Europe, but not much at all in countries like Finland.
There are other problems. If the ECB pays a higher basic income, rising demand could lead to massive inflation, unless production of goods increased at the same pace as demand. ECB’s quantitative easing has inflated equity prices for a long time, but sharp increases in the prices of real goods are generally considered more harmful to the economy.
In addition, direct monetary payments to states and citizens would be incompatible with the EU treaties and further limit ECB’s independence.
Despite these problems, a pan-European basic income would have a distinct advantage when compared to a national basic income. A national basic income in countries that attract most migrants would make them an even more popular destination. A pan-European payment would equalize the differences between countries.
Two birds with one stone?
One model discussed by basic income activists would entail that the ECB pays the same amount to all European citizens. The countries with higher living expenses would top up their citizens’ basic income from their national treasury, or from the common EU budget.
Such an arrangement may sound utopian, as it would require a major revision of existing national social security frameworks, and probably a reform of the entire financial system.
But the reality is that the challenges faced by the current welfare arrangements and the economic system are reaching a crisis point. Many jobs have been shredded, and, as technology advances, returns from labor and tax revenues no longer increase as labor productivity rises.
Still, we need money to sustain consumer demand and fund social security. A pan-European basic income financed by the ECB could solve both problems. There is no doubt that we will see more of such discussions in the public sphere in the near future.
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Photo Credit CC European Central Bank
