Namibia – UBI success and institutional failure

Namibia – UBI success and institutional failure

1. Namibia – country background

A South West African state with a troublesome colonial history, Namibia has a population of around 2,5 million people and is one of the least populated countries in Africa due to its extremely dry climate. The country is rich in natural resources like – diamonds (annual value of mined diamonds around 1 billion US dollars)1 , uranium (4th largest producer in the world), gold, zinc, copper 2. Other important industries are fishing, agriculture and tourism.

Unfortunately for the majority of the Namibian people the benefits from an abundant national wealth are not equally distributed. Namibia ranks as one of the most unequal places on the planet where 50% of the population live on less than 5.50 USD per day 3 and in 2017 27% 4 were living below the poverty line. A place where people have not enough food to sustain their nutritional needs.

On top of poverty, hunger and the impact of climate change contributing to suffering, there are some additional challenges:

  • Unemployment rate 2018 – 33.4% where female joblessness is prevalent 5
  • HIV/AIDS epidemic – number one cause of death 6
  • Gender inequality and violence against women and children 8
  • Child forced labour and child trafficking 7

Children are trafficked within Namibia for forced labor in agriculture, cattle herding, domestic work, and commercial sexual exploitation. San children are particularly vulnerable to forced labor on farms or in homes. 7

The list goes on.

2. The Universal Basic Income Pilot Project in Namibia  9

In the context of the socio-economic situation described above The Basic Income Grant Coalition comprised of citizens’ organisations (the Council of Churches, the National Union of Namibian Workers, the National NGO Forum, the Namibian Network of AIDS Service Organisations, the Legal Assistance Centre, and The Labour, Resource and Research Institute) funded and ran a pilot project the purpose of which was to trial and study the application of Universal Basic Income in Namibia.

From January 2008 to December 2009 every resident of Otjivero – Omitara (about 1,000 people) received a monthly allowance of (N$80 = USD 4.5 ) which was paid regularly until March 2012.

The research had the following results:

  • social cohesion – the community established an 18-member committee to advise members on how to spend their allowance wisely
  • it attracted migrants who could benefit from the favourable environment. More sharing meant that the value of the monthly allowance dropped from N$89 (USD 5) per month in January 2008 to N$67 (USD 4) in November 2008
  • poverty dropped by 39% among residents who were sharing with migrants and 60% in cases where the allowance was spent only by the resident
  • income-generating activities like brick-making, baking of bread and dress-making jumped 15% and a local market was created as people had a bigger purchasing power
  • by November 2008 child malnutrition decreased 32%
  • people with HIV could afford better food and medication
  • school drop-out rate fell to almost 0%
  • healthcare became more accessible to residents as they could afford it
  • crime fell by 42%
  • the basic income grant empowered women and made them more secure as they did not have to engage in transactional sex services

In conclusion, the pilot project had a dramatic overall positive effect on the selected community. The Basic Income Grant Coalition calculated that the cost for nationwide implementation of unconditional universal basic income for all would be N$ 1.2 – 1.6 billion (USD 71 – 95 million) per year, equivalent to 2.2 – 3% of Namibia’s GDP (2019 – 12.37 USD Billion) 10

In short, UBI in Namibia was and is feasible. The missing component then and now remains the lack of political will to apply the project on a national level.

3. Government response regarding the pandemic crisis in Namibia

Following from the brief summary of state of affairs in Namibia and an example of a possible solution to the human suffering caused by institutional inadequacy and economic logic that produces inequality, I will now list the measures that the Namibian government has taken to tackle the health/economic crisis triggered by COVID-19.

1. Emergency Income Grant 11 – one off payment of N$750 (USD 45) for people experiencing financial difficulties caused by COVID. The government allowance should cover 749 000 people in need and will cost the government N$562 million (USD 34 million).

Some concern regarding the stimulus: 12

  • the sum is insufficient to sustain an ongoing lockdown and future economic inactivity
  • the grant is conditional – employed persons and people who already receive social benefits do not qualify being supported by this policy
  • to obtain the one off payment citizens must own a mobile phone and an ID number

The EIG is a self-nomination process. Therefore applicants are required to have, or make use of an active cell phone number, and a valid Namibian ID number.

Applicants must SMS their name and ‘EIG’ to 141222 to start the registration process, or dial *141*222#. After the approval of the application by the ministry, applicants will receive a token from the bank they have selected in the application process. 12

  • there is a considerable distrust among the population about potential problems with the distribution system and application process
  • the policy is not universal, it does not cover every single Namibian which means it fails to act as an emergency safety net for all

2. Tax-related measures:13

  • repayment of overdue VAT to companies, N$3 billion (these are funds the government already owes to VAT paying enterprises)
  • payment of overdue invoices for goods and services provided to the government – N$800 million
  • Tax-back loan scheme for tax registered and tax paying (PAYE) employees and self-employed affected by the pandemic.
  • Extended deadline for filing taxes. Mandatory payment date remains the same.

These measures are very far from a policy supporting the business community given the implications of the crisis.

3. Employment-related measures 14

3.1. Subsidy for employers in the construction, tourism and aviation sectors. Workers will receive 17% of their wage for 3 months.

3.2. Employers who are benefiting from measures should not be firing any of their workers or reducing their salaries with more than 50%

3.3. The programme will benefit 7,900 employers employing 65,420 employees. The budget amounts to N$150 million (USD 8 million) which is approximately 25% of the total wage bill.

3.4. Grants for workers affected by COVID-19. These are conditional application based stimulus that has the potential to help 56,000 to 117,000 applicants.

3.5. Government and business owners will be allowed to negotiate a temporary 20% drop in salaries.

How these measures can be interpreted:

  • insufficient funding of affected workers
  • conditions and administrative obstacles for receiving help
  • potential to undermine workers income for a long period of time
  • the policy does not cover all workers in Namibia

4. The Economic stimulus measures which will be administered by banks consist in: 15

4.1. Tax-back loan scheme for businesses and individuals

4.2. Agricultural and non-agricultural and small business loan programmes

Here the government enables the banks to make businesses dependent on loans which creates more instability by increasing debt in society. Hardly an adequate solution for the needs of business owners, workers and their families.

5. Water subsidy equal to N$10 million. This will enable water points to be kept open without people needing to use water cards.

Probably the bare minimum a state can do to prevent riots and social breakdown.

There is a general concern about administration and distribution of emergency funds based on past and present experiences. In a report called COVID-19 Emergency Procurement 16 by Frederico Links the author outlines issues with transparency on spending by government institutions which raises doubts about how much of the already unsatisfactory help will reach people at the bottom of the income chain.

Another report Analysis – Namibia’s National Budget 2020/21 17 comments on potential problems with the financial stability of Namibia and its economic future which has direct implications on the wellbeing of the Namibian people.

In conclusion, based on the information above:

  • Emergency spending to alleviate poverty and tackle social and economic inequalities was and is needed regardless of COVID-19.
  • The ongoing crisis requires working solutions based on unconditional, regular distribution of wealth for all Namibian people in order to sustain their individual sovereignty, dignity and human rights permanently.
  • The measures announced by the government are inadequate, insufficient and cruel as they don’t meet the needs of the population.
  • Basic Unconditional Income, proven by the BIG pilot project, is feasible and has the potential to create social cohesion, improve the local economy and bring back trust in existing institutions and political leadership.
  • To achieve the above the citizens of Namibia have the opportunity to unite and stand behind a clear demand for the implementation of Basic Unconditional Income for all.
  • All people have the right to determine their present and future. An unconditional basic income is what will enable them to fulfil their fundamental human rights.

Sources:

1 https://www.kimberleyprocess.com/en/namibia-0

2 https://assets.kpmg/content/dam/kpmg/pdf/2014/09/namibia-mining-guide.pdf

3 https://www.macrotrends.net/countries/NAM/namibia/poverty-rate

4 https://www.macrotrends.net/countries/NAM/namibia/hunger-statistics

5 https://tradingeconomics.com/namibia/unemployment-rate

6 https://www.cdc.gov/globalhealth/countries/namibia/pdf/namibia_factsheet.pdf

7 https://www.dol.gov/agencies/ilab/resources/reports/child-labor/namibia

8 https://evaw-global-database.unwomen.org/en/countries/africa/namibia

9 https://tradingeconomics.com/namibia/gdp

10 http://www.bignam.org/BIG_pilot.html

10 https://www.centreforpublicimpact.org/case-study/basic-income-grant-big-namibia/

10 http://www.bignam.org/Publications/BIG_Assessment_report_08b.pdf

11 https://openknowledge.worldbank.org/handle/10986/33635

12 https://theworldnews.net/za-news/namibia-concerns-over-emergency-income-grant

13 https://home.kpmg/xx/en/home/insights/2020/04/namibia-tax-developments-in-response-to-covid-19.html

14 https://home.kpmg/xx/en/home/insights/2020/04/namibia-government-and-institution-measures-in-response-to-covid.html

15 https://home.kpmg/xx/en/home/insights/2020/04/namibia-government-and-institution-measures-in-response-to-covid.html,

15 https://www2.deloitte.com/na/en/pages/tax/articles/COVID-19-Clarifications-on-the-SSC-economic-stimulus-package-announce-Tax-Alert.html

16 https://ippr.org.na/wp-content/uploads/2020/06/PTN-10-web-1.pdf

17 https://ippr.org.na/wp-content/uploads/2020/06/IPPR_2020_BudgetAnalysis.pdf

Here are some links to resources that might help one understand and relate better to statistical data:

  1. Living on one dollar a day – Documentary  
  2. The Boy Who Harnessed the Wind – Film based on a true story
  3. Namibia: Waiting out a deadly drought – UNICEF video
  4. “Anatomy of a bribe – A deep dive into an underworld of corruption. – Documentary
Belgium’s chance for a welfare system revision

Belgium’s chance for a welfare system revision

Like almost every European country, Belgium is facing declining trends of confirmed coronavirus cases. Its government is now looking for a balance between maintaining physical and mental health and restarting the economy. Nevertheless, Prime Minister Sophie Wilmes emphasized that even though the statistics are looking good, citizens must also remain careful, practice social distancing and – when possible – work from home. Belgium’s economic response included a series of tax reliefs relating to corporate income tax and individual income tax. In addition to that, social security authorities have implemented measures to reduce job losses. Those measures include extended deadlines for social security contributions and a guarantee of 70% continued salary. Those who are self-employed, and due to the corona virus are obliged to stop their work, can apply for a ‘replacement’ income. In addition, for regular workers, social security authorities are offering a supplementary sum to the employer, in addition to the continued salary, provided that the sum total (continued salary + supplement) will not be more than the regular salary. Businesses can benefit in various other ways from government support, such as extension of payment terms, loans, and other financial compensations, depending on the size and kind of business (start-up, small business, or big companies, amongst others).                                                                                             

Opinion

Now that it seems that, at least in Europe, the first wave of the corona virus is coming to an end, we can have a moment of reflection. Despite government support for individuals as well as companies, a lot of people still fall outside government support systems. As a result, a large group of people is suddenly without a job and thus without a stable income, and for those who were already on the margins, the impact of the crisis is even greater. To put it simply, the economic consequences of the crisis show how many workers cannot survive after one month without income. Not to mention those on welfare benefits for whom it has not been worth looking for a job for years.

The virus has changed the way we think about fundamental economic questions and gives the Basic Income debate a new dimension. A basic income is an unconditional periodic cash payment to all on an individual basis. It disconnects the relation between labour and income that today, in Belgium as well as elsewhere, is still the leading principle. Of course, there is a difference between the short term economic measures required by the coronavirus crisis, and long-term social and economic legislation: but maybe the crisis can pave the way to a revision of the current restrictive social welfare system.

Sources

Bruegel datasets

Worldometer

KPMG

Review of Charles Murray’s “In Our Hands: A Plan to Replace the Welfare State,” from 2009

This Review was originally published in the Review of Political Economy, December 6, 2009. It’s reproduced here as originally published.

In Our Hands: A Plan to Replace the Welfare State, by Charles Murray, Washington, DC, AEI Press, 2006, 230 pp., $20.00 hardcover ISBN 0-8447-4223-6

Charles Murray is not known as a friend of the poor. His 1984 book, Losing Ground argued that the government should ‘zero-out’ all programs designed to help the poor. His 1994 book, The Bell Curve (co-authored with Richard Herrnstein) used questionable methodology purporting to show that people are poor because they are less intelligent than average and that blacks are disproportionately poor because they are genetically less intelligent than whites. If racism is the belief that your race is mentally or physically superior to others, The Bell Curve is a racist book. Yet, his new book, In Our Hands: A Plan to Replace the Welfare State, Murray puts forth a plan to provide more healthcare, more retirement security and more actual income to the poor with no supervision or conditions attached.

            For those familiar with universal basic income, Murray’s proposal sounds very familiar. Murray calls it ‘the Plan,’ saying, ‘I have not been able to contrive a better name,’ but it is essentially a version of the program known as ‘basic income,’ which
has been widely discussed by political philosophers in the last twenty years. Basic income is a regular government-ensured grant provided to every citizen on an individual basis without a means test or work requirement. People with middle or higher incomes pay more in taxes than they receive in the grant, but everyone receives the grant in cash every month. A great deal of literature has appeared on basic income in the last twenty-five years. Basic income is similar to, but not quite the same as, the negative income tax, which was widely discussed in the United States in the 1960s and ‘70s. The major difference between the two is that the negative income tax is given only to net recipients and phased out for people who earn above a certain amount, so that no one both receives a grant and pays income taxes. Both programs are ‘guaranteed incomes’ in the sense that they are designed to ensure that everyone has a small but reliable income, and both programs eliminate ‘the poverty trap’ in which some people find that they can attain a higher income by not working than by working.

            Murray cites some of the literature on the negative income tax, but he appears completely unaware of the basic income literature, giving the impression that he reinvented the idea independently. When he discusses people who might drop out of the labor market, his example of what they might do is surf. This example is well-known in the basic income literature from an exchange between John Rawls and Philippe Van Parijs, neither of whom is cited by Murray. Is it a coincidence or is he merely neglecting to connect himself with that movement?

            The Plan is most similar to a little-known basic income proposal by Leonard Greene, and elaborated by Irwin Garfinkel, although this connection is probably coincidental. Both Murray and Greene propose canceling everything the US government is currently doing to support individual incomes and use all of that money to finance a basic income for every citizen. The Plan is not quite a universal basic income. Only people age 21 and over are eligible, but it is a basic income in the sense that it has no means test and it is given to everyone who reaches the age of eligibility regardless of income.

            Murray promoted the book and the Plan with several lectures in 2006. When questioned whether a guaranteed income is an affront to the work ethic, he responded, ‘You’re a conservative. I’m a libertarian.’ But make no mistake, Murray is profoundly conservative. His books have blamed the welfare state for everything that a conservative might find wrong with modern society, from welfare dependency though unwed motherhood to a decline in ‘man’s’ ability to craft a meaningful life. Many of the benefits he expects from the Plan align with conservative goals. He believes it will lead more people to attend church, more people to support private charities, and more of the poor to adopt the superior values of middle- and upper-class people.

            Many people were shocked that a man who wrote a book arguing to zero-out the welfare state would put forward a plan for a basic income and universal health care. But it should not be completely surprising. Murray was sympathetic to the negative income tax in his contribution to Lessons from the Income Maintenance Experiments; and in What it Means to Be a Libertarian, he wrote that some form of income guarantee was the next best thing to the complete elimination of redistribution.

            There is in fact a long history of free-market conservatives who have seen an income guarantee as a streamlined, conservative alternative to the complex, conditional welfare system. F. A. Hayek and Milton Friedman promoted the negative income tax on those grounds, and it seems to have been part of the motivation behind Richard Nixon’s watered-down negative income tax proposal in 1970. Most recently, Governor Sarah Palin pushed through a bill for a one-time increase in Alaska’s regular basic income (the Alaska Permanent Fund) from $2000 to $3200 per person per year. The free market appeal of an income guarantee is twofold. From the point of view of taxpayers, conditional welfare programs waste a large percentage of their budgets in overhead cost that could be saved under an income guarantee. From the point of view of the recipients, the rules and constant oversight of a conditional welfare system can be humiliating and oppressive.

            Murray’s earlier books give the impression he believes that the poor are unproductive, genetically unintelligent people with bad values who have babies just to get welfare checks. One might therefore wonder why he cares about freeing the poor from oppressive government supervision. The answer is that while Murray seems to believe capitalism is a near-perfect meritocracy and that the poor are genetically inferior, he honestly believes that the poor should be free and that humiliating supervision by government bureaucrats cannot make the lives of the poor better. This kind of thinking led Murray to reinvent basic income.

            This book—typical of Murray’s research—seems designed to give laypersons the impression of broad knowledge while having little concern with giving that impression to people who know the field. It is a thin volume with lots of numbers and footnotes but without a deep understanding of the research he cites. His discussion of the negative income tax is a case in point. He is aware that Milton Friedman supported the idea and that experiments were conducted on it, but he misstates what a negative income tax is and what the experimental results were. He gives the impression that a negative income tax has a 100% take-back rate, meaning that for each dollar earned privately recipients lose one dollar of their grant. If so, recipients who make money in the private labor market are no better off financially unless they get a job that pays more than the entire grant (pp. 8–9; 74). Almost no one who supports the negative income tax supports this draconian variant. Friedman supported the negative income tax largely because it could be designed to eliminate the work-incentive problems of conditional welfare programs, and none of the experiments tested a 100% take-back rate. Murray also implies that the experiments found evidence that large number of recipients dropped out the labor market. In fact, none of the experiments found evidence that anyone dropped out of the labor market. The relative decline in hours for the experimental group was 2–9% among primary wage earners and up to 20% for mothers of young children, but none of this relative decline represented anyone ‘dropping out’ of the labor market. It was instead attributable to people who happened to become unemployed taking longer to find their next job. Perhaps most importantly, the relative decline of work hours was not always an absolute decline. The largest predictor of whether recipients worked was not whether they were in the experimental or control group but the health of the economy. The people who conducted the experiments concluded that the work disincentive effects were small and did not put the viability of the program at risk.

            Murray has not been careful with the facts, but is his plan a good one? Is the Plan a good workable idea that people who actually have sympathy for the poor could support? The answer is mixed. It is small; $10,000 per year minus $3,000 for mandatory private health insurance minus $2,000 for possibly mandatory retirement savings with no additional provision for children’s healthcare. That is, $5,000 per year ($416.67 per month) if retirement savings is mandatory and $7,000 per year ($583.33 per month) if it is not mandatory—for each adult whether she lives alone or with children. A single parent will be able to sue for child support out of the grant to the noncustodial parent, and so might have access to something in the neighborhood of $833.33 per month for herself and her children. But even an adult with no dependents is well below the official poverty line of $9,359 if she tries to live on $5,000 a year. (Following Murray, I’m using 2002 figures.)

            Murray’s typically conservative response is that they can double-up with friends and relatives and they can all go out and get jobs at minimum wage. He calculates that when you add $583.33 to the income from a minimum wage job it would get most people—even single mothers with one dependent—out of poverty. He neglects to mention that this strategy involves mortgaging their retirement savings so that they will be more than $4,000 below the poverty line in retirement if they do this every year. He also neglects to mention that he is an opponent of the minimum wage. Since the whole idea of getting rid of the minimum wage is to enable employers to pay their workers less, we can assume that all of his calculations about how well off the recipients will be after they get these jobs are overestimates. He also neglects the very possibility that unemployment might exist, that the market may not be able to absorb the millions of new entrants to the labor market he hopes to see, and that most single mothers cannot work full time or in many cases even part time.

            Consider a single mother with three dependent children at ages that make it difficult if not impossible for the parent to work outside the home. Her poverty threshold is $18,307. If she’s on her own and retirement contributions are mandatory, her income ($5000) is less than a third of the poverty threshold. If she can effectively sue the father for his entire grant (an optimistic assumption), she can increase her income to $10,000. If she and the father both mortgage their retirement savings, she can get up to $14,000. That is probably enough to keep her family off the street, but it is still more than $4000 below the meager US poverty line. Murray suggests combining incomes is as a solution. If she cohabitates with another mother in exactly the same situation, their combined income is $28,000—still $1,600 below the poverty threshold for a two parent family with six children of $29,601.

            The grant is too small to give a dignified life to the poor without at least the addition of a child grant, but is it better than the current system? I have to admit that on this point, I am inclined to agree with Murray. As horrible as it sounds, in most states, TANF recipients work for less than they would get unconditionally under the Plan. Many people who aren’t eligible for TANF, SSI, or Unemployment Insurance get far less or nothing at all. Even the small grant of $416.67 a month can help many people get by if it is unconditional and tax free. The Plan would save many people from the utter destitution and homelessness that they experience in the United States today. On top of that, a retirement fund of $2000 a year put into a protected savings system would make for a better retirement than many Social Security recipients experience today, and $3,000 per capita could buy basic universal health coverage, solving one of the most important problems in American society today. If the Plan were put in place now, maybe we could eventually get the benefit increased to a decent level. Therefore, despite all of its faults, the Plan would be an improvement for many people living at or near the margins in the United States.

Basic Income: Remittances from Nowhere

Basic Income: Remittances from Nowhere

How a World Basic Income can be sort of mostly free.

The economic downturn associated with the coronavirus is causing a humanitarian and economic disaster. Now is the time to push for a World Basic Income (WBI) paid to every human on the planet. It should be high enough to cover the cost of living, at least in the developing world. This payment would not just stave off hunger and extreme poverty, but also work as a general stimulus for the global economy, which faces a potentially catastrophic contraction.

While the greatest benefits of this payment would be felt in the developing world, where the increase in income would be bigger in proportion to their current income, it would also provide important benefits to the developed world.

A WBI would pump demand into the global economy by raising the non-wage incomes of the population as a whole, including workers. This would reshape the global labour market, lessening migration pressures and the severity of cross border wage competition, because workers in and from the developing world, protected from absolute destitution, would be less inclined to work in appalling conditions for miserable wages.

There would also be a dramatic increase in consumer spending power in developing nations, which would increase the number of workers required to meet domestic demand for goods and services, meaning fewer still would be available to work producing exports to the developed world. At the same time the market for exports from the developed world would expand.

This would compound the original effect, and further strengthen the position of workers in the US “rust belt,” and equivalent populations in other developed countries, whose jobs would become harder to send offshore.

WBI would do this without the implementation of tariffs, which might spiral into a trade war, further contracting the global economy. A WBI is a mechanism that can achieve the same goals in terms of protecting developed world jobs and wages, without adding to the contractionary pressures that the global economy faces.

A payment like this is not a new idea, it even has a dedicated NGO, simply called “World Basic Income.” They propose a payment of $30 USD a month. Which they say could be funded using “rents” on global commons like airspace, and “international taxes” such as a carbon tax.

But it is a mistake to assume that we have to first “gather up” the money before we can pay it out.

Since the pandemic began, they are also starting to question this. Having recently pondered whether in “emergency times such as these, borrowing or currency creation could also be used to quickly generate the money needed.”

This is an encouraging sign. But they still seem to be of the view that money creation or borrowing as inherently problematic, if perhaps necessary given the current situation. This is the wrong way of thinking about it. Money creation and deficit spending are not signs of desperation, foolishness, or failure. They are necessary tools for good economic management, in relatively “normal” times as well as emergencies. It is not that, as it is sometimes put, “deficits don’t matter”, it is that deficits are good. The theory behind this is a little complex but it can be summarised as it is here by Cory Doctorow:

Government debts are where our money comes from. Governments spend money into existence: if they “balance their budgets” then they tax all that money back out again. That’s why austerity always leads to economic contraction — governments are taxing away too much money.

There’s one other source of money, of course: bank loans. Banks have governments charters to loan money that they don’t actually have on hand (contrary to what you’ve been taught, banks don’t loan out their deposits).

When there’s not enough government money in circulation, people seek bank loans to fill the gap. Unlike federal debts, bank loans turn a profit for bank investors. The more austerity, the more bank loans, the more profits for the finance sector (at everyone else’s expense).

The empirical case is pretty simple, and arguably even stronger: The US government has run deficits nearly every year since the early 30s. For all its current woes, the US is in a far better economic state now than it was then. In fact, some of the best years, like the “post-war boom,” were immediately preceded by the highest levels of deficit spending (the largest injections of cash into the real economy).

The same is true for most developed economies. Governments always promise budget surpluses, but rarely deliver. And that’s a good thing, because what they practice is better than what they preach.

So when it comes to a universal basic income, even in the “good” times, the best answer to the question: “how will we pay for it?” is that we will not pay for it.

At least not all of it, not directly, and certainly not upfront. If we do pay for it upfront, we suck as much money out of the economy as we pump in.

A “costed” or “revenue neutral” UBI plan would help protect the poorest from the effects of the crisis, but it would stunt the stimulatory effect we are also aiming to achieve. There would still be some stimulatory effects. Transferring income to poorer people leads to a greater portion of that income being spent, so the velocity of money (the overall rate of spending in the economy) increases and with it GDP. But expanding supply and velocity simultaneously, as a fiat-funded UBI could, would work much better.

In essence, we should just get the money the same way we ultimately get all money: We just collectively believe it into existence. This has the advantage that it doesn’t require us to convince or compel anyone to pony up in advance. And it would mean we could pay a higher WBI, starting perhaps at $1.90 USD a day, the UN’s “internationally agreed poverty line” , and then, when the sky doesn’t fall, rising further, perhaps to as much as five or ten dollars a day over the course of several years or a decade.

Of course, no one can predict in advance how people, and therefore the world economy, would really respond to a payment of this level. No one knows what the ideal level for a WBI is. But there’s no reason to think it is zero.

The global charity and advocacy organisation Oxfam does not back a WBI, but does explicitly recommend a kind of fiat money creation, or something very much like it. In a recent media briefing entitled Dignity Not Destitution it lays out suggestions for responding to the hardship caused by the pandemic. The plan includes the allocation of a trillion dollars worth of Special Drawing Rights, which are interest-bearing assets, a bit like treasury bonds, created by the IMF. SDRs are defined in relation to five major global currencies and can be used by nations to pay back debts to the IMF, or traded with each other for liquid currency.

By rapidly increasing the supply of this “paper gold”, as they did following the 2008 financial crisis, the IMF could help nations around the world increase their liquidity, allowing them to spend money to help the needy. This has also been requested by a number of nations and the IMF has said it is “exploring” that option.

Here we see a pattern emerging at the global level which resembles closely that developing at the level of national policy discourse.

Modern Monetary Theory advocates like Stephanie Kelton argue that the US government cannot run out of money any more than a sports arena can run out of points. But they do not support UBI, arguing instead for a Federal Job Guarantee. UBI advocates like Andrew Yang want a UBI but think they need to pay for it pretty much upfront with increased tax revenues.

But a growing cohort of thinkers are beginning to examine what happens when these herecies intersect. UBI advocate Alex Howlett is one of them. He coined the term Consumer Monetary Theory or CMT to distinguish his view from MMT. Another is Geoff Crocker, who talks of “Basic Income and Sovereign Money”. Martin Wolf, associate editor and chief economics commentator at the Financial Times, also backs both soft money theory and a UBI, as does Australian heterodox economist Steve Keen.

The four thinkers listed in the bottom right square all have unique perspectives, and among them only Howlett identifies their work with the CMT title. However it seems useful to me as an umbrella term for those who agree with MMT regarding the nature and constraints of government spending, but who promote a Basic Income rather than a Job Guarantee.

It is important to note that both MMT and CMT do think tax policies matter, just not in the ways we are usually told they do. One role they see for taxes that is relevant to this proposal is the idea that taxes demanded by a government in a specific currency help ensure the value and widespread acceptance of that currency, another is the way taxes help manage the build-up of currency and the amount of spending in the economy to prevent inflation.

In conventional thinking, taxes fill a bucket, the “government coffers”, and spending is a hole in that bucket, through which money escapes. In soft currency thinking, spending is the inflow of money, the bucket is a flower-pot — representing the economy — which requires frequent watering. Taxes are the drainage holes, there to stop the soil getting too saturated.

If we were to look clearly at the flowerpot representing the world economy, we would see the soil is bone dry. It is worst at the edges, where the dieback has already started, but the center, where the roots are thickest and thirstiest, is not far behind. The plant is starting to wilt. The good news is that the water is free. It is time to get the hose, attach a spray nozzle, and spray.

The Great Global Monetary Hack

The world lacks a true global reserve. The US dollar is the main currency of global trade, but that role is diminishing, and in any case it is managed by a government and central bank who are only mandated to pay attention to the needs of the global economy as and when these needs affect their domestic goals.

In terms of a truly global, globally managed, reserve, SDRs are the closest thing we’ve got. We cannot use them directly for a WBI, since they can only be held by nation states and other “designated holders”. But these are considered durably credible enough that their value held in 2008, even as the total stock increased roughly 10 fold, from around $20 billion to $200 billion. The additional trillion Oxfam have recommended be created, divided by 8 billion is $125 per person, or 34 cents a day for a year. It is not enough. But we’re getting somewhere.

Since individual human beings cannot hold SDRs, which are, formally, not money. We could issue a new currency, tied to these. A People’s Bancor, in honour of Keynes’s proposed global currency.

The basic framework would be:

  1. The IMF announces it will be holding an auction of SDRs starting in say, three months time, and continuing at regular intervals from then onward, that these auctions will be conducted using the new currency: the People’s Bancor.
  2. The IMF creates digital wallets for the citizens of all participating nations and starts to issue these new digital credits (which may be cryptographically minted) at regular intervals directly to every adult individual on the planet.
  3. Governments exchange national currency to obtain PBs. Either directly or by accepting them as a means of (partially) paying (some) taxes. This would cause businesses, individuals and exchanges to gain confidence in the new currency.
  4. Governments buy SDRs from the IMF with PBs, which are then taken out of circulation.

Poorer nations, especially, could be guaranteed a certain quota at a set price, separate to the portion auctioned in batches.

Another way to validate this currency would be by charging global taxes in it.

A United Nations could create a world tax authority and through it could demand taxes in this new currency. These should be demanded, at least at first, from the national governments themselves, who would thus be compelled to buy PBs using local currency.

So long as the monetary metabolism can be kept active, substantially more can be issued in currency than is collected in taxes.

A carbon tax is, of course, an important idea. And so is a tax on military budgets, if you think about it. This is a great opportunity to go after tax havens and the many billions held there illegitimately?

We must avoid this temptation to fix everything at once, and stay focussed. The number one priority is for these global taxes to validate the currency. And we need it to happen fast. We do not have time for nations to enter into complex multilateral bargains over the rules of such a system. We need something that is equally attractive to all parties.

What I suggest is that, at least at the start, we tax the money itself. At the end of each financial year, the government could be liable for a sum of PBs equal to, for example, 20 percent of the amount received by their population over the previous 12 months.

As it happens, this stands in stark contrast to the position taken by Howlett, who as I mentioned before coined the term Consumer Monetary Theory. He says that “tax revenue is meaningless” and that we should therefore focus on taxing the specific behaviours and phenomena we want to discourage. Since we want economic activity, money is the worst thing to tax. This is a rule I generally agree with, but this is one case (and there are others) where it makes sense to make an exception.

By removing the complications implicit in attaching these initial taxes to anything in particular, we remove reasons for various countries to say no. If we view the government as an extension of the population, which it rightly should be, then all we are asking them to do is accept a dollar, on the basis they will later have to pay back 20 cents.

Imagine a simplified example where a country’s population receives 100 PBs a year in total.

Here’s how that would play out over the next twenty years:

As the graph shows, the national stock of PBs would grow over time as the amount received by the population outpaces the amount the government has paid in global taxes. So long as the rate of taxation is less than 50 percent, this will be the case.

This rate wouldn’t, obviously, be something that we could “set and forget” but would be a policy lever, similar to central bank interest rates, which could be adjusted in response to real world results. If the currency starts to lose value, the rate should be increased, if its value is too high relative to national currencies, it should be decreased.

Such an agreement would be most perfectly championed by the G20, then implemented by the IMF and UN in concert, with the IMF issuing the currency and the UN collecting (and destroying) it.

But any group of nations collectively representing a significant chunk of world product could also create their own version of this through a treaty outside existing global structures. This currency club could grow gracefully, one new member country at a time. Countries should be free to opt out at any time, making joining the obvious choice.

It would have to have a central administrative office, with dedicated staff alongside observers and advisors from member nations working to regularly assess the effectiveness of the current settings, and adjust UBI levels, taxes due, the number and type of SDR sales (assuming IMF cooperation), and so on.

Perhaps the best thing about this plan is the lack of downsides. It is, I contend, counterintuitively plausible that national governments would sign up for such a plan, especially as the economic crisis, likely to be the worst in a century, deepens.

If it does not work, then the currency will be stupidly cheap and the participant governments will easily be able to get enough to cover their obligations.

If it does work, and the value of the currency holds, then their economy is experiencing a sudden inflow of valuable currency, equivalent to a steady and substantial increase in remittances. There would be, inevitably, some cost to the local governments, in that they would either exchange their national currency for PBs, or accept it in taxes (instead of their national currency). But every dollar, pound, yen, rupee or dinar spent in this manner would have many times the stimulatory effect of normal spending, since when you buy one PB, you validate the rest out there in circulation. They could also just just print the money with which to make these transactions, since their own citizens will in most cases accept this as payment.

Governments that do not want to do this, or could not for some reason (a lack of their own currency, for example) could simply introduce a new tax on the wealthy and/or high-income earners, payable in PBs. This would compel these better-off members of society to exchange some of whatever currency they have for PBs. The effect of this transfer would be similarly multiplied as the other PBs in circulation were validated by it. Whether it is stimulatory spending or this tax-driven redistribution, you get much more bang for your buck this way than you would usually.

If it works too well, and the new currency is valued too highly against local currencies, making it difficult for governments to meet their tax obligations without inflating their own currencies, that means we can print and distribute more, until the price of a PB falls (while the value of the basic income increases), or lower these tax obligations.

This plan will not solve every problem, but it would be the biggest economic stimulus, and the greatest step towards ending deprivation, so far in the history of humanity. It is of course optimistic to imagine that our leaders are capable of seeing clearly enough, and acting boldly enough, to set a plan like this in motion. But sometimes a crisis can bring out the best in people, and the economic crisis, which will extend beyond the pandemic, may not give them the option of sticking to conventional responses.

Written by: Austin Mackell

Finland’s basic income never failed, our ‘jobs’ did

Finland’s basic income never failed, our ‘jobs’ did

This past week, Finland released the final results from its two-year “basic income” experiment. The program produced a modest increase in working days among basic income recipients and noticeable improvements in perceived happiness and healthiness.

Is this a surprise? When governments give people cash assistance, of course, their lives will improve. And with financial stress alleviated, these recipients will still find productive uses for their time. 

Simply imagine the unearned suffering billions of people could have been spared if governments had implemented basic income prior to the pandemic and global economic depression. 

Basic income skeptics should consider which system failed when confronted with the current avalanche of suicide, descent into addiction, and hungry mouth these twin crises have created. But according to the government’s standard, Finland’s basic income experiment still “failed” because recipients only increased their working days by a week or so.

Let that sink in. Despite proof that the program improved basic income recipients’ physical and mental well-being, it was deemed a failure because it did not fix every aspect of the labor market in two years. Recipients worked more, but that apparently still was not enough. 

Maybe the standard by which success is judged is, therefore, the true failure.

Our current situation shows us that the government was dead set on keeping us in jobs at all costs. And the natural result of that obsession to “preserve work” is that governments are now bailing out corporations instead of their people.

Of course, well-connected businesses like airlines are bailed out first (and multiple times) as average people languish on the edge of financial ruin. Meanwhile, complicated schemes in the United States like the “Paycheck Protection Program” are designed to create the impression of modest job loss, since employees are kept tacked to their employer by way of payroll. But these “jobs saved” are meaningless insofar as many small businesses will immediately shutter from falling demand whenever the program ends. Many are zombie employers, animated by governments’ obsession with “jobs” over human wellbeing.  

Even increasing unemployment benefits with a $600 bonus has been a nightmare, having never gone to many informal workers like caregivers and mothers in the first place. The unemployed will now make every effort possible not to return to work. Unlike with basic income, where the payment is available unconditionally, people will lose their leisure time and $600 unemployment bonus when they accept their next job. 

Unemployment payments are also being used to threaten employees to return to work before the pandemic is even under control. In Iowa, the governor said unemployment recipients will be thrown off unemployment assistance if they do not return to work when lockdowns are eased: even if their workplaces are still hotspots for COVID. This means even more lives will be sacrificed on the altar of “increasing work” and “saving jobs.” 

In contrast, basic income would empower people to  make an informed decision whether it is safe to return to work without the loaded gun of economic self-destruction being held to their head. Governments should pay people directly instead of paying their employers. If they did, employers would have to meet the safety and pay standards of the people they hope to woo back into work 

Almost a year ago, I wrote that the era of “experimenting” with basic income to determine whether it causes “laziness” should end. This question is more often than not asked in bad faith by opponents of basic income, who ignore overwhelming evidence that it generally increases the number of hours recipients work: even leaving aside the productivity gains in those work hours, as people are given more freedom to choose how their labor is allocated.

When the article was written, Canada cancelled its basic income experiment and Finland released its first year of results. These experiments were deemed failures at the time. But the absurdity of that belief is clearer than ever before. 

We stand at the abyss, with the highest unemployment rates and deepest recession of our lifetimes on the horizon. And yet governments have doubled down on putting “jobs,” narrowly defined as roles serving corporate interests, over our wellbeing. This paradigm, by supercharging the economic fallout of the pandemic and forcing people back to work without safety rails in place, defies all logic.

Basic income never failed us. Our “jobs” did. 

By Tyler Prochazka and James Davis

The Prehistory of Private Property: A video introduction to the new book by Karl Widerquist and Grant McCall

The Prehistory of Private Property: A video introduction to the new book by Karl Widerquist and Grant McCall

This short video introduces the new book, The Prehistory of Private Property, by Grant McCall and me. The book examines the origin and development of the private property rights system and the experiences of peoples who have lived in other systems to debunk three false claims commonly accepted by contemporary political theorists. These false claims are: (1) Inequality is natural and inevitable, or egalitarianism is unsustainable without a significant loss in freedom. (2) Capitalism is more consistent with negative freedom than any other conceivable economic system. (3) Private property is somehow “natural,” meaning that when free from interference people tend to appropriate and transfer property in ways that lead to a capitalist system with strong, individualistic, and unequal private property rights.

The book presents a great deal of anthropological and historical evidence that show that all three of these claims are false: (1) Many societies known to anthropology have maintained egalitarianism and freedom. (2) The least free people under capitalism are significantly less free than people in societies with common access to resources. (3) The first people to “appropriate” property tend to share resources; the elite private ownership system was forced on the world by the colonial and enclosure movements beginning only about 500 years or so ago and not fully complete yet.

The book is not primarily about Universal Basic Income (UBI), but it attacks many arguments used against UBI and other forms of redistribution. It also makes a brief case for UBI in the very last chapter, as the video explains.

As a bonus, early in the video, if you look closely, you can see Alexander de Roo eating breakfast in the background.

Thanks to Ali Mutlu Köylüoğlu for inviting me to give this talk and for recording and posting it.

-Karl Widerquist, Morehead City, North Carolina, June 17, 2020