by Guest Contributor | Nov 5, 2012 | Opinion
What would you call a national leader who knows a simple policy that could be implemented at no additional cost that would end poverty, but who refuses to advocate for or even to support that policy? Willfully ignorant? Ideologically blind? A sociopath?
In a campaign speech in Cleveland, Ohio, on October 24, Paul Ryan, the Republican Party Nominee for Vice-President of the United States of America, criticized the Obama administration’s ideological approach to dealing with poverty, placing it within a half-century of liberal attempts to alleviate poverty, stretching back to at least Lyndon Johnson’s Great Society. Ryan stated that the war on poverty had been won by poverty. As specific proof of the failure of government intervention against poverty, Ryan stated, “Just last year, total federal and state spending on means-tested programs came in at more than one trillion dollars. How much is that in practical terms? For that amount of money, you could give every poor American a check for $22,000.”
The Republican ticket believes they can reduce taxes by 5 trillion dollars, increase military spending by 2 trillion dollars, keep Social Security and MediCare spending at current rates, and reduce the national debt all by closing tax loopholes and eliminating deductions. So their math should not be automatically assumed to be correct. But to be charitable, I will do so anyway.
According to the United States Department of Health and Human Services, the poverty rate for a single individual in the 48 contiguous states is $11,170 for 2012, and $23,050 for a family of four. And if sending every poor person a check for $22,000 were administered through the Internal Revenue Service in people’s federal income tax returns, it would be a lot simpler and cheaper than the IRS’s administration of the Earned Income Tax Credit, one of the many means-tested programs that would presumably be eliminated to pay for the $22,000 payment. Even if the extreme work disincentive of an all-or-nothing grant were nearly eliminated by reducing it to a mere $12,000 and making it universal but with a 50% take-back rate, it would still be much simpler than the EITC. So Paul Ryan just explained how the United States could literally end poverty by fiat without spending any more money than it already is and with a massive savings in bureaucratic spending. So is this what the Romney-Ryan ticket proposes to do for America?
No. This explanation for how to end poverty was used only to show the ineffectiveness of the current government approaches to poverty. But Ryan did not actually propose ending poverty via this method in his speech. Neither he nor Romney have ever proposed anything like the plan he described to end poverty. In fact, in this speech, the closest thing to an alternative vision Ryan offered for dealing with poverty was to suggest school vouchers. He claimed the way for people to escape poverty is through education, and noted that he and Romney supported educational “choice”. Data from the famous SIME-DIME basic income studies suggest that Ryan has the causal relationship between escaping poverty and improving educational achievement backwards. A basic income was shown to be a highly cost-effective means of increasing grades for children in the families studied.
Is Ryan really so sociopathic? A more charitable, and more likely, explanation is ideological blindness. Ryan may actually be bothered by poverty, but he likely views “income redistribution” as simply wrong. In this, his thinking would be similar to that of Thomas Jefferson, who understood intellectually that slavery was morally wrong, but who also believed it to be morally wrong for the state to take a person’s property. The mutual mistake made by Jefferson and Ryan is the belief that “property” exists as a moral imperative created prior to either mutual agreement or imposition by threat of force.
The convention of property is a very good idea that most often enhances both economic incentives and personal freedom. But a convention is all that it is, and when certain forms of property interfere with economic incentives or personal freedoms, those forms of property need to be eliminated or reformed. The nation of England has traditionally treated titles of nobility as forms of personal property, but when the United States was founded, we eliminated such forms of property from our existence. Nine decades later, we eliminated the form of property known as slavery from our existence. Current forms of government created property such as land titles, patents, and shares in government chartered corporations are probably still on balance good ideas and do not need to be eliminated entirely. But they still benefit the few who utilize them at the expense of the public who created them. Demanding that such forms of property be reformed to require full compensation to those who are displaced is not asking for handouts from the makers. It is asking for payment from the takers. It is demanding justice.
by Citizens' Income Trust | Oct 16, 2012 | Opinion
Neil Fraser, Rodolfo Gutiérrez and Ramón Peña-Casas, Working Poverty in Europe: A Comparative Approach, Palgrave Macmillan, 2011, xx + 342 pp, hbk, 0 230 29010 5, £60
This data-packed book is one of a series of publications to emerge from the EU-funded Programme on Reconciling Work and Welfare in Europe (RECWOWE). The programme’s context is the tensions between work and welfare –
the tension between employer demands for more labour market flexibility and citizens’ need for economic security; the tensions between the increased participation in paid work and the importance of family life, the greater fluidity in family relationships, and the greater flexibility in the labour markets; the friction between quantity and quality of the jobs to be created, between job creation and maintaining or improving the quality of employment and finally the conflicts raised by the need to adapt (industrial) social protection systems to new labour market structures (p.xviii)
and the programme’s task is to understand the relationship between work and welfare in the many different national contexts across Europe. This book’s task is to understand in-work poverty, and in particular the institutional and policy factors which affect it. The editors identify as particular worries the growing segmentation and casualisation of employment and the downward pressures on the wages of low-skilled workers (p.3).
The first part of the book offers comparative statistical analysis of the situation across Europe. Amongst the conclusions are that in the UK in-work poverty is caused both by partners’ low labour market participation and by low wages (p.32) and that in an era of high unemployment active labour market policies cannot on their own prevent poverty.
The second part contains chapters on various countries. The chapter on the UK concludes that working poverty is rising, that it is due mainly to low work intensity (p.91), and that means-tested in-work benefits have kept in-work poverty down to average European levels, which our earnings inequalities would otherwise have taken us above.
The third part of the book tackles cross-cutting themes and finds high mobility (in-work poverty is often transitory and recurrent) (p.199). Studied as individuals, women more often suffer in-work poverty than men (a fact not often noticed because so many women are in households with men) (p.229), that standard of living inequalities correlate closely to individual wage inequalities (p.246), and that in-work poverty is higher amongst non-EU migrant workers than amongst migrant workers from within the EU (p.271). A chapter on the effect of tax and benefits policies on in-work poverty finds, unsurprisingly, that means-tested benefits mean that higher earnings often don’t translate into higher disposable incomes (p.281). It also suggests that there is a trade-off between redistribution and employment incentives, and finds that in-work benefits can cause a particularly acute disincentive problem for a household’s second earner, resulting in adverse effects on the incentive structure for couple households (p.302). The authors find that incentives are not an important determinant of employment rates amongst the low-skilled. In countries where work pays the least, in-work poverty is lower because general anti-poverty policies reduce in-work poverty as well as out-of-work poverty, and that in-work benefits most effectively increase employment and reduce inequality where wage inequalities are high. The authors ‘question the political pertinence of an instrument whose effectiveness is greatly reduced when approaching its apparent objective’. It is stating the obvious to suggest that in an economic downturn the priority should be generous universal unemployment benefits (p.302).
In their overall conclusions, the editors find labour market activation policies to be expensive and relatively ineffective, and the UK’s in-work means-tested benefits expensive and a source of disincentives, particularly for a household’s second earner: ‘Research … does not indicate a strong effect overall on employment levels in spite of claims to ‘make work pay’. This is likely to be affected by other aspects of the institutional context, notably benefits for those not working and the conditions attached to them.’ (p.314)
This comprehensive and thoroughly-researched book quite rightly offers no simple political programme for the reduction of in-work poverty. What it does offer is a sense of the complexity of this policy field, and a source of information and properly tentative conclusions which anyone attempting to develop policy in the field really ought to read.
by Guest Contributor | Jul 2, 2012 | Opinion
At the North American Basic Income Guarantee Congress in Toronto, which I attended in May 2012, Charles Karelis, author of The Persistence of Poverty, demonstrated what is wrong with much thinking about poverty, using a simple analogy. Suppose you are stung by a bee, and you are offered enough salve to relieve the pain of that sting. Most people would consider that daub of salve to be worth quite a bit. Now suppose you have 7 other bee stings. Will you still value a daub of salve sufficient to relieve one sting as much as you did when you had only one sting? If you think about it, you will value that one daub less, because it will do nothing to relieve the 7 other stings that remain. Now suppose with these 8 stings that you are given salve for 7 stings. Now you have increased motivation to relieve the one sting that remains, because that additional daub will free you from pain. This simple example is an important exception to a widely accepted principle of economics, the principle of declining marginal utility (PDMU). According to the PDMU, the more you have of something, the less each additional unit is worth at the margin. For example, after you have had one piece of cake, the second is worth less to you than the first, and after two, a third is worth even less. PDMU applies well to what Karelis calls “pleasers,” like the dessert example. But it does not apply to what he calls “relievers,” like the sting salve. In the case of relievers, the more you have of something, the more an additional unit is worth at the margin. The utility of that last daub of salve is worth more to you, not less, than the first daub, because the last daub is the one that gets you out of misery.
Now it turns out that many of the goods that matter to poor people are relievers, not pleasers, or they are hybrids, functioning like relievers when one has less than enough, and like pleasers once one crosses a threshold of sufficiency. Transportation is an example of a hybrid. If you have a 20-mile journey to work, you are not apt to pay bus fare for the first mile of the journey, leaving 19 miles to go on foot. But you might well be willing to pay bus fare to relieve you of the last mile after having walked 19. And transportation beyond what you need declines in value.
Poverty means troubles, and like multiple bee stings, these troubles drown each other out. Relief from one problem will not necessarily be pursued by someone if she is left in other troubles. If we keep this in mind, Karelis argued, we can explain much of the behavior of poor people, not as due to some character defect, but rather as what any reasonable person would do in such circumstances. Consider low work effort. If money from work were a pleaser then the first dollar should be the most valuable, and a rational person should be eager for work, no matter how poorly paid. But if money from work is only a reliever, as it is for someone in poverty, then that first dollar won’t be worth much, like the first daub of salve, since it leaves one in a sea of troubles.
Or consider a failure to save. Saving makes sense as a means of deferring consumption, and as a way of insuring for unexpected shocks to one’s income from layoffs, illness, emergency home repairs, etc. But when one’s current consumption is taken up with basic needs, the value of deferred consumption is much less. And it may be more rational to address the ups and downs of income shocks than to try to smooth out these shocks through saving. Going back to the bee sting analogy, suppose you are getting two stings a day, but have only enough salve for, on average, one sting per day? Are you going to relieve only one sting every day, or relieve two stings, every other day? The latter makes more sense, but it is the opposite of the smoothing out strategy that saving makes possible. Yet it is more reasonable, given that one is dealing with relievers.
What are the policy implications of this analysis? Karelis argued that a guaranteed income would be counterproductive for people who are not poor, as it would undermine work motivation. However, a negative income tax, guaranteeing income up to the poverty line, would actually increase the incentives for a poor person to get out of poverty. It would supply the reliever goods up the point where the additional unit of income is worth more, and so in pursuing it one is stepping out of poverty, not remaining stuck in it. The poor are just like everyone else, except that they have less money. Once policy makers begin to understand this, we may begin to shift from our current counterproductive policies of punishing the poor and blaming them for their condition, to an effective strategy that will get people out of poverty.
For further reading, see Charles Karelis, The Persistence of Poverty (Yale University Press, 2007).
by Yannick Vanderborght | Sep 19, 2011 | Opinion
Japan’s social security system until now has been dependent on support from corporations and employers. Due to Japan’s present economic circumstances, however, they have become unable to endure such burdens any more. Basically, the aim of private corporations is to earn profits from their businesses and pay taxes from the profits. They are not intended to play the role of financiers for community welfare systems. Such expectations to them are, by the nature, unreasonable. Alternatively, I would argue that it may be reasonable for the government to directly secure people’s lives.
The causes of poverty are joblessness, inability to work due to illness or other conditions, low wages even in employment, and other reasons. Although Japan’s unemployment rate has been increasing during the recent economic stagnation, it has stayed at around 5 %, low when compared with those of other developed countries whose unemployment rates are around 10 %. Meanwhile, Japan’s poverty rate, as often pointed out, is close to that of the United States among the developed countries. This means that there are many “working poor” (low-paid employees) in Japan. This phenomenon has been supposedly impermissible in developed countries, because evidence of capitalism’s advantage when compared with socialism is that people willing to work are employed and paid enough to enjoy decent lives. One may be poor because he/she is lazy or ill. The former is deemed as an example of self-responsibility. The latter can be easily remedied with measures by the government. Thus capitalism functions well. This has been the basic justification for capitalism.
Costs of useless works
Let’s think the matter through simply. To be poor is to have little or no income. If so, the government should directly provide cash aid to the poor, i.e. the government pays basic incomes at a certain level to everyone. This is the most assured way to eliminate poverty in a country.
One may argue against this by saying that everyone would quit working to earn money, or that because working creates one’s self-respect and discipline, such a scheme would ruin the mechanism forming society.
Such abstract discussions are not useful. Let’s look at what the government has been doing. It has been promoting public works projects in order to maintain local employment. Let’s take the Yamba Dam project for example. When one looks at the huge bridge footings built near to the dam-building site, one may suppose that a large number of jobs have been created during the building of the bridge. As a matter of fact, the total amount of budget for this project is 460 billion JPY [around 5.4 billion USD](*), expended appropriation of 320 billion JPY [around 3.8 billion USD] and backlogged of 140 billion JPY [around 1.7 billion USD]. Further more, additional budget of 100 billion JPY [around 1.2 billion USD] is needed to continue its construction. In reality, however, almost all of the budgets have been spent on steel and concrete. In spite of this huge amount of budget, the dam’s utility or necessity is still a focus of discussion. Even in such a large construction project, local construction businesses have little involvement. Complex jobs can only be performed by talented persons. Such talents should have been utilized for other more necessary projects. The costs of useless projects performed by talented persons are much higher than not having them work at all.
(*) Translator Note: The conversion rate is set at 1 USD=85 JPY.
Or, let’s track back to China during the Great Cultural Revolution. It took superior capability for people on both sides: people who survived the rough time in the fear of being purged as anti-revolutionaries; and on the other hand, people who tried to move up the ladders in the oppressing force. Their talents were spent on useless activities and contributed to nothing to increase the wealth of the country. It becomes clear by comparison between the poverty of China during the Cultural Revolution and the great increase in wealth produced after the Cultural Revolution. Useless works are more sinful than doing nothing.
One may argue against me, saying that I am trying to convince readers of a general issue by presenting extreme examples. When you examine the public works projects throughout the nation, however, you will admit that I am not presenting the case of the Yamba dam project as an extreme example. The state would be much better off directly providing people with incomes rather than designing and implementing useless works projects expending excessive budgets.
In my view, because the Japanese constitution in its article 25, in fact, provides that “All people shall have the right to maintain the minimum standards of wholesome and cultured living”, people’s incomes should be ensured unconditionally. Although article 25 requires ensuring a subsistent level of life, it does not require doing so by increasing other people’s burdens.
Japan Has Sufficient Revenue for Direct Payment of Basic Incomes.
Whether for or against Basic Income idea, it is natural for people to question if we at present have the revenues to directly provide basic incomes. Therefore, I will answer this question first. The Japanese government used use to try to ensure people’s living by forcibly creating public works programs, providing aid for agriculture and small businesses and so on. There are, of course, policies to ensure the right to a living, such as welfare public assistance and others. How much budget is allocated to these policies? If such budget were allocated to direct provision of incomes to people, how much could we benefit? (My following estimation is based on the budget for the FY 2009 unless otherwise noted.)
The central government’s budget for public works within the general account was 7 trillion JPY [around 82.6 billion USD]. When including budgets for the same purpose within the special account and municipal governments, i.e. on the basis of National Economic Accounting, the total budget amounts to 19.6 trillion [around 231 billion USD] (FY 2008). The budget for agriculture aid within the general account amounts to 2.6 trillion JPY [around 30.7 billion USD]. Municipal governments had agriculture expenditure of 3.9 trillion JPY [around 46 billion USD], according to a survey by the Ministry of Internal Affairs and Communications published in 2007 (the budgets referred to hereafter are derived from the same source). Because most of the central government’s agriculture budget is allocated to subsidies for municipal governments’ agriculture aid, it is natural to assume that the total budget for agricultural aid in Japan amounts to around 3.9 trillion JPY [around 46 billion USD]. The budget within the general account for small business sheltering amounted to 200 billion JPY [around 2.36 billion USD], along with the municipal governments’ budgets for the same purpose of 4.9 trillion JPY [around 57.8 billion USD]. The welfare-public-assistance budget of the central government amounted to 2.1 trillion JPY [around 24.8 billion USD] along with 18.7 trillion JPY [around 220.7 billion USD] for social welfare expenses. These budgets of 47.1 trillion JPY [around 555.8 billion USD] were expended, in effect, to help the poor. Let’s suppose that we cut the budget by half and allocate the half, 23.6 trillion JPY [around 27.8 billion USD] for financing basic incomes for people. Furthermore, 2.4 trillion JPY [around 28.3 billion USD] of the public expenditure for unemployment insurance can be added to the revenue. Thus, 26 trillion JPY [around 306.8 billion USD] in total, could be used to directly ensure basic incomes for people.
Setting the level of a basic income and its grounds
According to the Comprehensive Survey of Living Conditions (2007), the number of households with annual incomes under 1 million JPY [around 11,800 USD] is 2,980 thousand; 5,620 thousand under 2 million JPY [around 23,600 USD]. The per capita income in average of the households under 1 million JPY was 380,000 JPY per month; 870,000 JPY [around 10,300 USD] under 2 million JPY [around 23,600 USD]. Based on an estimated average head-count in a household, there were 3.9 million people with an annual income of 380,000 JPY [around 4,484 USD]; 9.65 million people with 870,000 JPY [around 10,266 USD]. When we assume that a half of 9.65 million people had an annual income less than 870,000 JPY, the number of people with an annual income under 870,000 JPY was 8.73 millions. (9.65 million/2 + 3.9 millions = 8.73 millions).
The 8.73 million people might have an annual income over 380,000 JPY [around 4,484 USD]. Therefore, we need to pay 8.73 million people 490,000 JPY [around 5,782 USD]. It is the gap between 870,000 JPY and 380,000 JPY. Its total cost is only 4.3 million JPY [around 50.7 billion USD].
To counter the criticism that any basic income would damage people’s work incentive, we would be better to design a system in which people who are paid subsistence basic incomes may earn additional income through their jobs. In my sample system, if a person who is paid a basic income of 70,000 JPY [around 826 USD] a month earns 50,000 JPY [around 590 USD] a month through his/her job, he/she is taxed on only the earning of 50,000 JPY [around 590 USD] at the rate of 30 %, leaving 35,000 JPY [around 413 USD] other than 70,000 JPY [around 826 USD] at their hand as a net income. Let me proceed to a more detailed design of the system and an estimation of the cost.
Basically, the annual income of every person will be {(his/her earning×0.7) + (given basic income of 840,000 JPY)} a year. People without their own earnings will be paid a basic income of 840,000 JPY. Every one will be taxed on their own earnings at the rate of 30 %. If their own earnings reach 2.8 million JPY [around 33,000 USD], they will have to pay a tax of 840,000 JPY. This equals the amount of their given basic income of 840,000 JPY [around 99,100 USD].
Here, I set the level of the basic income at 70,000 JPY [around 826 USD] a month (840,000 JPY a year [around 9,900 USD]). Let’s compare this amount with the existing cash payment for welfare. Under the present public assistance system, a married couple living in Tokyo receives 190,000 JPY [around 2,220 USD] a month including housing allowance. Wiping out this benefit to substitute it with a basic income will greatly reduce the amount of their benefits.
This reduction can be justified by the following reasons. First one is the relatively high level of current Japanese welfare public assistance. It is higher than the equivalent benefits in UK, France and Germany by 20 % to 30 %. (See my “Why is Japan poor?” Tokyo, Shinchosha Publishing, 2009, p.92). The present level of welfare public assistance is 120,000 JPY [around 2,160 USD] for a single person, 190,000 [around 2,242 USD] for a married couple. If these benefits are replaced with basic incomes of 70,000 JPY a month, single persons’ income will be reduce to 60%, married couples to 70 %, of the present level. The reduced levels of benefits are almost the same as the above exemplified countries. Secondly, the real coverage rate of the welfare public assistance scheme in Japan is much lower to stay at only 0.7 % of the total population. Professor Toshiaki TACHIBANAKI at the Doshisha University estimates that 13 % of the Japanese population lives with incomes below the criteria of the welfare public assistance system. (See his “The Gap Society,” Tokyo, Iwanami Shoten Publishers, 2006, p.18.) Even at the modest level, it is an urgent task to institute a basic income scheme to cover as many people as possible in need. Thirdly, it is evidence of the high level of Japan’s welfare public assistance that the so-called “Hinkon [povery] Business” is now thriving in Japan, in which criminal groups provide small rooms for poor people, mostly homeless people, and facilitate them to apply to and obtain welfare public assistance, and then poach large portion of the benefit as a commission and room rent.
A Concrete Framework of a Basic Income scheme
Here, I present a basic income scheme which the government would directly deposit 840,000 JPY [around 9,912 USD] as a basic income every year in the account of every adult regardless of marital status or number of nonworking dependents. In return, almost all tax credits under the present income tax systems, including basic allowance, and others for spouses and dependents would be cancelled. The existing “Children Allowance” scheme would continue, however the Dependent Children Allowance would be cancelled. As for those over 65, the existing pension systems would continue to cover them. (The basic proportions of the existing pension systems, the integration of which is now being debated, should be financed by tax revenues. But this issue is to be discussed elsewhere.) Thus, all Japanese adults between 20 and 64 (74.76 millions of the Japanese population of 127.5 millions as of 2009) would be given basic incomes and it would resolve the poverty problem of Japan. The total budget for this scheme to rescue people from poverty would be 63 trillion JPY [around 743.4 billion USD]. Next we will look at a national income survey.
According to the “National Economic Accounting 2008” published by the Cabinet Office, the total employment income in 2008 was 262 trillion JPY [around 3.09 trillion USD], and the total mixed income was 17 trillion JPY [around 200 billion USD]. (Mixed incomes consist of fruits from self-employed workers’ assets and their own work.) If the government taxes on this 262 trillion JPY at the rate of 30 %, 79 trillion JPY [around 932.2 billion USD] will come into its revenue. The gap between 79 trillion JPY and 63 trillion JPY needed for the basic income provision is 16 trillion JPY [around 188 billion USD]. This 16 trillion JPY equals the total revenue of the government from the individual income taxes at the present level. In the case of a household formed by a husband with an annual income of 5.6 million JPY [around 66,080 USD] and a wife with no earnings, they would be paid 1.68 million JPY [around 19,800 USD] in total per year as a basic income, and would pay the same amount of income tax (at the rate of 30 %). Their income tax would be zero in effect. Under the present tax system, however, the same husband is entitled to a deduction for employment income, spouse, dependents, and a basic deduction. Thus, his tax burden is only 100,000 JPY [around 118 USD] or more. As I mentioned earlier, we already have 26 trillion JPY [around 307 billion USD] coming from cutting expenditures for the public works projects and subsidies for agriculture and small businesses, welfare public assistance, and the public burden for unemployment insurance. With this revenue, a basic income scheme is affordable enough in today’s Japan.
The estimated financial costs for each income class are shown in the table below. The indicated incomes are not those of households but individuals. Under my proposed basic income scheme, everyone from the age of 20 to 64 would be paid 70,000 JPY per month or 840,000 JPY per year in their bank account regardless of their marital status. There would be no dependents exception in the tax system any more. 12.6 trillion JPY [around 148.7 billion USD] would be paid to 14.97 million persons with no income. 5.8 trillion JPY [around 68.4 billion USD] would be overpaid to the class with incomes under 1 million JPY. This amount is the difference between the basic income (840,000 JPY) they will get and their tax duty at the rate of 30 %.
Although it entails a budgetary cost of 15.6 trillion JPY [around 184.1 billion USD], this basic income scheme would wipe out the welfare public assistance and greatly curtail the budgets for public works projects, and aid for small businesses and agriculture. The basic income scheme is affordable with expenditure of 15.6 trillion JPY, significantly lower than current 26 trillion JPY [around 306.8 billion USD] for these existing schemes and works. The basic income scheme would also prevent intervening in the labor market such as extreme increases of the minimum wage and prohibition of labor dispatch services. This is because workers’ income would be secured by the basic income scheme.
The difference of 10.4 trillion JPY [around 122.7 billion USD] between 26 trillion [around 306.8 billion USD] and 15.6 trillion JPY [182.9 billion USD] would be available for many other objectives: support for the aging population, financial rehabilitation, income tax reduction, national economic stimulus and so on.
