Basic Income as the Core of the Economy

by Guest Contributor | Oct 12, 2015 | Opinion

by George Spilkov

Outline of a framework for Basic Income at the core of an economic model based on free market economy

Adam Smith predicated his vision for a free market economy on the understanding that some constraints must be set in place to ensure all members of the society are self-sufficient and also, that they exchange only the surplus produce of their labour. He even went as far as to insist on division of labour being “designed” depending on the size of the market.

“When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all the surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for” – Adam Smith, “The Wealth of Nations”, Ch.3

But then Karl Marx (“The Capital”) convincingly explained that the condition for self-sufficiency cannot be satisfied, because workers have lost the means of production and are no longer self-sufficient. They depend for their survival on specialized division of labour that is imposed on them.

Is that the end of Adam Smith’s free-market or could such ideas be saved by the introduction of Basic Income? I believe the answer is “Yes, Basic Income can be the solution” and for the rest of this text I’ll try to explain why and how.

What is a human being to a business? For many businesses a human being is perceived as ‘a consumer’ at the output end of the businesses and as ‘a worker’ at the input end of the businesses. Therefore, it is in the best interest of the businesses to charge the humans as much as possible when they are consumers while paying them as little as possible when they are workers. The end result of such duality is, the humans suffer, businesses make profit; wealth concentrates, the people lose completely their self-sufficiency. Even now, we are making great strides in Intelligent Automation that, thankfully, is still managing to make good use of human talent, but for how long can this go on?

The matter can get much worse for the humans. Let’s just imagine a near future world (say about 50 generations from now) where automation has advanced to levels that resemble human-like Artificial General Intelligence (AGI). In such world, workers will no longer exist in any meaningful sense, because nearly all work will be done by a super intelligent automation. The businesses will perceive most human beings only as consumers. In such future, most humans will be jobless and, majority of us will have no means of production that can make us self-sufficient.

In our current society, humans without jobs (or income) become consumers without money. Consumers without money are useless to the businesses thus can be “discarded” (it means, literally wiped out of existence). How are we going to survive then? Perhaps, some of us could survive by reverting to violent redistribution of wealth (like war for example). Such approach creates too much suffering. The correct answer is we survive together, as one species, by introducing Basic Income. It must be sufficient to ensure the existence of a wide base of consumers who, in turn, will ensure the prosperity of the businesses and the society.

Do we need to wait for a future that has a human-like AGI before we consider Basic Income? Can we introduce it today and achieve great prosperity now? I believe the answers is, “Yes, we can have Basic income today” and we can have it in a way that is independent of political or technological circumstances i.e. a way applicable to any historical period. Let’s see how it can be done.

Who decides what a ‘dignified’ living is? Perhaps, a bunch of people, called a government, makes the decision while driven by their own ideas about what is ‘basic’ and ‘dignified’? Governments change, therefore, if the amount of Basic Income is determined by some political process (e.g. government’s budget justified by some ideology) then it is likely that Basic Income will turn into another tool to exert control over the people by applying control over the amount of BI.

Much more powerful approach is to implement Basic Income by using the free market as a base for estimating BI. Let’s call it Market Driven Basic Income (MDBI). The meaning of ‘Market Driven’ is that Basic Income will be an opposing market force to the leverage businesses (and other man-made constructs) obtain over the people due to their natural tendency to treat human beings with double standards (e.g. as ‘workers’ and as ‘consumers’).

MDBI can be defined as, the ‘most common’ outgoing spending amongst human individuals when seen as consumers and taxpayers. MDBI has to be derived from metrics that ‘capture’ only transactions from a person to a business, from a person to a government and from a person to any other ‘man-made societal construct’ (i.e. those metrics should reflect only the personal outgoing spending of the human beings, not metrics like gross output or GDI, or CPI, etc.). MDBI is a figure indicated, in part, by the free consumer markets showing what most individuals purchased the most and ,in part, by any other outgoing spending the individuals have (including taxes, fees, etc.).
With MDBI in place they (the businesses, the government, etc.) may even ask payments from us for the air that we breathe, it will make no difference to any of us as long as most of us have to make such payments, because such payments will become ‘common’ therefore “highlighted” to influence the MDBI.

Think about it, the more they (various political and economic man-made constructs in the human society) charge us (the human beings), for the goods and services they try to sell us or impose on us, the more they’ll have to pay us as Basic Income. The less they charge us the less they’ll have to pay us.

Finally, to transform MDBI into Basic Income (BI) some adjustment may need to be made using the formula,
BI=MDBI+DI,
where, DI is a certain amount of Disposable Income. It drives the direction of the economy and determines its minimum speed.

The free market ideas of Libertarianism (laissez faire capitalism) imply that three components must be in place in a free market; a free transaction, a free producer and a free consumer. We must ensure the existence of free consumers before we can talk about true laissez faire free market for human consumers. BI, defined by using MDBI, ensures the existence of free-consumers. On the free market, the freedom of the consumer can truly be measured only by the amount of Disposable Income (DI) a consumer has. The consumer freedom is the disposable income a human being can afford to waste on (or invest in) whatever they like without affecting their normal life (think of DI as gambling money of sort that drive the economy).

Also, the DI adjustment to BI is necessary because the businesses will begin to create a gap between prices of products affecting the MDBI and the next-up version of the same products. Therefore, the amount of DI adjustment should be set to breach about 80% of that gap. If the gap is allowed to exist the economy will stagnate without the DI adjustment.

What is the meaning of the ‘most common’ in the definition of MDBI? I am sure statisticians may have a very good answer to that question. My guess would be, first, apply some good clustering algorithm to determine the categories of people’s outgoing spending and then find out which of these categories are common for, let say, 80% of the people.

Why would people want to work if BI is defined as previously described?
Well, the incentive to work will come from linking the Minimum Wage (MW) to the Basic Income using the following formula,
MW= K * MDBI,
Where, MW = is the minimum wage;
K = is a multiplier to represent the incentive for people to get a job. (For optimal results I recommend K=2)
That makes the total minimum income for a working person equal to =BI+MW =BI+2*MDBI or expressed otherwise = (1+K)*MDBI+DI.

The presented model will outperform in simulations any other model. It will create a vibrant and agile economy generating optimal wealth while allowing dignified existence (defined by the free market) of all members of the society and will encourage people to seek employment. It will provide sufficient income(capital) to the lower end of the wealth ladder that will stimulate attempts for new small enterprises and business ideas.
The proposed model protects the human beings from any economic or political man-made constructs (systems of rules) regardless of the historical period or the technological development.
Market driven Basic Income could be implemented within 1-2 years, because much of the data necessary to determine the MDBI is already available in some form. It is just a matter of interpreting the data for the purposes of BI and also making small adjustments to the existing laws.
In a long term, perhaps, people can declare their outgoing spending by using a ‘spending card’ of sort which logs all outgoing payments (something like ‘electronic receipts and costs logger’).
For the remaining of this text, let’s try to predict some of the expected effects of introducing MDBI and the model’s sensitivity to influences.
What will be the reaction of the government and businesses to the market driven approach to BI?
MDBI avoids government involvement in determining its amount thus making BI independent of political or moral ideologies. It will make the government feel less oppressive to the people.
It is in the government’s best interest to keep the MDBI as low as possible. That means the government will seek to apply high taxes to a small groups of people and entities (i.e the rich) instead of smaller taxes to a wider groups of people (i.e. the poor).
MDBI may incentivize the government to extend the free social services (like free educations, medical care, etc.) in the hope that it will reduce the outgoing spending of the people thus reducing MDBI while allowing the government to be in control and work for the people.
The government will have to adjust its budget policies not to some ideological dogma about what people should or should not do. Its budget policies will have to be directed towards ensuring the funds for Basic Income Guarantee defined by the market preferences of the people and the economic and technological realities of the current, or any other, historical period.
Introducing Minimum wage (MW) linked to the BI will cause the businesses to respond by providing cheap goods that will cover the common needs (so they will pay lower wages), and then there will be a version of the same goods but at a higher price. Such response does not matter to the people, because if the people choose to use their DI for the more expensive goods then those goods will eventually become ‘common’ and therefore will affect the MDBI.
Some businesses will have to restructure their capital into new types of businesses. Those businesses that cannot remain competitive will have to close. Jobs will be lost. However with the newly found spending power many people may decide to start their own businesses. Other businesses will flourish because people will be able to purchase more of their products. That will create jobs.
Many companies, for example, like McDonald’s , will flourish under the new MW and BI. They will have higher labour costs which they will transform into cost per burger. However, the new relative cost per burger will be less compared to the new purchasing power of their customers. People will purchase more burgers and the profit for McDonald’s as absolute value will not change much. Also, their client base may increase if the product they sell is desirable and competitive.
After the introduction of BI the Supply and Demand principle will continue to work but without the leverage the businesses currently have over the human beings.
Finally, let’s look at a hypothetical worst case scenario involving MDBI where businesses actively act, hypothetically, against the idea of linking BI to MW. Let say most businesses decide to close in order to protect their wealth, resources and the means of production that they own and control. That will create massive unemployment and shortage of resources. Most unemployed people may rely only on BI for their survival. If most businesses close it will cause artificially created demand resulting in empty shops and insane prices. Consumers will stop purchasing thus driving BI down. However, people need at least, food, water and shelter. They will be willing to spend their entire BI to cover those needs. If no business is willing to provide those in sufficient quintiles then the government must temporary revoke the sanctity of ownership for the very wealthy. That means, moving wealth down the wealth-ladder to those who are willing to provide products on the market to cover at least the basic human needs for sustenance and shelter. That will restart the economy.
Such hypothetical scenario is the only time when the government must interfere with the private wealth generated by the free market.
In all other cases the government does not have to do a thing (apart from figuring out ways of collecting relevant amount of taxes to cover the BI as indicated by the free market).
Since the model does not discriminate against human age and circumstances it will allow for healthy young adults to accumulate somewhat more capital (disposable income) over the early years of their lives which they may chose to invest in projects/businesses or specialized education when they become more mature and experienced.
For people with addictive habits the government will continue to provide advice, help and control (if necessary) related to the use of their BI.
Given enough time the proposed market based model for BI and MW will reduce the wealth gap and will redistribute wealth to resemble a Gaussian curve of distribution (i.e. most wealth in the hands of most people a.k.a. it will create a strong middle class). Also, it will create agile economy that fully utilizes the human potential. It will make it more difficult for businesses and governments to exert economic, political and behavioural control over the human beings thus making the society more democratic. It will create diversity thus strength in the face of adversity.

In a world where “Space is the final frontier” we should try to create economic and political constructs that rise above simplistic views about our human nature, constructs that see our species as one sentient organism capable of reaching the stars and making the Universe our playground.

Disputing Citizenship, a review

by Citizens' Income Trust | Oct 5, 2015 | Opinion

John Clarke, Kathleen Coll, Evelina Dagnino and Catherine Neveu, Disputing Citizenship, Policy Press, 2014, viii + 214 pp, hbk, 1 4473 1252 9, £70, pbk, 1 4473 1253 6, £21.99

The authors of this book come from the UK, the USA, Brazil, and France, and in all of these countries they find evidence for their major contention: that there is so much conflict over the keyword ‘citizenship’ because citizenship is a focus for conflict within society – which of course makes conflict over the idea different in each of the four countries. Citizenship therefore has no fixed or ‘proper’ meaning, but instead has a diverse history of complex meanings – click here to learn more about citizenship and immigration laws.

In recent years, the broader definition of what it means to be a citizen of a particular location have changed. For example wealthy investors can now acquire Dominica citizenship by investment real estate. Other locations around the globe also offer similar citizenship by investment strategies and motives.

In their first chapter the authors ‘recentre’ citzenship to the margins of society where people do not experience the full benefits of their or others’ understandings of citizenship.

Citizenship is both exclusionary and aspirational, the object of desire and the product of dispute, as well as a dispute in itself. (p.49)

In the second chapter they ‘decentre’ citizenship by showing how its connection to a variety of social actors decentres it from state governments and bureaucracies. Citizenship therefore becomes less of a legal status and more of a discourse about the relative strengths of different political and social actors. The authors might usefully have mentioned the Scottish independence referendum as a location for conflict over citizenship and – whichever side had won – as a decentring of citizenship from Westminster.

The third chapter shows how diverse the many locations of citizenship discourse are, and how this means that the concept is always under construction and never in any sense fully defined. The UK in particular represents a patchwork of levels at which citizenship is exercised and contested: the UK, its four separate nations, local government, and such institutions as schools: and here we see most clearly the authors’ understanding of citizenship as a social process rather than as a legal status (which for most people living in England it is only in an ambiguous form anyway, because we are the subjects of a monarch and without a legally defined citizenship – except for immigrants who have passed the citizenship test and attended a town hall ceremony and are therefore in some ways more ‘citizens’ than the rest of us).

Given the authors’ agenda it is no surprise that the book is ‘undisciplined’, by which the authors mean that it does not fit neatly into such disciplines as political economy, but instead wanders across disciplinary boundaries in order to understand the conflicts around citizenship and the context-specific nature of understandings of it. Where the authors do find coherent theories of citizenship (for instance, Marshall’s), they show that such theories are as context-specific as the conflicts around citizenship.

This book is seriously interesting to those of us committed to debate on the desirability and feasibility of a Citizen’s Income – whether or not we call an unconditional and nonwithdrawable income for every individual a Citizen’s Income or a Basic Income – because a nation state’s definition of citizenship will influence who in that state’s territory (and outside it) will receive a Citizen’s Income, and the granting of a Citizen’s Income will affect that nation’s understanding of citizenship. Means-tested and contributory benefits systems fragment the population of a country. A Citizen’s Income would go to every legal resident (and perhaps in some cases to people living abroad), so citizenship at every societal level would inevitably become more inclusive.

The ways in which benefits systems are determined by a country’s diverse understandings of citizenship, and the ways in which a benefits system in turn contributes to understandings of citizenship, would be a fascinating future project for the authors of this book.

[This review was first published in the Citizen’s Income Newsletter, 2015, issue 3.]

Social Rights and Human Welfare, by Hartley Dean, a review

by Citizens' Income Trust | Sep 17, 2015 | Opinion

Hartley Dean, Social Rights and Human Welfare, Routledge, 2015, xiv + 194 pp, 1 138 01310 0, hbk, £95, 1 138 01312 4, pbk, £32.99

Hartley Dean will soon be starting the process of retiring as Professor of Social Policy at the London School of Economics, and this book is a worthy summary of his lifelong involvement in social rights and human welfare, first as a welfare rights adviser in Brixton, and then as an academic.

The first chapter discusses the evolution and characteristics of social rights. The second summarizes much of the material in Dean’s 2010 Understanding Human Need, and, in the context of a discussion of inequality and poverty, understands social rights as the articulation of human need. The broad range of Dean’s treatment is particularly visible in chapter 3 on ethics and social rights, where he discusses a variety of ethical theories, categorizes rights-based perspectives, and asks that ‘welfare’ should again mean wellbeing. The fourth chapter deals with a variety of challenges to the idea of social rights, and particularly the neoliberal challenge, that social rights compromise property, civil, and political rights, and the post-structuralist challenge, that social rights imply state control.

The book turns from a more theoretical to a more practical treatment of social rights at chapter 5, on the meaning of, and prospect for, global social rights. Here the broad canvas reveals even more clearly the tension between rights founded on universal principles (‘doctrinal’ rights) and rights based on experienced and expressed needs (‘claimed’ rights). Chapter 6 examines rights to work and to subsistence, and some possible relationships between them: and in this context Dean discusses arguments both for and against universal benefits. Earlier in the book he had constructed a typology of competing perspectives – liberal, moral authoritarian, communitarian, and social democratic/democratic socialist – and probably rightly sees universal benefits as fitting most easily into the liberal and social democratic/democratic socialist understandings of social rights.

Chapter 7 tackles rights to shelter, education, health, and social care. Throughout the chapter we discover conflicting rights – for instance, between the rights of parents and/or children in relation to education), and also throughout this chapter we encounter the complex relationship between the right to satisfy needs (for health, knowledge, shelter, etc.) and the right to government services designed to satisfy those needs (healthcare, education, social housing, etc.). Chapter 8 discusses rights of redress – a civil right that assumes such social rights as legal aid.

The final part of the book is titled ‘rethinking social rights’. In the cause of alleviating global poverty, chapter 9 explores the complex relationship between social rights and social development; and chapter 10 returns to the understanding of social rights as the articulation of human need and as the social means for satisfying it. Dean challenges T. H. Marshall’s construction of history, in which civil and political rights preceded social rights, by suggesting that we were social beings before we were political or civic beings, so in practical terms there were social rights before there were ever civil or political rights; and he goes on to show how, in the future, social rights will be as much a global phenomenon as a national and local one, and that the international human rights framework will be a significant factor.

Writing an index is not an easy task, and no index is perfect: but perhaps one word that ought to have been in this index is ‘contested’. It is a major theme of the book that ideas are contested: that is, that different interest groups in society will create their own definitions, ideas and processes, in order to satisfy their own needs, and that these definitions, ideas and processes might severely compromise other groups’ abilities to meet their needs.

The concept of contestation is just one example of the breadth and the depth of the discussion. The depth of the treatment as a whole suggests that the book would serve well as the textbook for a module on social rights and human welfare, and its breadth suggests that it would be a useful resource for an entire master’s degree on the subject. A complex agenda is well handled, and it is impressive how both depth and breadth are achieved without loss to either.

While Hartley Dean will soon be retiring from his full-time post at the LSE, we hope that he will not be retiring from the kind of thoughtful engagement with the theory and practice of social rights and human welfare of which this book is persuasive evidence.

[This review was first published in the Citizen’s Income Newsletter, 2015, issue 3.]