by Liam Upton | Jul 9, 2015 | Research
Abstract: Thomas Piketty’s recent book, “Capital in the Twenty-First Century,” provides a great deal of empirical support for the observation that the rate of return on capital (r) is greater than the growth rate of the economy as a whole (g); i.e. “r > g”. From this observation, Piketty derives two important insights: entrepreneurs eventually become rentiers, and except during unusual circumstances, inequality tends to rise over time. This paper views Piketty’s observation against the institutional setting that has prevailed over the period of his study and makes two additional observations. First, whether Piketty’s two insights follow from his observation depends not simply on whether r is greater than g, but on whether the difference between the two is greater than the consumption of the capital-owning group. The relative size of capitalists’ consumption and capital income is not obvious, and therefore, more evidence is needed to confirm the connection between Piketty’s observation and his insights. Second, the statement r has been greater than g is more accurate than simply r is greater than g. Whether r continues to exceed g depends crucially on the political and institutional environment in question. Economists tend to view one specific institutional setting, a version of laissez faire, as natural. But there is no natural set of property institutions, and those that have prevailed over the two centuries of Piketty’s observations are extremely favorable to capital owners. Awareness of the flexibility of potential property institutions raises many ethical questions and makes many tools available to address inequality—one of the most obvious being the taxation of rent on capital distributed as a basic income.
Karl Widerquist, “The Piketty Observation Against the Institutional Background: How natural is this natural tendency and what can we do about it?“, Basic Income Studies, 2015
by Citizens' Income Trust | Jun 22, 2015 | Opinion
Andrew Jackson and Ben Dyson, Modernising Money: Why our monetary system is broken, and how it can be fixed, Positive Money, 2012, 0 9574448 0 5, pbk, 334 pp, £14.99
A bank loan is a change in the electronic digits attached to my bank account number. The bank has simply created the money that it has lent to me. The message of this book is a very simple one: This shouldn’t be allowed. The only institution that should be able to create money is an independent public body.
Modernising Money recounts the history that gave rise to the current state of affairs; shows that 97% of money exists in the form of bank deposits; and discusses the factors that determine how much banks lend, and therefore the size of the money supply. Much of the money created by the banks buys assets that are in limited supply, such as houses, and it therefore creates price bubbles. Too little of it is employed as investment in the productive economy. If the loans are not repaid, then lending stops and a recession is the result. Interest on public and private debt transfers money from the poor to the rich and so increases inequality; and the payment of interest requires climate-changing economic growth: but attempting to reduce the level of debt reduces the money supply and can lead to recession.
Clear and persuasive diagnosis is followed by a clear and persuasive prescription. Banks should be prevented from creating money, and an independent body should be charged with creating money and spending it into the economy as government spending, tax reductions, debt repayment, payments to banks on condition that the money is lent to productive businesses, and direct payments to citizens. Chapters then discuss the transition between the current system and the new economy that would be created by the new method for creating money, and the impacts of the new system on democracy, the environment, household indebtedness, the banks, and businesses are debated. As the concluding chapter puts it, ‘the monetary system, being man-made and little more than a collection of rules and computer systems, is easy to fix, once the political will is there and opposition from vested interests is overcome’ (p.283).
In some ways the situation relating to money creation mirrors the one facing our tax and benefits systems. Both have evolved over time, both exhibit complexities, both are tangled up with a wide variety of other aspects of our society and our economy: and genuine reform of both is resisted because the transitions look difficult and the effects of change are difficult to predict. It is precisely these aspects of the two situations that make it so difficult to generate the necessary political will to create the necessary change. Both fields would benefit from Royal Commissions or similar wide ranging consultation exercises. In both cases, the international effects of making the recommended changes would be important matters for discussion, as would be the details of the transitions that would need to be managed between the current situation and the future situations envisaged by the authors of this book and by the Citizen’s Income Trust.
The book has no index, which is a pity: but otherwise it is a well-produced, informative and well-argued essay that deserves attention.
by Francisco Nobrega | Jun 12, 2015 | Opinion
The debate and protests over the importance of an unconditional basic income policy for our time have been spreading worldwide and gathering momentum. Here in Brazil we keep an open ear due to the success of conditional transfer policies (The Bolsa Família program) and also because we have a moot 2004 law that says that such universal and unconditional money transfer is to be inaugurated in Brazil, “in steps”. Most view Bolsa Família as one such “step”. I have been following the idea for over five years together with other activists, trying to implement a basic income pilot program here, in a small city. This is a distilled reflection of my current view about how to make utopia turn into a “protopia”, a term proposed by Kevin Kelly as a “gradual improvement in humanity” or a viable utopia.
The camp of supporters in the world is diverse and we can see two distinct and extreme interpretations of the idea:
One group sees basic income as a way to increase government through social welfare and “eliminate” work that they see as exploitative and envision complete maintenance of social services and centralized decisions, besides the monthly unconditional grant, independent from work.
Another group embrace basic income as a tool to drastically reduce government, replacing the social programs with the monthly grant independent of work.
These polarized views also disclose an important characteristic of the idea: it attracts people from the entire political spectrum, something that certainly will help future implementation. There is another surprising coincidence in all basic income visions reported in writing and video: the unanimous presentation of what I will call the “classical model”: the monthly grant will be bestowed upon all: rich, middle-class, poor and unemployed. I seldom met anyone who dared to challenge the idea of rewarding people with economic means and a job. To me this is in contrast with was in fact a strategy to eliminate poverty and the attached main evil of social welfare programs: the “poverty trap”. This is a phenomenon in which you punish economic success by removing the benefit as soon as someone is employed or becomes an entrepreneur. The poverty trap creates an incentive to stay put and avoid the risk of relinquishing the subsidy and face the competitive world outside.
A basic income payment is a right for everyone without a decent earning, whatever the reason. The logical justification is that society as a whole has been unable to provide opportunities for everyone either as an entrepreneur or an employee with the government or the private sector. Additionally the increasing efficiency in production, and the great advances in microelectronics, artificial intelligence and robotics are on the way to eliminating jobs on a massive scale. Brynjolfsson and McFee1 have shown that notwithstanding a continuous rise in productivity, the last two decades exhibit a marked reduction in job opportunities. Frey and Osborne2 released a very interesting study of 702 occupations, identifying many that are on the road to extinction due to the modern trends mentioned. In the US the authors estimate that 47% of jobs are at risk of being automated within a decade or two. This will add to the jobs already lost by “off-shoring” manufactories. Also a fundamental psychological barrier exists and resides in the deeply engrained notion that income has to be linked to work. People will have to overcome this notion just as we had to overcome certain prejudices in the recent past related to slavery, torture and the rights of women and minorities, finally embracing solidarity in the economic realm.
It is our duty as a civilized society to provide a monthly grant that will allow those without means to provide for their basic needs. But the classical model of basic income is unjust in handing over cash to those who are well off. This practice could be acceptable if we suppose that a given population was living within the same level of their means. Then the grant would be a benefit equal to all. In all countries we have a centuries-old history of inequality. In Switzerland just about one citizen in 13 is poor and needs help from the state. In Brazil about one-quarter of the population is poor and are presently helped by the Bolsa Família program. The cost of benefiting everyone will be a formidable barrier to implement the idea besides being unjust. The classical model was probably born out of our prejudice against people receiving money without pay. Apparently to appease the well off, the most indignant against giving “money for doing nothing”, the classical model wants to “buy” them as beneficiaries of the idea. But we have to give cash “for doing nothing” because the affluent societies of today have to be responsible for the lack of job opportunities. Giving cash to the needy and letting them choose what to do with it has been shown to be not only just but also cost effective. Among other pilot experiments like the one in India3 it is noteworthy to remember the success of giving cash to homeless people in London4 or home for the homeless in Utah5. The excellent results cost less than the usual city expenses for caring for the homeless in both cases. The winning GiveDirectly initiative in Kenia and Uganda also reinforces the idea of addressing the poor. Many other experiments exist with excellent results.
The social services network present in all countries should be used. The first measure I propose, considering Brazil, is to remove all conditionalities linked to Bolsa Família or to unemployment benefits. The bureaucracy should analyze requests from the needy, families or individuals without income. After entering the monthly grant system the newcomer would have a generous time interval (years) before the grant expires. This longer interval will remove the “poverty trap” long enough for progress out of the grant system. In case a lack of income remains, the person/family will apply, near the end of the allotted time, to stay in the system. So whoever is in need will be helped and whoever falls into economic need will be supported. The amount paid should be enough for the basic needs of the person/family. Recipients who want to advance economically will pursue whatever full or part-time jobs are available or even start a business. The basic monthly cash should be followed with provisions of communal facilities for support and education for the beneficiaries whenever appropriate. In parallel, some of the suggestions exposed6 in the “Get America Working!” study could be implemented to reduce the cost of having workers by means of a tax rearrangement that would drastically shorten the current payroll expenses and many more jobs could be created.
Reducing economic uncertainty will have multiple benefits for society: the mental health value of reducing the anxiety and stress linked to insecurity, the social environment will be safer, and most importantly, the poverty trap will be neutralized, unleashing the creative potential of men and women.
Francisco G. Nóbrega
MD, PhD, is President of the Municipal Council for the Citizen’s Basic Income in the city of Santo Antonio do Pinhal, SP, Brazil. francisco.nobrega@gmail.com
The opinions expressed here are solely those of the author. I thank Jim Hesson for improving the English and suggestions by him and Marina P. Nobrega.
1- Race Against the Machine – how the digital revolution is accelerating innovation, driving productivity, and irreversibly transforming employment and the economy. Erik Brynjolfsson and Andrew McFee, 2011, Digital Frontier Press, Mass, USA
2- The future of employment: how susceptible are jobs to computerization? Carl Benedikt Frey and Michael A. Osborne, 2013, https://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf
3- Basic Income: A Transformative Policy for India. Sarath Davala, Renana Jhabvala, Soumya Kapoor Mehta, and Guy Standing. New Delhi: Bloomsbury Publishing India, December 2014.
4- The London experiment: https://www.washingtonpost.com/opinions/free-money-might-be-the-best-way-to-end-poverty/2013/12/29/679c8344-5ec8-11e3-95c2-13623eb2b0e1_story.html
5- The Utah experiment: https://www.newyorker.com/magazine/2014/09/22/home-free
6- Get America Working! site: https://www.getamericaworking.org
by Citizens' Income Trust | Jun 5, 2015 | Opinion
John Hills, Good Times, Bad Times: The welfare myth of them and us, Policy Press, 2014, 1 44732 003 6, pbk, xviii + 323 pp, £12.99
The title says it all: the normal experience for most families and individuals is that there will be good times and bad times; and it is simply not true that society is made up of two relatively stable groups: one group of people that pays for the welfare state, and the other that benefits from it. The political polemic of ‘strivers’ and ‘skivers’ is precisely that: political polemic. At different points in our lives we might be net contributors or net recipients in relation to the welfare state, but there is nobody who does not at some stage benefit from its provisions. Another myth that the book challenges is that vast sums are spent on supporting people who are ill, disabled, or out of work, whereas in fact the budgets for the relevant benefits are small compared with the budgets for the pensions and healthcare from which all of us benefit.
The author employs a number of literary devices to get his message across. He writes about the different ‘wavelengths’ along which changes occur: for instance, the long wavelength within which we accumulate and then run down assets as we progress through middle age and into old age; and the short wavelength of coping with the loss of income precipitated by unemployment or illness. And throughout the book he follows the fortunes of two fictitious but recognisable families: the middle class Osbornes, and the working class Ackroyds.
If you don’t have time to read the whole book, then read the diagrams and text about these two families at the beginning of each chapter. The picture that they reveal is that both families benefit from the welfare state, and that taking the tax and benefits systems as a single system, the Osbornes do rather well out of it. But if you do have time to read the whole book then you will find that the mass of survey data discussed in the body of each chapter reveals a highly complex picture, an important characteristic of which is that what is normal for the Ackroyds is rapid and frequent change in their economic position. One week a government minister might describe them as ‘skivers’, and the next they would be praised as ‘strivers’. Another important characteristic that hits the reader time after time is the effect of initial social and economic capital on economic and social capital outcomes. The social mobility ladder seems to have some rungs missing.
Along the way, we discover how unequal predistribution is in the UK compared with most other countries, and how much harder our welfare state therefore has to work to generate a little more equality; we notice how much everyone benefits from the welfare state, particularly in childhood and old age; we discover how difficult it is for Working Tax Credits – and in the future how difficult it will be for Universal Credit – to respond to the rapid changes in income level experienced by an increasing number of households; we understand how current austerity measures reduce the incomes of low income households but largely protect the incomes of higher earners; and we find that wealth inequality is exacerbated by a tax system that rewards the already wealthy and a benefits system that takes household wealth into account when benefits are calculated.
John Hills is the Director of the Centre for Analysis of Social Exclusion at the London School of Economics, and this book is full of thorough analysis of social exclusion. A few questions are asked at the end about the ways in which future policy might take into account the book’s findings, but Hills leaves it to others to work out what should be done to rectify the situation that he discovers.
Of particular interest to readers of this Newsletter will be the numerous ways in which a benefits system based on a Citizen’s Income would respond to the problems explored in the book. In particular, a Citizen’s Income would cohere far better with rapidly gyrating earnings than means-tested benefits will ever manage to do. But perhaps the most important lesson that the book holds for anyone promoting debate on social policy reform is that however thoroughly robust evidence and logical argument manage to demolish myths perpetrated by the press and by politicians, those myths persist. So perhaps however good the evidence that a Citizen’s Income would be feasible, the myth will persist that it isn’t. If John Hills’ book manages to reduce the potency of the myth of them and us, then some of us might begin to hope that the myth of a Citizen’s Income’s infeasibility might one day lose some of its strength.
by Jessica Verheij | May 19, 2015 | News
The article contextualizes the idea of implementing a basic income within the American political and economic context, while emphasizing the importance of discussing basic income in America. Sam Beckens draws a line from increased poverty and growing inequality towards the possible benefits of basic income, while also pointing out what he sees as the two main biggest issues still to be solved: who is still going to work, and who is going to pay for this?
Sam Beckens, “America, We Should Talk About A Basic Income”, CheatSheet, May 8 2015.
