by Karl Widerquist | Mar 14, 2018 | Opinion, The Indepentarian
This essay was originally published in the USBIG NewsFlash in May 2009.
The global recession has been spreading and deepening for nearly a year. It could become the worst downturn since the Great Depression of the 1930s, and it has captured nearly all of the attention we, our media, and our leaders pay to economic issues. Perhaps we’re paying too much attention to it. I want to convince you in this editorial that a recession—even a major depression—is not an economic problem of the first magnitude. Our most pressing economic problems are distribution, and they exist whether we are in recession or not. Recessions appear to be a major problem primarily because we allow existing distributional problems to get worse during recessions.
To see my argument, imagine that you lived through the entire Twentieth Century. You were born on January 1st, 1900 and died exactly 100 years later on January 1st, 2000. During all of that time, you were a member of a representative American family of three with an income equal to the average U.S. income for a family of that size.
I have included figures below of average income per person and per family of three for the entire Twentieth Century. The appendix includes a table with the background data for these figures as well as some information about the percentage changes you’re looking it. Don’t fear all these numbers. I’ll just ask you to glance at it and take a closer look at a few important ones. These figures are “adjusted for inflation” meaning that they are reported in 2008 prices. It is notoriously difficult to adjust for inflation in a world in which the prices of different goods are changing at different rates, new products are being introduced, and old products are being discontinued. Adjusting for inflation is much more subjective than most economists let on, but these figures represent our best guess about how to do it.
Financially, your imaginary family did awfully well during the Twentieth Century. A simple glance at the graph shows that your family’s income goes up and down, but mostly up. Your family’s income started at about $20,000 in 1900. It rose sporadically to reach $136,000 in 1999. That an increase of more than 577 percent—almost six times what your family made the day you were born. In the early years you could not have afford a computer, television, and many things we now take for granted, but your family’s $20,000 income would have been more than enough to pay for a home, for food, and for clothing for the whole family. At no time in that 100 year period would your family have had any difficulty securing its basic needs, and you were able to consume many luxuries as well.
Figure 1: GDP per family of three for the Twentieth Century
THIS FIGURE FAILED TO UPLOAD.
Figure 2: GDP per capita for the Twentieth Century
THIS FIGURE FAILED TO UPLOAD.
Your income didn’t rise every year; it fluctuated with the business cycle. Glance down the third column of the appendix table. That shows the percentage change in your income from year to year. The years when your income dropped (shown in bold) are the recession years. In the first half of the Twentieth Century, the business cycle was volatile. Your income could go down 9 percent one year and up 10 percent the next. But if you look at the graph, you see that the only downturn that looks terribly significant was the period of 1930-1933, when over four years your family’s income declined from by nearly 25% from $34,093 to $23,607.
You might be tempted to think that 1945-1947 was worse because your income declined by a greater percentage in a shorter time. To see that this isn’t so, you have to realize that there is a lot this table doesn’t show. I doesn’t show how hard you are working, how much you want to work, and what you’re working for. You had a great increase in your income during the years 1940-1945, but that was largely because you were working extra hard for the goal of winning the Second World War. The decline from 1945 to 1947 mostly reflects that you no longer needed to work so hard because the war was won. Your income in 1947 (after 3-years of decline) was still more than 25% percent higher than 1940 and 85% higher than in 1933. You were actually doing just fine in that year.
The depression was different. You didn’t want to work any less in those years, but as a representative American, you were unemployed 25% of the time in 1933. This would have been difficult for your family. You might have had to sell some of your luxuries or move into a smaller home. But your inflation-adjusted income was still more than 16 percent higher than when you were born. If you could feed, cloth, and house your family in 1900, you could do so in 1933 and you could have spent all of your additional income on luxuries that you couldn’t afford in 1900. As a representative American family, you were not in financial distress even in the depths of the Great Depression. There would have been no reason for a member of your family to stand in a bread line or head to California in search of work as a migrant farm laborer.
After 1950, the business cycle became even less of a problem for you and your family. You experienced the occasional 1 or 2 percent decline, but such a small decline would have been barely noticeable, especially with your income being 300% or 400% higher than a few decades earlier. The worst recessions such as in the mid 70s and early 80s caused less than a 3 percent drop in your income. That might have slowed your accumulation of savings or caused you to put off buying a new luxury for a year or two, but no more than that.
The current recession might well cause national income to drop by 6 percent this year. Suppose it goes on, and we experience a decline similar to the Great Depression, say lowering national income to 20 percent less than it was in 1999. That would bring the income of our representative American family down to $109,509—higher than in the boom year of 1987. That means, even if we suffer the worst depression since the 1930s, we will still have a greater technical capacity to feed, clothe, house, and provide luxuries our people than we did in the boom year of 1987. If we dealt with such a crisis sensibly, it would affect only our consumption of luxuries, not necessities.
These facts illustrate the point that I’m trying to make: if we keep in mind the truly important economic issues, recessions are something we can easily handle. The most important thing about your income is not whether it rises or falls by a few percentage points in a given year, but that’s all a recession is. The most important thing is not even that your income grows over time, although a growing income is always nice. Actually, the most important thing about your income is that it meets your needs.
Our main concern about the national economy should be same the same as each individual’s main concern about his or her own income. Before worrying about the bankers, or about the rise or fall of an abstract figure like GDP, we should ask ourselves: how can we secure food, housing, clothing, medical care, and education for everyone? Whether we are in a recession or not has little to do with our answer to that question. Going back to 1776, there has never been a time when America lacked the economic capacity to secure every citizen’s needs. Nor was there a time when it was even close. This fact is not unique to America. Economist Amartya Sen has found evidence that there has not been a famine in modern history in which any nation actually lacked the economic capacity to feed its citizens. Modern famines have all been caused by mal-distribution of plentiful resources.
Sen’s observation is true only for modern history, not for all of human history. The Norse in Greenland, the Mayan Empire, the Easter Islanders and other societies all apparently experienced episodes in which they simply could not feed their people. But these were environmental disasters, not financial depressions. Once we solve the important economic problems of how to secure our needs without screwing up our environment, even a severe depression means no more than a fluctuation in our accumulation of luxuries. Distribution of necessities is what is important, not a 10 percent fluctuation in our ability to produce luxuries. A recession is a trivial issue for the nation as a whole; it is a minor fluctuation in output. This could and should cause no more than a pause in our accumulation of luxuries.
Of course, what actually happens during recessions is significant: more people are in poverty; more people are homeless; more people lack their necessities; more people have reason to fear economic security. All of this is true, but it is only true because we allow it to happen. We had the technical capacity to eliminate economic deprivation in the recession years of 1982 and 1992 just as we did in the boom years of 1987 and 1999. We did not do solve these problems in boom years and we let them get worse in recession years. A recession cannot hurt anyone in a significant way unless we let it. The tragedy is that we let it.
-Karl Widerquist, begun in Reykjavik, Iceland, completed in Oxford, UK, May 2009
Appendix: GDP per capita and per family of three in constant 2008 dollars for the Twentieth Century
by Karl Widerquist | Feb 28, 2018 | Opinion, The Indepentarian
This essay was originally published in the USBIG NewsFlash in November 2008.
Most people will be surprised to learn that the Republican Vice-Presidential nominee and the Democratic Presidential nominee have both endorsed the basic income guarantee (BIG). In one form or another both support policies to guarantee a small government-provided income for everyone. As reported in the USBIG Newsletter earlier this year, Obama has voiced support for reducing carbon emissions with the cap-and-dividend strategy, which includes a small BIG.
Sarah Palin, like most Alaskan politicians, supports the Alaska Permanent Fund (APF). Existing rules caused the APF dividend to reach a new high of $2,069 this year. That much had nothing to do with Palin. But, whatever else you might think of her, she deserves credit for adding $1200 more to this year’s dividend (see the story above and another in issue 49). She proposed it to the legislature and pushed it through, resisting counter proposals to reduce the supplement to $1000 or $250.
Most people who learned about Palin at the Republican National Convention in August would probably be surprised to learn that such a hard-line conservative supports handing out $16,345 checks to even the poorest families. Actually, families the size of Palin’s will receive $19,416—no conditions imposed besides residency, no judgments made.
The support of politicians like Palin’s provides evidence against the belief that BIG is some kind of leftist utopian fantasy with no political viability. In the one place BIG exists it is one of the most popular government programs and it is endorsed by people across the political spectrum.
The APF has not become an issue in the campaign, and I doubt she has Palin plans to introduce a similar plan at the national level, but when the issue has come up, Palin has taken credit for it as a conservative policy. In an interview on the Fox News Network, Sean Hannity confirmed that Palin increased the Alaska dividend by $1200 this year. Hannity comment, “I have to move to Alaska. New York taxes are killing me.”
Sounding like some kind of progressive-era land reformer, Palin replied, “What we’re doing up there is returning a share of resource development dollars back to the people who own the resources. And our constitution up there mandates that as you develop resources it’s to be for the maximum benefit of the people, not the corporations, not the government, but the people of Alaska.”
Tim Graham, writing for the conservative website Newsbuster.com criticized NPR’s Terry Gross for asking questioning that implied opposition to the APF in an interview with Alaska public broadcasting host, Michael Carey. Graham writes, “Gross walked Carey through the idea that it’s not hard for Palin to be popular in Alaska when she’s handing every family a $1200 check from all the oil business. She then elbowed Carey about how that money could have been better ‘invested’ (as Obama would say) in government programs.’ Suddenly conservatives are ridiculing people they assume do not support unconditional grants.
Palin justified a tax increase on the oil companies to support higher BIG on the PBS Now program before she was nominated for vice-president. “This is a big darn deal for Alaska. That non-renewable resource, of course, is so valuable …. And of course [the oil companies] they’re fighting us every step of the way when we say, ‘Well we wanna make sure, especially as it’s being sold for a premium, that we’re receiving appropriate value.’ … The oil companies don’t own the resources. They have leases and the right to develop our resources for us. And we share a value, we’re partners there, because they do the producing for us. But we own the resources.”
It is tempting to dismiss all of this conservative praise for BIG as election year insincerity. No doubt if a democratic candidate had handed out an unconditional grant of $3,269 to every citizen of their state, many conservatives would jump on it as socialist class war. Indeed some of Obama’s tax credit proposals, which are not nearly as far reaching as the APF have received just this treatment.
Speaking at a recent rally in Virginia, McCain took issue with Obama’s refundable tax credits saying, his tax plan “is not a tax cut; it’s just another government giveaway …. I won’t let that happen to you. You’re paying enough taxes. … Obama raises taxes on seniors, hardworking families to give ‘welfare’ to those who pay none.” McCain often invokes Joe the Plumber to label such policies as “socialism.” Ruth Marcus noted that only minutes later John McCain touted his own “refundable tax credit” and that McCain vilifies Obama for wanting to reverse the Bush tax cuts McCain voted against. I have little doubt that McCain would give the APF the same treatment if his opponent rather than his running mate had expanded it.
Politicians who call themselves strait-talkers and don’t talk straight are nothing new, and they exist in all parties. But this doesn’t meant that we can dismiss all conservative support for the APF as insincere. There are limits to what people will accept even from leader of their own party. Many conservatives would not accept, for example, a leader who had proposed public funding to help rape victims obtain abortions, but they will support a leader who endorses $16,345 in no-questions-asked grants to every family of five.
The lesson here is that the APF is a model ready for export. Readers of this newsletter will know that governments in places as diverse as Alberta, Brazil, Iraq, Libya, and Mongolia have recently thought seriously about imitating the Alaska model.
Some might be tempted to think that the APF isn’t a true BIG and it isn’t motivated to help the poor. Not so: Jay Hammond, the Republican governor of Alaska who created the APF, came all the way to Washington, DC to speak at the U.S. Basic Income Guarantee Network conference in 2004. He told me that his intention was to create a BIG to help everyone—most especially the disadvantaged. If he had his way the APF fund would now be producing dividends 4 to 8 times the current individual level of $2,069.
Others might dismiss the Alaska model saying that it is a unique case because Alaska has so much oil wealth. Again, not so: Alaska ranks only sixth in U.S. states in terms of per capita GDP, with an average income just over $43,000 in 2006, more than $15,000 per year less than number-one Delaware, and only $6,000 per year ahead of the national average. Any other state or the federal government can afford to do what Alaska has done.
Alaska has oil wealth; other states have mining, fishing, hydroelectric, or real estate wealth. Governments give away resources to corporations all the time. The U.S. government recently gave away a large chunk of the broadcast spectrum to HDTV broadcasters at no charge. Offshore oil drilling will soon be expanded on three coasts. Everyone who emits green house gases and other pollutants into the atmosphere takes something we all value and—so far—pays nothing.
What was different about the Alaskan situation was that Jay Hammond was there to take advantage of the opportunity. With the Alaska model in place, it will be just a little easier for next person at the next opportunity.
-Karl Widerquist, Reading, UK, October 23, 2008
For the Newsbusters article go to:
https://newsbusters.org/blogs/tim-graham/2008/10/19/snobby-airs-nprs-terry-gross-goes-after-palins-extreme-religious-views
For the Hannity Interview go to:
https://www.foxnews.com/story/0,2933,424346,00.html
For the Now program report go to:
https://www.pbs.org/now/shows/347/index.html
[The quoted exchange occurs about 18 to 20 minutes into a 25-minute report titled “Alaska: The Senator and the Oil Man.”] (Thanks to Paul A. Martin)
For U.S. GDP figures by state go to:
https://www.ssti.org/Digest/Tables/062007t.htm
Ruth Marcus’s editorial on McCain is online at:
https://www.realclearpolitics.com/articles/2008/10/mccains_campaign_is_both_unciv.html
by Faun Rice | Feb 19, 2018 | News
Image by MaxPixel: Trakai Castle Lithuania
On December 6, 2017, Swedbank published a report on the Baltic Sea Region entitled “Heart-warming growth is a poor excuse to postpone reforms.” The report includes a chapter on Universal Basic Income, wherein the bank models the current economic feasibility of UBI in the Baltics.
Swedbank is a bank based in Stolkholm, Sweden. Its research arm publishes annual economic assessments of Baltic Sea region countries, which include Germany, Denmark, Norway, Sweden, Finland, Russia, Estonia, Latvia, Lithuania, and Poland. The December 2017 report and executive summary focus primarily on Swedbank’s four main markets: Sweden, Estonia, Latvia, and Lithuania.
The report highlights a time when global economic growth has helped Baltic Sea region countries reach cyclical economic peaks. However, it states that geopolitics, and populism in particular, remain risks to further growth.
Swedbank suggests that rising income inequality, combined with fears about unemployment driven by automation and globalization, contribute to populism and need to be combatted in order to ensure sustainable economic growth. The report proposes that populism can be circumvented by socioeconomic policy that ensures that growth is inclusive (i.e., where prosperity is distributed equitably across all of a country’s economic classes).
As such, Swedbank’s report argues that this period of prosperity in the Baltic Region has created an ideal context for reform and investment in long-term economic wellbeing. The report delivers an in-depth analysis of the economies of Sweden, Estonia, Latvia, and Lithuania, commenting on GDP growth and the potential to create new socioeconomic policies. It also targets specific needs in each country, referencing indicators based partially on the UN’s sustainable development goals.
Sweden scores higher than the Baltics on most of Swedbank’s UN SDG-based indicators. However, the report comments on the need for all identified countries to take the opportunity to enact policy reform.
Swedbank addresses Universal Basic Income as one potential option for reform that will reduce income inequality and encourage sustainable growth. The report concludes that UBI is currently unaffordable for the Baltics, but that elements of a basic or guaranteed income, introduced carefully, could come with numerous social benefits.
Swedbank in Lithuania. Credit to: Delfi
UBI: Current feasibility for the Baltic Region
Swedbank identifies several arguments for UBI, including the idea that it will increase income security and thus reduce fears around unemployment and job loss, along with suggestion that UBI solves or mitigates problems with existing social security systems. The argument that UBI will minimize bureaucratic costs associated with social security systems is less relevant in the Baltics, where only 1.2 to 2.1% of total “social protection” expenditure is administrative.
The report provides a summary overview of some of the questions associated with UBI implementation, such as its impact on employment and the economy, or the concern that it would negatively impact assistance given to the disabled or elderly.
Using 2015 data on government spending on social protections in Estonia, Latvia, and Lithuania, Swedbank evaluates the feasibility of a budget-neutral UBI in these countries. The report tries two different models, one in which old-age pensions are retained by the elderly, and the other in which pensions are included in the money redirected towards UBI. For each of these two scenarios, the report presents two further options: one wherein all residents of a country receive UBI, and another wherein children up to the age of 16 receive only 50% of adult UBI payments. Swedbank does not make any changes to tax revenue in these examples.
The report finds that, given existing budgets, UBI monthly payments to individuals would only reach 48-55% of the at-risk-of-poverty threshold for each Baltic country, less if old-age pensions were retained for the elderly. A UBI at the poverty line, distributed to all residents equally, would require doubling social security budgets in Latvia and Estonia, or an 82% increase in Lithuania, becoming 20-25% of each country’s GDP.
While Swedbank concludes that a UBI is currently unaffordable in the Baltics, the report comments that some components of a “basic income model” might simplify and improve existing social security programs. The authors suggest that governments could improve their systems’ accessibility by eliminating means testing and other conditions currently in place for those trying to get support. They also propose that a gradual decrease in benefits, rather than a sharp removal once a person becomes employed, might help incentivize recipients to stay in the labour market.
Another alternative discussed is a “partial” guaranteed income delivered only to particular cohorts of people. For example, Lithuania has an existing program that provides lump-sum cash benefits to every child born, with no conditions placed upon family income.
More information at:
“Baltic Sea Report: Heart-warming growth is a poor excuse to postpone reforms,” Swedbank, December 6th 2017
“Sustainable Development Goals,” United Nations
“Swedbank Macro Research: Baltic Archive,” Swedbank, February 2018
Vlada Stankūnienė and Aušra Maslauskaitė, “Family Policies: Lithuania (2015),” Population Europe Resource Finder & Archive, 2015
by Tyler Prochazka | Jan 17, 2018 | Opinion
Universal Basic Income (UBI) is gaining more traction in mainstream discourse, but the academic debate has been heating up for years. One scholar with a sympathetic but critical eye towards basic income still believes it is not the best priority for activists.
Philip Harvey, a professor of law at Rutgers, wrote that a job guarantee could eliminate poverty for a fraction of the cost of UBI — $1.5 trillion less.
Harvey argued in 2006 that the focus on UBI may be crowding out more realistic policies that could achieve the same ends.
“[Basic Income Guarantee] advocates who argue that a society should provide its members the largest sustainable BIG it can afford – whether or not that guarantee would be large enough to eliminate poverty – are on shaky moral ground if the opportunity cost of providing such a BIG would be the exhaustion of society’s redistributive capacity without eliminating poverty when other foregone social welfare strategies could have been funded at far less cost that would have succeeded in achieving that goal.”
When I interviewed Harvey this month, he said his views have largely stayed the same and he still sees a fundamental difference between the advocates of UBI and job guarantee.
“The most important driver of that difference is the inherent attractiveness of the UBI idea. It really is an idea that captures the imagination and admiration of all kinds of interested parties with different kinds of agendas. The job guarantee idea, on the other hand, attracts people who are more into the weeds of policy analysis.”.
There is a big debate about which type of cost calculation is most relevant for UBI, since wealthy individuals would have most or all of the basic income taxed back.
Basic income scholars such as Karl Widerquist argue it is more accurate to calculate UBI’s “net cost” which subtracts the portion of the basic income that is taxed back, as individuals are essentially paying back the benefit.
Harvey argues that, from a political standpoint, people will not view UBI in such a way: “The problem with Karl’s argument is that he that he thinks that people will think the way he does, when there’s no evidence to support that given the way they think about other analogous government benefits.”
Harvey notes that, since the gross cost of UBI proposals is typically a high percentage of a country’s overall GDP, there are tradeoffs that must be considered when pushing for basic income.
“On a practical level, that’s the biggest problem that UBI advocates face is that they don’t have a good answer to why it’s worth spending that much money on this kind of benefit as opposed to spending that much money or a far lesser amount of money on other benefits that would serve the same purpose.”
Many basic income proponents have argued that the job guarantee would have much higher administrative costs than the basic income, and thus say it is a less attractive proposal.
Interestingly, Harvey argues the high administrative costs actually serve the purpose of the guarantee because the administration of the program also creates new jobs: “The goal of the job guarantee is to provide jobs and as long as the jobs you provide are helping to achieve your goal, it doesn’t matter whether if they’re administrative jobs or non-administrative jobs, they still count.”
The plan he proposes is for the government to offer grants to nonprofits and government agencies to create jobs that fulfill their mission to help the community. For example, installing rooftop solar panels and advocacy work.
“Why not give not-for-profit organizations the opportunity to compete head-on with government agencies to see who can do the most good with the resources made available to them through the program?”
Allowing for this competition would avoid the criticism that the government cannot create productive work.
“You can design a job guarantee program to avoid the relative incapacity or possible incapacity of governments to create meaningful jobs.”
Harvey has designed the ‘Jobs for All’ congressional bill with former Congressman John Conyers, who recently resigned amid sexual harassment allegations.
When pushing for basic income, Harvey believes the opportunity cost, both in the time spent advocating UBI and then financing it, may be too great.
“Unless you can argue that you are prepared to provide a UBI that is really adequate to eliminate poverty, you’ve no business advocating a program that would leave people in poverty because it was inadequate.”
Author’s editorial note: I plan to write a follow-up article to discuss and analyze some of the points made by Dr. Harvey.
by Guest Contributor | Jan 3, 2018 | Opinion
The crux of opposition to taxless spending (that is, money spent by a government that has not been raised through taxation) is inflation caused by creating additional money.
In The Affordability of Basic Income, a paper written by Geoff Crocker, it states that a government can create additional money without increasing inflation as long as the money supply does not exceed the productive capacity of the economy: and recent quantitative easing in both the US and Europe has given empirical backing to that claim. However, increasing the money supply beyond that point will inevitably create additional inflation.
It would be unfortunate if we never tested the boundaries of our productive capacity. Capacity utilization in the United States averaged 80.32 percent from 1967 until 2017, according to Trading Economics magazine. So far in 2017 the utilization is less than 78%. That means approximately 20% of the productive capacity in the US is an unused resource. Most nations in the world are in a similar utilization bracket, according to Trading Economics magazine.
The GDP of the US in 2016 was $18.5 trillion dollars according to Trading Economics. 20% of that is $3.7 trillion dollars. This is the amount of taxless money that could be added to the economy in the US each year, without causing inflation, in theory. Adding too much too quickly could cause inflation though, because the logistics of using 100 percent capacity takes time to implement.
The key would be to start with a small annual amount, then increase it slowly, if inflation did not occur. If the economy received a slow steady influx of taxless money from the government, the slow steady increase in demand should lead first to a slow steady use of full production, and then to a slow steady increase of production capability, as industry invests in increased production to match increased demand. This would be a platform for continued growth and utilization of taxless government spending, without causing inflation.
The government could introduce taxless spending through any number of programs, and Basic Income could be one of them. It could also lead to lower spending on federal interest payments if it were used to balance the budget, instead of increasing the national debt to do so. Many other programs could benefit as well, such as healthcare, infrastructure repair, education, etc.
Government would still collect taxes, and would still be able to use them to encourage or discourage activities as deemed necessary.
It is also a technology that would require no expensive change to the infrastructure. All major technological advancements in the past that could affect the economy by 20 percent required major investments in time, resources, and investments. The steam engine, railroads, cars, cell phones, and the Internet all took 20 to 30 years, billions of dollars, and countless man-hours to implement. Taxless government spending requires only the change of policy. No new airports, factories or cell towers, just a change in policy.
Taxless spending could provide a form of basic income funding that could be utilized in many nations around the world, without creating a burden on taxpayers, if implemented properly. It would filter into the economy and every person on the planet could benefit from it, not just the well to do. We all deserve to benefit from such a simple solution to an age-old problem, poverty.
Michael Keith has been in the construction industry for 30 years, spent 15 in the Carpenters Union building offices, skyscrapers, and condominiums. Keith had a California Contractors license, and built many custom homes there. He presently remodels Braum’s Ice Cream Store and Restaurants in 5 different states in the US.
Reviewed by Malcolm Torry and Tyler Prochazka
