Basic Income: Remittances from Nowhere

Basic Income: Remittances from Nowhere

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Great Global Monetary Hack

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

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

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

The basic framework would be:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Written by: Austin Mackell

COVID19 in Argentina. Situation and public policy responses.

COVID19 in Argentina. Situation and public policy responses.

By Corina Rodríguez Enríquez and Rubén Lo Vuolo

Argentina presented the first confirmed case of Covid19 in the first days of March. On the 20th of that month, the national government ordered the Compulsory Social Isolation (ASO) of the entire population, the suspension of classes at all levels, and the suspension of most economic activities except those considered essential (mainly linked to the production and distribution of food, hygiene elements and health inputs, energy production, security services, health services). Although the activities exempted were gradually expanded, and a process of partial resumption of these activities has begun in some territorial areas, most of the population, and in particular those concentrated in large urban centers, remain in isolation. The last presidential announcement extended the isolation until June 28th, though authorizing to open up almost all activities in those Provinces with good COVID performances

In addition to these health measures, the government has implemented a series of actions to compensate for the loss of income resulting from the total or partial paralysis of economic activities, both at the level of individuals and companies[1].

As for the policies aimed at individuals, it was decided to pay an extraordinary bonus (of $3000, equivalent to approximately U$45)[2] to those beneficiaries of the Universal Allowance per Child, the country’s main conditional cash transfer program, which currently has nearly 4 million beneficiaries. In addition, a bonus of the same amount was granted to beneficiaries of the minimum retirement, within the contributory system.

For the active working population, it is assumed that those with registered wage-earning employment continue to receive their wages even when activities are paralyzed, although evidence shows multiple situations of dismissal, termination of temporary contracts, suspensions and lowering of wages, the latter backed by an agreement between business leaders and trade union representatives. The focus of national public policy was on compensating unemployed people, those in informal employment and the lower income self-employed (single-income earners in the two lowest income categories). For this population, the Emergency Family Income (IFE) was implemented, a fixed amount benefit ($10,000 Argentine pesos, equivalent to approximately U$150)[3].

Potential beneficiaries had to register in an open registry for that purpose, and were assessed to verify their asset situation, that they were not receiving other income, and that they were not receiving more than one income per family unit. Having registered 11 million people, the benefit was initially granted to almost 8 million people. Cases of people whose applications were rejected are currently being reviewed (thus the total number of beneficiaries could be increased). Additionally, although the benefit was announced only once (to be paid during the month of April), the payment has been extended in May and perhaps will also be in June.

For companies, the government announced the implementation of the Emergency Assistance Program for Work and Production, whose components are being modified over time, but which basically includes i) the reduction of social security contributions during the month of April; ii) a compensatory salary allowance, which implies the payment by the State of 50% of the salary of workers in a dependent relationship in the private sector, for a minimum amount equivalent to the minimum living and mobile wage, and a maximum amount equivalent to double that value[4]; iii) the granting of credits at subsidized rates for the payment of salaries[5]; iv) the granting of credits at no rates to single-income earners in higher income categories and self-employed workers[6].

There is no official estimate of the fiscal effort involved in the measures taken, and it is not known how long they will remain in force. Some unofficial estimates place this fiscal effort between 3.5% and 5% of GDP.

There is also no evaluation of the effectiveness of these measures, but there are multiple testimonies of the difficulties in their implementation. In particular, the payment of the IFE was successively postponed, in particular because of the difficulty of carrying out the transfer to a population with a much lower level of banking penetration than that estimated by those who manage the policy. Similarly, the payment of salary compensation to private sector workers, which should have taken place in the first days of May, is hampered by the lack of information from the companies on the banking details of their workers (which presupposes the extension of forms of payment of remuneration outside of the banking circuit).

Finally, to the extent that the ASO situation extends and the economy remains virtually paralysed, the inadequacy of these measures will become more apparent.

In this context, the debate on basic income has increased notably. On the one hand, we can see the organization of forums on the subject, mostly at the university level, by political associations and groups of political activists. On the other hand, some groups are advancing proposals linked to the emergency and of a temporary nature[7]. Also, statements have been launched to collect signatures in favor of the basic income proposal[8]. Most of these initiatives are collected and disseminated by the Red Argentina de Ingreso Ciudadano (www.ingresociudadano.com.ar)

However, so far there are no initiatives or repercussions in the official sphere, neither in the Executive nor at Parliament. On the contrary, and as previously indicated, the government continues to bet on the distribution of conditional and selective benefits, of a temporary nature and linked to the loss of income due to the measures linked to the covid-19 pandemic.

Argentina is an example of a tension that can be seen in other countries. On the one hand, the debate is growing, tied to the emergency and with proposals for temporary income guarantees. On the other hand, the basic income proposal as part of a structural reform of the functioning of the economy and society is confused and blurred. So far, income guarantees are seen as emergency measures until a return to previous “normality” can be achieved.


[1] A list and summary description of the measures taken can be found at: https://www.argentina.gob.ar/coronavirus/medidas-gobierno

[2] Taking as reference the official exchange rate reported by the Central Bank of Argentina as of April 30.

[3] Taking as reference the official exchange rate informed by the Central Bank of the Argentine Republic as of April 30

[4] This benefit is paid directly into the bank account where the workers’ salary is deposited, taking the salary of the month of February as a reference, and in principle for one time only as compensation for the salaries of the month of April. In order to access this benefit, it is necessary to demonstrate: i) To carry out critically affected economic activities in the geographical areas where they are carried out or to have a relevant number of employees infected by COVID 19, in obligatory isolation or with a work exemption for being in a risk group or family care obligations related to COVID 19; and ii) To have invoiced between March 12 and April 12 of the current year an amount equal to or less than that of the same period in 2019.

[5] Esta medida fue decidida con anterioridad a la compensación salarial y de hecho tuvo muy poca repercusión y quedó prácticamente sin efecto. La principal dificultad fue la resistencia de los bancos y su preferencia de ofrecer la posibilidad de este acceso crediticio exclusivamente a clientes que tuvieran evaluaciones crediticias anteriores positivas.

[6]  Access to these loans has certain credit history requirements (no previous unpaid debts, if any) and is made operational through a credit on the credit cards of those who apply.

[7] An example of such proposals can be found here: https://ipypp.org.ar/descargas/2020/Hacia%20un%20salario%20universal.pdf

[8] https://ingresociudadano.com.ar/archivos/686

Punk Band Records a Song with Indepentarian Argument for Basic Income

Punk Band Records a Song with Indepentarian Argument for Basic Income

Indepentarianism exists. The Danish punk band, Husligt Arbejde [House Work] has recorded an indepentarian song, “Borgerløn – the power to say no,” which translates into “Basic Income – the power to say no.” According to Google translate, the band describes its music as “aggressively political, minimalist punk.”

“Indepentarianism” is the theory of justice I began to lay out in several works including my book, Freedom as the Power Say No. Universal Basic Income plays an important role in that that theory. I was overwhelmed to find the idea has made it into a punk song. I thought it might be a coincidence. (It’s a basic and obvious argument for UBI.) But I contacted the band and sure enough, the song was about the book.

Most of the song is in Danish. Only one line, “the power to say no” is in English, but they say it over and over again. The lyrics are below in both Danish and English.

Original Danish lyrics:

Kan en luder sige nej?
power to say no, power to say no
Kan en ansat gå sin vej?
power to say no, power to say no
Må en fattig bøje sig?
power to say no, power to say no
Er man fri uden sit nej?
power to say no, power to say no

BORGERLØN FOR BORGERFRIHED
BORGERLØN FOR BORGERFRIHED
BORGERLØN FOR BORGERFRIHED
BORGERLØN FOR BORGERFRIHED

Staten si’r den elsker dig
power to say no, power to say no
mens den strammer garnet om dig
power to say no, power to say no
Løb for vækst og BNP
power to say no, power to say no
“ellers går systemet ned”
power to say no

, power to say no

BORGERLØN FOR BORGERFRIHED
BORGERLØN FOR BORGERFRIHED
BORGERLØN FOR BORGERFRIHED
BORGERLØN FOR BORGERFRIHED

Liberal politik
power to say no
det var det vi aldrig fik
power to say no
Hvad er egentlig faktisk frihed?
power to say no
Det er økonomisk frihed!
power to say no

, power to say no

BORGERLØN FOR BORGERFRIHED
BORGERLØN FOR BORGERFRIHED
BORGERLØN FOR BORGERFRIHED
BORGERLØN FOR BORGERFRIHED

Velfærdsdamer, kontorister
power to say no, power to say no
Arbejdsprøvning, tusind lister
power to say no, power to say no
BU-REAU-KRA-T
power to say no, power to say no
Vi vil hel’re være fri!
power to say no, power to say no

BORGERLØN FOR BORGERFRIHED
BORGERLØN FOR BORGERFRIHED
BORGERLØN FOR BORGERFRIHED
BORGERLØN FOR BORGERFRIHED

English lyrics, translated by the band:

Can a whore say no?
power to say no, power to say no
Can an employee go his way?
power to say no, power to say no
Must a poor man bow?
power to say no, power to say no
Are you free without your no?
power to say no, power to say no

BASIC INCOME FOR BASIC FREEDOM
BASIC INCOME FOR BASIC FREEDOM
BASIC INCOME FOR BASIC FREEDOM
BASIC INCOME FOR BASIC FREEDOM

The state says it loves you
power to say no, power to say no
while tightening the yarn around you
power to say no, power to say no
Race for growth and GDP
power to say no, power to say no
“otherwise the system will crash”
power to say no, power to say no

BASIC INCOME FOR BASIC FREEDOM
BASIC INCOME FOR BASIC FREEDOM
BASIC INCOME FOR BASIC FREEDOM
BASIC INCOME FOR BASIC FREEDOM

Liberal politics
power to say no, power to say no
That’s what we never got
power to say no, power to say no
What is real freedom?
power to say no, power to say no
It is financial freedom!
power to say no, power to say no

BASIC INCOME FOR BASIC FREEDOM
BASIC INCOME FOR BASIC FREEDOM
BASIC INCOME FOR BASIC FREEDOM
BASIC INCOME FOR BASIC FREEDOM

Ha! Welfare ladies, clerks
power to say no, power to say no
Work testing, a thousand lists
power to say no, power to say no
BU-REAU-CRA-CY
power to say no, power to say no
We’d rather be free!
power to say no, power to say no

BASIC INCOME FOR BASIC FREEDOM
BASIC INCOME FOR BASIC FREEDOM
BASIC INCOME FOR BASIC FREEDOM
BASIC INCOME FOR BASIC FREEDOM

This isn’t the only Indepentarian song. Years before I began writing philosophy, when I was living in New York, going to school, and playing in bands, I was already formulating ideas along these lines, and some of them came out in my song, “The Home of the Fat Homeless.”

The lyrics are contained in the picture below (toward the bottome left):

Three big misconceptions about Yang’s Freedom Dividend 

Three big misconceptions about Yang’s Freedom Dividend 

As US presidential candidate Andrew Yang continues to outperform expectations, his signature policy proposal, the Freedom Dividend or Universal Basic Income (UBI), is receiving increased scrutiny. Some of the criticisms are well warranted, while others are misconceptions based on a flawed understanding of how basic income would operate.

The following addresses some of the primary misconceptions regarding Yang’s plan.

UBI is too expensive

The cost issue is one of the most persistent misconceptions about basic income.

A basic income system would have a built-in clawback through the tax system. In Yang’s case, a portion of the clawback comes through the opt-in system that would substitute cash-like welfare programs for the Freedom Dividend, such as food assistance. However, most of the burden of the clawback would be on the wealthiest families who would pay more in taxes than they could receive from basic income

As I have noted previously, the UBI clawback can be both direct and indirect. For example, the Affordable Care Act (ACA) requires families to pay back some or all of their healthcare subsidies at the end of the year if their yearly income exceeds a certain amount. A UBI system can similarly create a phase-out in the income tax system. 

Considering Yang’s Freedom Dividend is opt-in, it is likely that many wealthy families would not opt to receive the dividend anyway. 

Indirect clawback mechanisms could include Yang’s proposed Value Added Tax (VAT). The VAT is effectively a national sales tax, meaning even lower-income people would pay back a portion of their basic income depending on how much they spend their dividend on taxed goods.

Yang has said he would exclude many essential items from the VAT, though. Calculations show the VAT combined with UBI would have a net positive effect on purchasing power for low-income individuals.

Any taxes paid on the UBI would be used for the following year’s dividend, meaning much of the money is repeatedly recycled through the system. The additional amount that is redistributed to lower-income families is called the “net cost” or real cost of basic income. The net cost is the amount the government would actually redistribute every year under UBI.

Factoring the clawback, the real cost of basic income to the government would be approximately $539 billion annually, according to Georgetown Professor Karl Widerquist. This is less than 25 percent of existing entitlement spending.

UBI would have the same cost as a Negative Income Tax (NIT) when factoring the clawback, but the sticker price of the gross cost creates a false impression of a higher cost for UBI. NIT is not universal — it only provides the subsidy to those who qualify, making the cost appear lower than UBI. When I asked Yang whether he would support NIT to avoid the cost misconception, he said NIT would be a step in the right direction.

UBI would cause inflation

The inflation misconception has been around for many years, but it has become more convincingly debunked since I first wrote about it nearly three years ago. 

It is essential to note that Yang’s plan is redistributing existing cash, not printing new cash. For every dollar spent, there must be a dollar taxed first, which would offset inflationary pressures.

As Karl Widerquist noted, basic income is no different than other welfare programs in terms of increasing demand for goods. Denmark has one of the most generous welfare states in the world, but they also consistently experience a low and stable inflation rate below two percent.

In the United States, food assistance, which can be freely spent like cash on most food items, has not produced inflation in food prices. On the contrary, research from the London School of Economics shows in states with higher take-up of food stamp assistance, prices have dropped and there is greater product variety relative to those areas with lower food assistance take-up. This is because suppliers respond to increased demand with more competition entering the market.

Thus, the guaranteed demand from basic income could generate higher levels of competition that brings down costs for low-income people. 

In Alaska, which has a small Universal Basic Income funded by oil revenues, inflation has been lower than the U.S. average since the program started. Other research in Mexico demonstrates that directly giving cash does not produce inflation.

Since the United States is a globalized market, any short term demand spike creates an economic profit that is resolved by increased production, bringing the price down in the long-run. 

In fact, the United States is experiencing unusually low levels of inflation. Contributing factors could include the Amazon.com effect, automation, immigration, and global trade. Basic income would not change these underlying factors keeping a hold on inflation.

The main area where there could be meaningful inflation in the medium term is the cost of rent because there is a fixed supply of land. 

Basic income could empower more people to move and find other options. Renters would have a better bargaining position with their landlord if they had a guaranteed dividend than if they are desperately clinging to their job.

In the long-run, greater purchasing power from low-income people should induce more homebuilding and open up a greater share of unoccupied housing. That said, the high cost of rent exists now in many areas and should be addressed as a separate policy issue.

Nonetheless, it is unlikely that any inflation from UBI could completely wipe out the improved purchasing power from the dividend, let alone make people worse off.

UBI would cause laziness

The problem of laziness is one of the most thoroughly debunked misconceptions about UBI. Among those who closely study cash transfers, many no longer consider labor participation an interesting research question because the results consistently show no effect. Those who have read the relevant research and are still convinced that basic income causes laziness will likely never be persuaded otherwise.

As I reported in 2016, “The Overseas Development Institute just released the largest meta-analysis of cash transfer programs ever, spanning 15 years of data and 165 studies. The main takeaway is that studies show a consistent reduction in poverty measures. Perhaps an even more important conclusion is that most evidence showed an increase in work participation after receiving the basic income.”

Many specific examples from across the developmental spectrum corroborate the conclusion that basic income would not meaningfully reduce work. In Finland’s basic income experiment, there was no negative effect on work. Iran’s generous basic income did not reduce overall work but did cause some young people to substitute their time for more schooling. In Alaska, their partial basic income did not reduce overall work. On the contrary, Alaska’s basic income increased part-time work due to the increased demand generated by a basic income.

With a permanent basic income, there is reason to believe that a healthier and more productive labor market will emerge. For example, the Finland experiment showed basic income recipients were happier and more trusting overall. Many polls indicate that individuals would use the basic income to gain additional skills, spend time with family, volunteer, and engage in freelancing.

If the poor are no longer clinging to a job for survival, they can more freely find a job where they can be the most productive. They will also have more bargaining power to demand better working environments. 

Most importantly, basic income would allow greater time and mental energy to be focused on the most important job in society: caregiving. Volunteering and caregiving provide enormous economic and societal benefits that are not recorded in GDP because they are typically unpaid. 

Basic income gives people the right to say no to exploitation. But the most revolutionary aspect of UBI is that it finally gives everyone the opportunity to yes to their passions.

My failure to change Canada’s basic income narrative

My failure to change Canada’s basic income narrative

For the past 3 years, my primary goal has been to get the Liberal Party of Canada to include Unconditional Basic Income (UBI) on its electoral platform. (Support for this policy is already in the official Party program.) The election was held on Monday, October 21st and UBI was never mentioned. My ultimate goal is to see UBI implemented in my lifetime. 

I ended up fighting on two fronts and losing on both.

The first front consisted of my lobbying efforts within the Liberal Party. I was hoping I could convince them to include a promise to implement UBI as a commitment to the electorate should they win re-election. When I got cold feet and neglected to contact the guy who was writing the platform, my project was probably doomed. Plus, several weeks into the 6-week election campaign I changed strategies. On September 19th an independent report by UBIWorks was published. It presented the case that the Canada Child Benefit was a UBI. I stopped presenting Basic Income as an experimental policy to be tested and, instead, argued that it was a fait accompli in Canada, hiding in plain sight. My efforts to get the press to ask questions and to stimulate debate among the Liberal candidates came to nothing. 

Despite high-level contacts within the Party, I had the impression that my message was not getting through to the right people. In hindsight, it is equally possible that my suggestion was being heard loud and clear in the right quarters and that appealing to their electoral self-interest rather than their consciences was spot on the best approach. After all, while I was emphasizing the economic impact of the Child Benefit for GDP growth, job creation, corporate profits, and tax revenue, the platform kept droning on about poverty reduction, a subject that people would rather not think about because they find it depressing and it makes them feel guilty. Perhaps Liberal strategists, who were staking their reputations on their message, simply rejected my proposal as not being something that would, at this point in the campaign, help them win reelection. Was this a mistake that partially explains why the Liberals lost their majority in the House of Commons? It would be pretentious of me to suggest this.

However, today’s flop may yet bear fruit in the next electoral cycle in 4 years. This is what cooler heads than mine thought from the outset.

While all this was going on, a second front was opened with my allies in the Basic Income community. To bolster my position that UBI already existed in Canada under another name, I tried to convince famous people in the movement to lend their credibility to this argument. I was flabbergasted by the strong and nearly universal resistance I encountered: no, the Canada Child Benefit could not be called a Basic Income, full stop. 

While two or three people got on board immediately, most of the cognoscenti insisted that what I was advancing was inconsistent with the Basic Income Earth Network  (BIEN) definition of UBI for a variety of reasons. Theoreticians and experimentalists alike, as well as activists, flatly refused to go along with my plan to leverage this unique opportunity to change the narrative about UBI. I thought: “I’m caught in a paradigm shift, as it happens!”

Some argued that the Child Benefit was not universal because it was only earmarked for kids. Yang’s Freedom Dividend which excludes minors still qualifies as a UBI, though. Others claimed it violated individuality because it was given to families, as though it makes any sense to hand $500 to a toddler. However, most objected on the grounds that the Child Benefit is means-tested. This was the breaking point where everything I was trying to do simply collapsed. I never saw it coming.

The Canada Child Benefit is not means-tested, it is income-tested. People outside Canada are colour-blind to the distinction. Income-testing is just not part of their paradigm. Means-testing is an evil policy tool that allows bureaucrats to arbitrarily deprive vulnerable people of funds and services that they need and have a right to receive. It grinds them into the ground and makes an example of them to terrorize everybody else. Income-testing is a horse of another colour. 

In Canada, we have a progressive tax system just like the one Adam Smith himself proposed: “It is not unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue but something more than in that proportion.” That is why no one questions the practice of taxing back from the rich funds equivalent to the Child Benefit from which they derive no important advantage and thereby recover some of the cost of a program, which is immensely useful for everybody else. Conscientious objectors to means-testing will insist that even when this claw-back is done specifically for the purpose of recouping UBI, it does not infringe on the principle of universality because it is done in separate operations, the right hand not knowing what the left hand is doing. In Canada, we tend to view this as an elaborate and unnecessary fiction. Covering up the mechanism does little to hide the process which serves no other purpose than to claw back UBI from the rich.

In the FAQ on the BIEN definition of Basic Income, we read under the caption Is Basic Income paid irrespective of income?

“Taxable “means” may need to be taxed at a higher average rate in order to fund the basic income. But the tax-and-benefit system no longer rests on a dichotomy between two notions of “means”: a broad one for the poor, by reference to which benefits are cut, and a narrow one for the better off, by reference to which income tax is levied.” 

The second notion is used universally to assess the Canada Child Benefit, which is why we use the term income-tested and not means-tested. My argument failed to convince. How it is possible, on the one hand, to clearly distinguish the two notions and, on the other hand, still insist on using the same term to describe them?

I think we are confronted with two incommensurable competing paradigms in both the political sphere and the academic domain. The old paradigms have accumulated a thick crust of unresolved problems such that business-as-usual can no longer operate smoothly. In politics, poverty reduction continues to dominate social policy discussions even though it no longer provides useful solutions. In the UBI academic community, a rigid definition stifles progress towards implementation by ensuring that the ideal program remains unattainable. I will be fleshing out this argument at a later date. 

I have not lost hope that the politicians will eventually learn to frame UBI as a powerful economic stimulant and an entitlement for all Canadians, especially the middle class. The academics too, will at some point loosen their church-like grip on orthodoxy and accept a leading role in promoting social justice, down in the trenches. 

However, I would hate to end up like Moses, who never did reach the promised land, and spent 40 years not getting there. I do not have that kind of time. I will be quickly making new friends in the party that holds the balance of power and leveraging these connections to achieve my goal of seeing Unconditional Basic Income implemented for all, in my lifetime.

Pierre Madden

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