Esther Duflo and Abhijit Banerjee. Picture credit: dailyO
Esther Duflo, Abhijit Banerjee and Michael Kremer were awarded the Economics Nobel Prize this year. That alone would not represent a huge novelty, given the standard these professionals and scholars have set in the last few years. However, in an article as far back as June 2016, Banerjee had already defended the basic income policy for India, as a way to reduce poverty, cut through corruption and minimize bureaucracy. Later on, already in 2019, Indian voters got not to elect the party (Congress Party) which was more serious about implementing (a version of) basic income in India, favoring the BJP ruling party. That, however, did not end the discussion about basic income in the Indian continent, in part because Banerjee, Duflo and other respectable scholars like Thomas Piketty, have been thinking, writing and speaking about the issue at the highest levels.
This award comes right before the release of Banerjee and Duflo new book, entitled “Good Economics for Hard Times”, a forward-looking elaboration on society, economic problems and creative social solutions. In it, basic income features as an important, if not crucial policy, for reducing poverty, simplifying governmental aid programs and increasing universality in cash transfers. In the authors’ own words:
Immigration and inequality, globalization and technological disruption, slowing growth and accelerating climate change–these are sources of great anxiety across the world, from New Delhi and Dakar to Paris and Washington, DC. The resources to address these challenges are there–what we lack are ideas that will help us jump the wall of disagreement and distrust that divides us. If we succeed, history will remember our era with gratitude; if we fail, the potential losses are incalculable.
Meanwhile, also, other heavy-weight economists like Angus Deaton, also a recent Economics Nobel Prize laureate, have come forward in defense of basic income-like type of policies.
Talk of a universal basic income has been in the news a lot recently, but what does it all mean? First off, it’s important to make the distinction between free money and services that comes from your taxes – the money for a universal basic income has to come from somewhere, so it’s not free money but rather a useful return for your tax payments. The idea is to level the playing field as much as possible in an effort to eliminate poverty and give families a fighting chance in a world where the cost of living has long since surpassed any positive movement in wage growth. What’s more, the idea of a universal basic income is not a new one at all.
As far back as 1516, Thomas More wrote about the idea of a basic income in Utopia. More surmised that this type of social program would prevent people from becoming desperate enough to steal to feed themselves and their families, eventually becoming swept up in a criminal life that would turn them into corpses.
Later in 1796, Thomas Paine suggested in Agrarian Justice that providing a basic monetary endowment for every adult over the age of 21 would lessen the burden of transitioning from a landed gentry economy to a more egalitarian economy.
In 1967, the Reverend Dr. Martin Luther King, Jr. proposed a universal basic income by which poverty could be eliminated, thus giving African Americans the ability to achieve their potential as well as economic stability.
Rather than making these payments in vouchers, goods, or services, the main idea is that in order to give people the most benefit in terms of freedom of choice in work, lifestyle, and education these payments would have to be made in the form of cash payments. The ultimate goal is to end poverty and lessen violence, crime, and addiction thought the elimination of hopelessness. But can it actually work?
There are several ways that have been proposed to pay for this system. A flat tax would basically take a percentage of everyone’s money and then give them back the same flat rate – a basic redistribution of wealth. A VAT, or value-added tax, would be a high tax on certain goods and services, usually those that are considered to be vices or luxuries, which would go into a fun to make these payments.
Already there are several places around the world that are testing this idea with varied results. Throughout this year in Stockton, California, 100 randomly selected people are receiving stipends, while over the last two years in The Netherlands test groups are receiving varying levels of stipends and benefits. While these programs are still ongoing, Finland found great success with its own pilot programs, including increased confidence in recipients’ financial situations, greater optimism for the future, and better health, but declined to continue the program after the test due to a lack of impact on employment.
Regardless of the inconclusiveness of these tests, a universal basic income may be the only thing that prevents mass poverty as artificial intelligence and automation take over jobs in the next industrial revolution. Jobs will be both created and eliminated, but it will take time to get the right people into the right jobs just as it was during the last major industrial revolution. While it’s not a perfect solution, a universal basic income might be the best tool we have to make the transition smoother.
Learn more about the pros and cons of universal basic income here.
Author Brian Wallace Bio: Brian Wallace is the Founder and President of NowSourcing, an industry leading infographic design agency based in Louisville, KY and Cincinnati, OH which works with companies that range from startups to Fortune 500s. Brian also runs #LinkedInLocal events nationwide, and hosts the Next Action Podcast. Brian has been named a Google Small Business Advisor for 2016-present and joined the SXSW Advisory Board in 2019.
In July 2016, the Liberal government of Justin Trudeau introduced Unconditional Basic Income to Canada and never mentioned it to anyone.
6.4 million Canadians can count on benefiting from about $500, tax-free, every month, no questions asked. It contributes $46 billion per year to GDP and adds $4 to GDP for every dollar it costs.
It’s called the Canada Child Benefit (CCB).
Why have we not heard that this program is, in fact, a Basic Income? When the Ontario government announced the abrupt cancellation of the Basic Income Pilot Project involving 4,000 low-income people after a few short months, it was all over the news. A permanent nationwide Basic Income involving 6.4 million Canadians and their parents (19 million people in total) runs for three years with stunning success and not one word in the press.
Indeed, I have spoken with many Liberal Members of Parliament who all express dismay and disappointment at the lack of visibility the CCB has among their constituents. Yet Canadians know how Basic Income works because one has existed for close to 70 years.
“In 1951, following an amendment to the British North America Act to permit the federal government to operate a pension plan, the Canadian Parliament passed the Old Age Security Act, which provided a universal pension, or demogrant, of $40 per month financed and administered by the federal government. All Canadians aged 70 and over who could meet the more liberal residence requirements were eligible, regardless of their other income or assets. Pension payments began in 1952 and were taxable.”[emphasis added]
Who was in power in 1951? Louis St. Laurent’s Liberals!
Why focus, in this discussion, on only one Party? Is that partisan politics? Some background:
The October 21st election is the perfect crucible in which to forge a new narrative about Basic Income in Canada. The centre-left Liberals of Justin Trudeau, whose father was prime minister from 1968 to 1984, swept into power in 2015 after a decade of Conservative rule. The progressive New Democratic Party is thinking about Basic Income on a 30-year timescale. The Green party is demanding more tests. Only the Liberals can point to action, although they refuse to admit it.
So, while Liberals can legitimately claim both a long history and recent accomplishments in implementing permanent Unconditional Basic Income programs (UBI), the public has no idea that here are two examples of highly successful implementations, hiding in plain sight! Both were introduced by Liberal governments and no one knows about it.
There is no mainstream recognition that Basic Income is a fait accompli in Canada. Sadly, many of the cognoscenti also resist this paradigm shift.
Yet a recent independent report sponsored by UBIWorks, shows that the CCB is not only an Unconditional Basic Income, but it is also a highly successful one for families and the economy. The report makes the following key points:
Canada has demonstrated the effectiveness of a national-scale Basic Income
6.4 million Canadians benefit from about $500, tax-free, each month
The CCB directly touches approximately 19 million people. This not a test.
The CCB is an ongoing national program that has been running successfully for over 3 years
The CCB contributes $46B annually to the Canadian economy – exceeding the economy of Nova Scotia
CCB-related spending drives $85B / year in revenues and $18B in gross profits to businesses
453,000 full-time equivalent jobs are contributed by the CCB, 2.5% of the Canadian labour force
Every dollar invested drives $2 of GDP and more than 55 cents of is recouped in taxes from economic activity
Therefore the CCB drives $4 of GDP for every net dollar it costs
The CCB has generated $27B in private capital investment and $77B in wage growth since its inception
The CCB has contributed to 3 years of economic growth, low inflation, and unemployment levels at record 40-year lows
Clearly, the Canada Child Benefit is a Canadian flavoured Basic Income which is as close as it gets to a UBI in the real world. It is a huge success hiding in plain sight. it is individual because strictly based on headcount and it is unconditional because you do not have to do anything special to deserve it, and you can do with it as you please, no questions asked. Furthermore, it is a regular, predictable, cash transfer paid monthly, for which you can sign up before you are even born. It is not means-tested. However, it is income-tested, which means wealthier families are phased out from the benefit. Does it deviate in some ways from the ideal, orthodox form of Basic Income? Of course! Where do we find ideal forms in the real world?
A similar demonstration can be made for Old Age Security. Since the facts show the economic impact of Basic Income for ages 0-17 and 65+, why not expand the programs to all those in between? Why not start right away with ages 18-19, who need the money to stay in school or get a good start in life, some other way?
As the incumbent Liberals struggle in the polls and are headed toward a minority government status in the October 21st elections, according to the latest projections, Basic Income advocates around the world can only look on in dismay at this missed opportunity to benefit from changing the narrative about Basic Income in Canada.
Although the nomenclature of Unconditional Basic Income (UBI) is notoriously anarchic, clearly the federal Liberal Party of Canada was considering such a plan. In the article, the Canadian Press reports:
“Prime Minister Justin Trudeau and Social Development Minister Jean-Yves Duclos have argued that the Liberal-created Canada Child Benefit, among other measures, amounts to a guaranteed minimum income already.”
Yet not a word about this, 28 days into the campaign, as I have reported above.
Unconditional Basic Income was never mentioned even if there is no question that it helps reduce poverty. This is just not the best argument to support it when powerful economic data is available.
Why the Trudeau Liberals have chosen not to play the UBI card, I couldn’t say. They may come to regret the mistake.
Jonathan Herzog is a Democratic candidate currently running for US Congress in New York’s 10th District. He is attempting to unseat Rep. Jerrold Nadler, chairman of the House Judiciary Committee, in next year’s election.
Herzog is a former Iowa campaign staffer for US Presidential candidate Andrew Yang, who is currently polling in sixth place according to the polling average by RealClearPolitics.
Herzog has adopted many of Andrew Yang’s policy positions, including Yang’s central campaign pillar – The Freedom Dividend – where all Americans above the age of 18 would receive $1000 each month, regardless of their income or employment status.
Jonathan Herzog holds an undergraduate degree from Harvard, an MBA from NYU Stern, and a JD degree from Harvard Law.
Dawn Howard: When did you first become aware of basic income?
Jonathan Herzog: I learned about Universal Basic Income a long while ago, but first committed myself seriously to fighting to make it a reality when Andrew Yang launched his bid for President.
DH: Have you been in touch with the Yang campaign or Andrew Yang himself since you announced? If so, what has the response been?
JH: Andrew and the entire Yang campaign have been so awesome and supportive!
DH: Do you believe that others will follow your lead in running for office on a platform of Universal Basic Income because they were inspired by Andrew Yang’s campaign?
JH: A number of folks in New York and across the country have already announced their runs for Congress on Universal Basic Income, such as James Felton Keith and Chivona Newsome in NY, as well as David Kim in Los Angeles. It’s incredible to see the momentum – 2020 is the year to bring it across the finish line.
DH: Given that poverty is typically considered a bipartisan issue, how feasible would it be to implement a small-scale basic income pilot in one of the boroughs of New York City, given the state’s current budget concerns and overall political climate?
JH: We’re seeing a number of local basic income pilots arise in cities across the country, but they’re mainly privately financed. No single entity has the requisite scale or scope to pass basic income other than the U.S. federal government. It’s why I’m running for Congress. The goal is to implement Universal Basic Income nationwide in 2021.
DH: One of the things that has been so fascinating to watch as Andrew Yang’s campaign grows is the way that many Trump supporters and conservatives gravitate towards his message and ideas – particularly The Freedom Dividend of $1000 every month. Have you been receiving a similar response from conservative voters in your district?
JH: The message truly is “not left, not right, but forward.” My district is heavily Democratic, but even so, the bipartisan appeal of the Freedom Dividend is resoundingly clear.
DH: Many activists within the basic income community posit that our current economic system (capitalism) is inefficient and unsustainable and that eventually, we must transition to a system that better addresses the core needs of humanity and the planet’s ecosystem. Do you see basic income as a type of incremental step toward this transition?
JH: I think Andrew Yang offers us a meaningful way forward with what he calls “Human-Centered Capitalism,” which essentially refers to a more inclusive set of measurements to measure economic progress and growth, including environmental sustainability, mental health, and freedom from substance abuse, and other quality of life metrics. Basic income is part and parcel of this transition to a more sustainable, healthy, human-centered economy.
If you would like to learn more about Jonathan Herzog, you can visit his web site: www.herzog2020.com
This is a guest post by Rahul Basu for The Indepentarian Blog. Welcome, Rahul.
Author: Rahul Basu
The Future We Need
This is a comment on Karl Widerquist’s excellent proposal for a People’s Endowment. I’m a member of The Future We Need (TFWN), a global campaign to make the intergenerational equity principle foundational for our civilization. Similar to Karl, the core idea is that we, the present generation, are simply custodians over what we inherit. We must ensure that future generations inherit what we did. Ideally, we would leave a bequest. Importantly, if we fail to follow this rule, then each successive generation becomes poorer with civilization collapse and human extinction as the final result. And it is clear that our current civilization has been consuming its capital base, bringing these possibilities into fruition.
Capital vs revenue
We make a critical distinction between capital (the corpus of our inheritance) and revenue – the surplus after we ensure the corpus is kept whole. Minerals, being non-renewable, are purely capital in nature. Broadcast spectrum, regenerated each instant, is purely revenue in nature. When companies (like nuggetsbygrant.com) invest in minerals that they extract and sell, the entire proceeds must only be used to fund new intergenerational assets to ensure the endowment corpus remains intact. In the case of minerals, we insist that the proceeds only be saved in a future-generations fund (FGF) as Karl also suggests.
Only the real income from the endowment, ie, the income after compensating for inflation, may be used or distributed. By contrast, the fees for the broadcast spectrum could be used as it is a renewable resource without first saving it in a future generations fund. Reasoning from property rights logic, we insist that all such recurring income from public endowments must be distributed only as a citizen’s dividend. A diversion of the recurring income to the budget is effectively imposing a per head tax. Of course the government may tax the people, even the dividend, through explicit legislation, thereby strengthening the social contract.
Defending the commons
If we reason from Ostrom’s principles for long lived commons, an important aspect is that the commoners must benefit directly from the commons. In the absence of this direct benefit, there is little reason to defend the commons, and it will be lost. Alaska’s famous Permanent Fund Dividend was explicitly designed to link Alaskans to their Permanent Fund and to help defend it for future generations of Alaska. The endowment income and especially its capital are a great political temptation. As long as the income is absolutely equally distributed, it affords no help in creating a winning electoral coalition.
Unlike Karl, who suggests a 50:50 split of the income between a dividend and the budget, we insist that the only distribution from the endowment be as a Citizen’s Dividend. The primary reason is that any other division between the dividend and the budget is fundamentally arbitrary. Even if only 1% is currently diverted to the budget, through budget crises, politicians will attempt to capture more until nothing is left. Only a rule that distributions must only be through a dividend can be defended against political attack. And without the dividend, even the fund will come under attack. While protecting the endowment for future generations is the principal reason behind our rules, our posts Why income distribution only as Citizen’s Dividend and Why 100% to Permanent Fund deal with other common objections to this austere but logical structure.
Henry George
Sweden
Henry George argued that increases in property prices have the impact of reducing wages as low as possible. He also argued that property values increase due to society. While a piece of land in Central London is worth much more than equivalent land in a remote area, the increase in value is due to society creating London, not due to the acts of the professional property manager or the owner. Henry George argued that a land value tax would compensate society for its contribution, while reducing incentives for keeping land idle.
In a similar vein, Dag Detter, the former president of Statsföretag, a Swedish government holding company and national wealth fund, created to centralize and consolidate state ownership of public commercial assets, argues that there are many idle assets on government balance sheets that if better utilised can conservatively provide $2.7 trillion a year. In fact, it turns out that most governments do not even know what real estate assets they own.
Norway
In the public sphere, Norway’s management of its North Sea oil endowment, in particular its rule of saving all the proceeds from selling its oil in an intergenerational fund, is considered one of the leading examples for nations to emulate. There is an interesting back story. Norway separated from Sweden in 1905. One of the first issues was to deal with hydro power plants that had just been set up by foreign companies. The then Minister for Justice, Johan Castberg, was influenced by Henry George and the US progressive movement (usually thought to start with the publication of Henry George’s Progress and Poverty in 1879). He put in place laws that permitted the hydro power plants to run, but that they would revert to public ownership after 60 years. Today, this is called a BOT – Build-Operate-Transfer.
The laws were called “waterfall” laws. The name actually refers to the idea that the hydro plants “fall back” to public ownership, the legal doctrine of escheat. There is also a connection to Intellectual Property rights regimes, where the IP reverts to public ownership after a period of time. Conceptually, this seems to indicate that private ownership of property is at the sufferance of the commoners, and all private property could be required to revert to the commons over time.
Returning to Norway. These hydro plants were returning to public ownership in the late 1960s. Norway’s first oil field, Ekofisk, was discovered in 1969, with this experience fresh. Apparently, this influenced a number of aspects of how Norway managed its oil for the benefit of the people first but in partnership with private enterprise.
Singapore
Karl suggest that the fund corpus be managed such that it grows and we leave a bequest for future generations. This is something that TFWN supports as well. Temasek, one of Singapore’s two large SWFs, follows a more challenging rule that its corpus must remain constant as a share of Singapore GDP. In effect, this implies reinvesting not just to keep pace with inflation, but to keep pace with the growth of the economy. Consequentially, only the return in excess of the economy growth rate can be distributed. This rule has the effect of keeping the endowment proportionate to the overall economy. If the rule of distributing income above inflation is followed, the endowment would remain static while private property would increase, making the endowment less and less relevant. As a corollary, it also puts a very high hurdle rate for investments from the fund. It is worth noting that Singapore’s model for management of its land (90% still in public ownership, 80% living in public housing) fits well with the ideas of Henry George. And interestingly, Singapore also occasionally pays a bonus to its citizen’s when the budget is in surplus.
Framing is crucial
Karl’s article contains a couple of seemingly minor terminology issues that actually have very significant consequences.
Erroneous government accounting incentivizes extraction
There is an important framing error in the use of terms such as “windfall revenue”, “income” or “earning” in connection with the proceeds from selling oil. Selling the crop of the family farm generates revenue. However, the proceeds from selling the family farm is capital, not revenue. The use of “windfall revenue” hides the true nature of the oil sale. The origins are in government accounting and reporting. Governments worldwide, following IMF’s Global Financial Statistics Manual 2014, erroneously treat the proceeds of selling their shared mineral endowment as “revenue”. More extraction = more revenue = good. Hence the enthusiasm to open the Arctic Refuge to oil exploration and the opening of Pebble mine in Bristol Bay, both in Alaska.
If minerals are seen as a shared inheritance, then different questions arise. Why is the mineral endowment being sold instead of keeping them for the use of future generations (who may have less environmentally destructive practices)? Why now? Will Alaska achieve zero loss or will some of the value be captured by the extractive companies by changing terms in their favor through political contributions, lobbying and bribes?
As Karl has pointed out, it is apparent that Alaska is selling its oil for lower than its true value. (Note that the losses due to under-recovery of the oil value is effectively a per head tax on inherited wealth – the value of the endowment reduces and everyone loses equally.) Proper accounting would require these losses to be made good. Seen clearly, more extraction of this nature = larger losses = bad.
Further questions arise. Will the entire proceeds be saved in the Alaska Permanent Fund? Will the only distribution of the income be through the Permanent Fund Dividend? Nothing less will ensure that future generations receive their rightful inheritance.
As Karl points out, Alaska saves less than 20% of the proceeds from selling their oil wealth in their Permanent Fund. And recently, a bill has been enacted providing for the use by government of a part of the income of the fund. They are consuming their shared mineral inheritance, cheating all future generations of Alaskans. If ordinary Alaskans understood this, surely both the Arctic Refuge and the Pebble mine decisions would be questioned.
What should be called a tax?
A related important framing issue plays an important role in the Alaskan struggle to protect their Permanent Fund and Dividend. Revenues, income and earnings imply something has been provided in exchange. Taxes are unrequited payments, ie, payments without any directly reciprocal consideration. Grover Norquist’s Americans for Tax Reform’s Taxpayer Protection Pledge is signed by most US Republicans and requires voting against any new taxes or tax increases. As a consequence, elected Republicans only vote for tax reductions.
Alaska has four broad choices in balancing its budget: (a) reducing spending, (b) reducing its losses from selling its oil (though ideally this should go to the Fund), (c) imposing an income tax or increasing the sales tax rate, and finally (d) diverting the income of the Permanent Fund to balance the budget.
As we have seen, income and sales taxes are opposed. The consideration for selling oil is often called an “oil tax”. However, calling them a tax means Republicans adamantly oppose increases, even when all evidence points to massive unrecognized losses. Any diversion of the PF earnings to the budget is in effect a per head tax (or a negative basic income). But since the diversion to the budget isn’t called a tax, Republicans are happy to support it. So the only options seem to be to cut spending or divert the Permanent Fund earnings.
If the terminology changed – we used “price for selling our oil endowment” instead of “oil taxes”, and “a per head tax” instead of an unremarked budget appropriation, then incentives for the Republican politicians change. Since spending cuts alone cannot balance the budget, increasing the price of the oil (ideally it should all go to the Permanent Fund) or explicitly imposing a tax are the only feasible options.
All of this is hidden by the terminology we use, underpinned by the error in government accounting. The IMF must amend its GFSM 2014 to treat the proceeds of selling mineral wealth as capital received in exchange, not “revenue”. And every single individual must change the terminology used to reflect the correct situation. Without this, the incentives to extract and consume our natural resource endowment will inevitably lead to civilization collapse, perhaps even human extinction.
Conclusion
The idea of a people’s endowment is extremely powerful. It hides behind the success of nations such as Norway, Sweden and Switzerland. It is important that ordinary people share in the benefits of the endowment to ensure its protection. Unfortunately, even the language we use, underpinned by a crucial accounting error, is a significant contributor to the increasingly likely end of our civilization.
If minerals are seen as a shared inheritance, then different questions arise. Why is the mineral endowment being sold instead of keeping them for the use of future generations (who may have less environmentally destructive practices)? Why now? Will Alaska achieve zero loss or will some of the value be captured by the extractive companies by changing terms in their favor through political contributions, lobbying and bribes?
