by Karl Widerquist | Nov 15, 2017 | Opinion, The Indepentarian
This essay was originally published in the USBIG NewsFlash in December 2001.
As I was putting this newsletter together, the National Bureau of Economic Research officially announced that the U.S. economy has been in recession since last March. The delay in the diagnosis is nothing unusual because a downturn is not considered a recession unless it lasts for a significant period of time. But the point at which a recession is recognized is a good moment for reflection on the performance of the economy. Even though the United States is in a recession right now, the long-term performance of the economy as a whole over the last 20 years has been quite good. The expansion that ended in March lasted for exactly 10-years—the longest in U.S. history—and it came after a short and mild recession in the early 1990s, which followed a long, stable expansion during the 1980s. The last 20 years have had the most stable growth in U.S. economic history. The growth was not particularly rapid, but there is a lot to be said for stability. The economy may decline by a few percentage points over the course of the recession, but an economy that grows by 2 or 3 per year during economic expansions can weather the occasional downturn. Thus, although there are worrying signs on the horizon (such as a persistent trade deficit and a high and growing level of indebtedness), the verdict on the performance of the U.S. economy as a whole over the last 20 years has to be largely positive.
Good performance of the economy as a whole does not necessarily mean that it has performed well for all individuals. If one judges the success of an economy by the well being of its less advantaged individuals the performance of the U.S. economy has been terrible over the last 20 years. Real wages at the low-end of the wage spectrum have stagnated or even declined slightly. Usually, poverty declines slowly during expansions and increases quickly in recessions, but there has been no lasting progress in reducing poverty since the early 1970s. The official poverty rate has been stuck in a range between 11% and 15% since the early 1970s. There was an extremely rapid decline in poverty in the 1940s and again in the 1960s, but it has not been repeated since. The ’40s, ’50s, and ’60s were marred by frequent recessions, but individuals across the economic spectrum were able to count on gains during the expansions that would more than make up for losses during recessions. The ’70s were a period of instability in which the less advantaged lost ground, and since then there has been no return to the progress experienced earlier.
Why were the experiences of the less advantaged so different during the good economic times of the ’80s and ’90s than they were in the ’40s, ’50s, and ’60s? The difference is largely one of government policy. The earlier period saw the GI Bill, the fruition of Social Security, the expansion of AFDC and Medicare, increases in the minimum wage and the creation of Food Stamps and Medicaid. Since the early 1970s, many of these programs have been canceled or allowed to lapse or have been effectively cut by not being adjusted for inflation. These programs were not the best possible programs for fighting poverty, but they were all we had, and rather than being reformed, they’ve largely been cut with little or nothing to replace them aside from TANF, which seems to make welfare so unpleasant that jobs without living wages are preferable. TANF has been declared a success simply because it has reduced the number of families on welfare. The success of TANF should be measured instead by whether it reduces poverty and whether it makes children healthier and happier and whether it helps them grow into better-adjusted adults. Should it be any surprise cutting nearly every program designed to aid the poor should slow or stop the progress we had been making toward the reduction of poverty? Something else is needed if poverty reduction is our goal.
During recessions, people often voice opposition to direct anti-poverty policies, arguing that the best way to help people is to get the economy moving again. During expansions, the argument is usually to keep it moving or to get it moving faster. They say, “a rising tide lifts all boats,” and everyone benefits from economic growth. But the lesson to learn from the last twenty years of economic expansion is that these arguments are simply false. The incomes of low-wage workers stagnated during the good economic times of the ’80s and ’90s because policy turned against the redistribution of income, but they increased during the good economic times of ’40s, ’50s, and ’60s because policy favored increased redistribution of income. There is no inherent mechanism in a capitalist economy to ensure that everyone will share in the fruits of economic growth. I believe that a basic income guarantee is essential to ensure that everyone shares in our economic success. This and other strategies for better distributional equity will be discussed at the First Congress of the U.S. Basic Income Guarantee Network. I invite you to join us.
Karl Widerquist, New York, NY, December 2001.
by Kate McFarland | Nov 8, 2017 | News
In an interview with BBC News, Nobel Laureate economist Joseph Stiglitz warned that basic income (citizen’s income) should not be the current priority of the Government of Scotland.
On September 5, First Minister Nicola Sturgeon announced that the Scottish Government would provide funding for basic income trials in the regions of Fife, Glasgow, North Ayrshire, and Edinburgh, where pilot studies of the policy had received the support of local authorities.
During October’s Inclusive Growth Conference, Sturgeon reaffirmed the government’s commitment to supporting trials of basic income, despite acknowledging that the policy might prove infeasible in the end:
Despite the fact that this has some critics, we are going to work with interested local authorities to fund research into the feasibility of a citizen’s basic income scheme.
I should stress our work on this is at a very early stage. It might turn out not to be the answer, it might turn out not to be feasible.
But as work and employment changes as rapidly as it is doing, I think it’s really important that we look and are prepared to be open-minded about the different ways in which we can support individuals to participate fully in the new economy [1].
Stiglitz, who has served as an economic advisor to the Scottish Government since 2012, believes that pursuing a basic income would represent misaligned priorities in light of Scotland’s fiscal constraints. Instead, the distinguished economist urges the government to prioritize benefits targeted to those who need them most, job creation to ensure a job to all who want one, and a livable income for all who work full-time.
When asked about the UK’s interest in basic income during an interview with the BBC’s Sunday Politics Scotland, he replied:
I think the point of a citizen’s income is that it recognizes rights of ordinary individuals–that supporting individuals, social protection, is not aimed at those who have been left behind, but is a basic part of our society.
But I do worry about two things. One, as you say, there are fiscal constraints. Should the scarce money be used to give everyone a basic amount, or should it be targeted at those who have particularly strong needs? I think there needs to be some targeting.
Secondly, over the long run, our responsibility as a society is to make sure that everybody who wants a job can get one. And the underlying problems of the lack of employment and lack of adequate pay–anybody who works full time ought to have a liveable income–those are the issues that, in the long run, we need to address.
Stiglitz has previously been hailed in the basic income community as one of a long Nobel-winning economists who have (reportedly) endorsed basic income. His presumed endorsement took place at the World Summit on Technological Unemployment in February 2015, when he was asked if he supported basic income as a policy response to technological unemployment, and replied “Yes, that’s part of the solution,” before going on to stress that basic income alone is not a complete solution.
In October 2016, Stiglitz again said that “the idea of a basic income is a good idea” in response to a question from Vox reporter Ezra Klein (“What you do think about a universal basic income in America?”). He added, however, that he had not yet made up his mind about the question of whether it is better to target limited resources to those most in need:
If you don’t have a lot of resources, isn’t it better to try to target the limited resources you have at those who really, really need it, the people who are disabled, the people who are elderly without other sources of income, a variety of people who are seriously disadvantaged. The problem with the universal basic income is that you give a flat amount to a large amount of people, and that means, because you have so many people, you can’t give as much as you would to help those who most need it.
He went to note that, “on the other side of the coin, those who most need it have difficulty in navigating the bureaucracy” — a problem that would be avoided by a basic income.
It appears, then, that Stiglitz has not changed his mind on basic income so much as determined that, in Scotland and the UK, fiscal constraints and the need for targeted benefits outweigh the advantages promised by universality.
Watch Stiglitz field a question basic income on Sunday Politics Scotland:
[1] Quoted in Tom Martin, “Sturgeon vows to press ahead with radical benefits overhaul, despite official warnings,” Express, October 21, 2017 (accessed October 27, 2017).
Photo: “Old Scotland” CC BY-NC-ND 2.0 Tatters ✾
by Eduardo Abreu | Nov 5, 2017 | News
Ellen Brown. Credit to: Signs Of The Times
Writing for Common Dreams, Ellen Brown makes a case for how Universal Basic Income can be achieved without increasing Taxes or Inflation. At first glance, most will consider this not to be possible, but Ellen argues that through quantitative easing, in which money flows directly into the real economy instead of being put into banks, the opposite may turn out to be true. In line with her reasoning, the author quotes Nobel prize-winning economist, Joseph Stiglitz:
“When the government spends more and invests in the economy, that money circulates, and recirculates again and again. So not only does it create jobs once: the investment creates jobs multiple times.”
As a consequence of this economic growth, tax and fiscal revenues increase while demands for unemployment benefits and social programs to help the poor, which are paid by the government, go down. All this strengthens a country’s fiscal position. On the other hand, one might assert that getting “new money” into the economy, supply would grow too large and consumer prices shoot up irreversibly, leaving the central bank unable to retrieve its investment. At this point Ellen quotes Prof. Stiglitz again, who states that money issued by the government, through UBI, simply returns to it in fiscal revenues.
Ellen further elaborates this in the light of the “velocity of money”, the number of times a dollar is traded in a year, which in a good economy is around seven, which means that on each dollar, taxes will be paid seven times, as it changes hands. $1,00 traded seven times on a 26 percent tax results in $1,82 back to the government, more than it initially put out. Also, it is generally taught in economics class that, from the formula “MV = Py”, when velocity of money (V) and the quantity of goods sold (y) are constant, adding money (M) will drive prices up (P). What is not taught, as Prof. John Harvey, quoted by Ellen, pinpoints, is that V and y are not constant, meaning that demand and supply rise together, leaving prices unchanged.
Applying this logic, Ellen sets forth that new demand must precede new supply, that is, employers will add the workers needed to create more supply, once they know there is demand for their goods and services. This has implications for unemployment, for example, which is at 9,4 percent in the US as of January 2017, a condition which at the rise of many innovations may get worse.
Nevertheless, a concern with hyperinflation is thrown around in opposition to this form of injecting money into the economy, to which Ellen Brown quotes Prof. Michael Hudson, who states that most cases of hyperinflation in history stemmed from foreign debt services collapsing the exchange rate, not domestic spending, calling upon the example of post World War I Germany.
In short, UBI can create more demand and drive new productivity by paying a dividend for living in the 21st century, when automation frees us time to engage in more meaningful pursuits.
More information at:
Ellen Brown, “How to fund a Universal Basic Income without increasing taxes or inflation”, Common Dreams, 4th October 2017
by Patrick Hoare | Nov 4, 2017 | News, Research
In a paper released in October 2017, the International Monetary Fund (IMF) has analysed the feasibility and effects of introducing a Universal Basic Income (UBI) in various economies, looking at how it might help ease destructive levels of inequality present in many societies around the globe.
The ‘IMF Fiscal Monitor: Tackling Inequality’ focused on how fiscal policy can help governments address high levels of income inequality (from here simply ‘inequality’) while minimizing potential trade-offs between efficiency and equity. As part of the second half of the discussion, the UBI was considered as a mechanism of fiscal redistribution currently being widely debated.
Underpinning the analysis of UBI were a number of premises. The first of these was the assumption that some inequality was inevitable within a market-based economic system. Even though data reveals a decline in the global levels of inequality over the last three decades, the increased inequality within certain economies has had adverse effects, not only in terms of social corrosion and political polarisation but also in terms of economic prosperity. As such, the inequality the report sought to address was the type that was specifically having a negative impact.
The second premise clarified that measures aiming to alleviate inequality should not come at the expense of achieving economic GDP growth. Supporting this, data was presented showing that between 1988 and 2008, across all types of economies, there had been an average growth of real income per capita across every income bracket, even if the increases had been greater for those earning more. It was also shown that an increase in overall growth between 1985 and 2015, in particular in East and South Asia and the Pacific Region, had coincided with huge reductions in relative poverty and absolute poverty, and, therefore, with increases in social welfare. With no clear trend between increased inequality and growth, and with various studies suggesting, contrarily, either that redistributive policies may slow growth or that redistributive policies may help growth (given that the marginal propensity to consume among the poor is higher), it was determined that, on balance, growth should not be unduly undermined.
The third condition stipulated that, given the limited fiscal space most economies operate within, simulations measuring the impact of a UBI should be performed under the assumption of budget neutrality. The vast drop in progressivity among the tax systems of the OECD member states, in particular the drop in the average top rate of personal income tax (PIT) from 62% to 35% between 1980 and 2015, does not seem to have been economically motivated, since during this period there was no evidence of: increased income tax elasticity; proportionally less income going to the top earners (the opposite was the case); increased support for the social welfare of the rich; decreased support for redistribution (the opposite was the case); or, a more progressive tax system being harmful to growth (there was some evidence to suggest the opposite could be the case). It was therefore accepted that this lower progressivity must be the consequence of political preference. As such, in order to control for various political perspectives, the funding for a UBI would have to come from a combination of spending cuts and increased taxes.
Following the establishment of such conditions, the central examination of the UBI was based around simulations of implementation within eight economies: Brazil, Egypt, France, Mexico, Poland, South Africa, the UK and the US. The choice of countries controlled for heterogeneity in geographical area, developmental stage (emerging market and advanced economies), and the generosity and progressivity of the countries’ current noncontributory transfers. The analysis of a UBI was then judged on whether it could increase coverage (the number of beneficiaries) and progressivity (those most in need benefiting proportionally more) of current redistributive programs, without impeding growth.
In almost all cases coverage increased, given the universality of UBI, however improvements in progressivity very much depended on the financing method and the existing level of progressivity within a particular economy. Where UBI was seen as a replacement for current benefit systems, countries with low progressivity but high coverage, such as South Africa, saw larger swathes of their lower earners suffer at the expense of a smaller percentage of beneficiaries within the same income category. In this circumstance, where consumption inequality is higher as a consequence of income inequality, progressivity as well as coverage could be improved if a UBI was financed by increased indirect taxation (consumption tax) rather than through cuts to the current system. In economies where both coverage and progressivity are already relatively high, such as the UK and France, replacing the current system with a UBI would be regressive. Similarly, even in a country where progressivity is high but coverage low, such as Brazil, the introduction of a UBI as a replacement would likely trade one off against the other, ultimately negatively affecting lower income households. In the situation where PIT among the top-earners is increased as a way of financing a UBI (altering the economic behaviour of these payers), the model calibrated to the US economy (moderate coverage and progressivity) found that, although efficiency, in terms of output forgone, was lower than against a system with indirect taxes, the PIT increase yielded greater overall welfare, especially where aversion to inequality was high. The final scenario, where simulations focused on comparing a UBI funded either directly, indirectly or through cuts, against the expansion of a benefit – the Earned Income Tax Credit (EITC) in the US – at the same fiscal cost, found that, due to the targeted nature of the EITC subsidy, welfare improvements were higher than would experienced under the implementation of a UBI.
In summary, The Fiscal Monitor concluded that a perfectly implemented means-tested system would always be superior to a UBI, since it would ensure the necessary coverage and provide the greatest level of progressivity within the bounds, constraints and conditions assumed. Therefore, in countries where there is a ‘good’ transfer program, the finance necessary to fund a UBI would be better used on improving the current system. That said, in reality, given the existence of imperfections in such systems, a UBI could be a powerful means of combating poverty and extreme poverty, especially in countries where both progressivity and coverage is poor. It was also noted that a UBI could be implemented for other reasons, such as in combatting job market disruptions associated with technological progress.
More information at:
IMF Publications, ‘IMF Fiscal Monitor: Tackling Inequality, October 2017’, International Monetary Fund website, October 2017
by Patrick Hoare | Nov 1, 2017 | News
David Simon. Credit to: Flickr
Whilst talking about his new HBO show ‘The Deuce’, David Simon, creator of the award winning series ‘The Wire’, has advocated for a “guaranteed income” to be introduced in the US.
During an interview with David Remnick on The New Yorker Radio Hour on the 29th of September, when asked about the nature of his politics given the content of his journalism and shows, Simon said that he was a “lefty” on “around 85% of the issues” citing a “guaranteed income” as an example of a policy he supported. He explained that, as far as he could see, “we’ve reached the death of work”, and “where we’re going as a society” in terms of “automation” means that we should be guaranteeing people some sort of income. Whilst it was not clear from the interview whether Simon was referring to a Universal Basic Income (UBI) or some form of Guaranteed Minimum Income (GMI), he explained that direct cash transfers to the financially poor were economically viable since the “20 or 30 or 40 thousand dollars” people would receive would go “right back into the economy”. He also pointed out that former US president Richard Nixon initially supported a form of GMI in the 1970s, alluding to the fact that even those who weren’t traditionally seen as being in favour of governmental welfare based solutions to economic growth could be amenable to related mechanisms.
Simon’s thoughts are somewhat of a continuation of the ideas he expressed in a talk at the Festival of Dangerous Ideas in Sydney in 2013. In a critical analysis of the prevailing iteration and implementation of capitalism, he lamented the idea that ‘profit’ was the metric through which we judged the health of both an economy and a society. Although he was unwavering in his support of capitalism as an economic model through which growth and progress occurs, he said that the use of it as a framework to assess the moral justness of people’s experience was mistaken and has led to ‘greed’ being considered as good. In order that we fulfill the notion of what he considers society to be – “that everybody feels as if, if the society succeeds, I succeed, I don’t get left behind” – he believes that “labour doesn’t get to win all its arguments, [and] capital doesn’t get to [either]”, but rather that “it’s in the tension, it’s in the actual fight between the two, that capitalism actually becomes functional”. In this regard, his advocacy of some sort of guaranteed payment policy chimes with other social commentators such as Peter Barnes, author of ‘With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don’t Pay Enough’, who see basic income as a social dividend rightfully distributed to everyone as a way of representing the fact that the majority of wealth is created together by society.
More information at:
David Remnick, ‘David Simon on the Rise of Pornography’, New York Public Radio, 29th September 2017
‘About Basic Income’, Basic Income Earth Network
Peter Barnes, ‘With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don’t Pay Enough’, Amazon Books, 30th August 2014
