by Guest Contributor | Feb 15, 2016 | Opinion
Funding basic income through taxation is costly. At the same time, low consumer demand is a major worry. The European Central Bank could kill two birds with one stone by giving money directly to citizens.
Guest post by Teemu Muhonen, originally posted on taloussanomat.fi
Translation by Petri Flander
Finnish social welfare agency KELA’s basic income experiment has got plenty of attention in Finland and elsewhere. This is not surprising: in recent years various proposals for a basic income have been submitted by a growing number of scientists, politicians and non-governmental organizations in several countries.
According to a study by the Municipal Development Foundation, 51 percent of the Finnish population supports basic income. Last year, even greater support was found on surveys in France and the Spanish region of Catalonia.
The popularity of unconditional basic income can be explained by the fact that it can be argued from various standpoints: the left is attracted to the idea of eliminating poverty and making citizens freer; the right wants to simply welfare benefits, and encourage people to get out of benefits and take up whatever work is available.
There are problems with basic income models that still need attention. The most common of which was brought up last week In an interview on the Finnish public broadcaster Yle, history professor Juha Siltala brought up one of the most common objections: “We should really consider a basic income that you can really live on. But who pays it then?”
When KELA hinted that they might pay up to 800 euros per month, unconditional and tax-free, to participants in their basic income pilot, Canadian professor James Milligan dismissed the idea as “typical fiscal nonsense.” According to Milligan, if the amount was given to the whole population, it would require doubling the Finnish tax rate.
But what if a universal basic income is funded by other means, in addition to taxation?
The ECB to the rescue
In recent years, the European Central Bank (ECB) has tried to support the eurozone’s lagging inflation through “quantitative easing” (QE), a measure used by other central banks as well. The ECB has been buying securities from institutional investors such as banks, using large amounts of fresh money.
So far, national economies have not responded as hoped: despite the increase in the value of securities, consumer prices have stagnated.
Last year the leader of the British Labour Party Jeremy Corbyn promoted the idea of “People’s QE” in which the Bank of England would channel money directly to citizens, not banks.
The proposal received wide support, and many people believe the ECB should follow suit. Even former IMF chief economist Olivier Blanchard praised the idea.
The expression that Corbyn used is misleading, however, because in his proposal the money is not channeled directly to the public, but to government, which then uses it to stimulate the economy through infrastructure projects and other measures.
Another model was suggested by a group of 19 economists, who signed a letter published in the Financial Times (FT) in March last year. They proposed that the money should be given directly to citizens of the eurozone countries. The idea was to use ECB money to give 175 euros per month to each citizen for 19 months.
Economist Milton Friedman once called this kind of payments “helicopter money”: it is as if the money is just thrown at people from the sky, with no strings attached. Effectively, what the FT letter proposed was a eurozone-wide unconditional basic income paid by the ECB.
One problem with helicopter money is inflation
If the ECB funds infrastructure investment and fiscal policy, it strengthens the position of states substantially. The impact of a pan-European basic income would be the opposite. It would transfer a substantial part of social security funding from states to the ECB. In addition, allocation of money would be determined by citizens, not governments.
The FT letter did not call for a permanent and comprehensive basic income. After all, 175 euros per month is a significant sum in the poorest countries of Europe, but not much at all in countries like Finland.
There are other problems. If the ECB pays a higher basic income, rising demand could lead to massive inflation, unless production of goods increased at the same pace as demand. ECB’s quantitative easing has inflated equity prices for a long time, but sharp increases in the prices of real goods are generally considered more harmful to the economy.
In addition, direct monetary payments to states and citizens would be incompatible with the EU treaties and further limit ECB’s independence.
Despite these problems, a pan-European basic income would have a distinct advantage when compared to a national basic income. A national basic income in countries that attract most migrants would make them an even more popular destination. A pan-European payment would equalize the differences between countries.
Two birds with one stone?
One model discussed by basic income activists would entail that the ECB pays the same amount to all European citizens. The countries with higher living expenses would top up their citizens’ basic income from their national treasury, or from the common EU budget.
Such an arrangement may sound utopian, as it would require a major revision of existing national social security frameworks, and probably a reform of the entire financial system.
But the reality is that the challenges faced by the current welfare arrangements and the economic system are reaching a crisis point. Many jobs have been shredded, and, as technology advances, returns from labor and tax revenues no longer increase as labor productivity rises.
Still, we need money to sustain consumer demand and fund social security. A pan-European basic income financed by the ECB could solve both problems. There is no doubt that we will see more of such discussions in the public sphere in the near future.
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Photo Credit CC European Central Bank
by Vito Laterza | Dec 10, 2015 | News
At the end of November, a coalition of eurozone campaigners, civil society organizations and economists launched the campaign Quantitative Easing for People, calling for the European Central Bank (ECB) to radically change its approach to the current Quantitative Easing (QE) program. At the time of writing, 75 economists have endorsed the campaign.
The initiative brings together groups including Social Justice Ireland, Collectif Roosevelt (France), World Future Council (Germany), FairFin (Belgium), European Alternatives, and Basic Income Europe. The campaign is also supported by organizations from Italy, Greece, Spain, Austria, and the Netherlands; see the full list here.
QE is an unconventional monetary policy used by central banks to stimulate the economy. It usually consists of buying government bonds or other securities in order to lower interest rates and increase the money supply. QE began in the eurozone earlier this year, and the ECB is currently creating 60 billion Euros each month. Matthias Kroll from the World Future Council said: “So far the ECB’s QE program has proven to be ineffective in raising inflation back to its 2% target.”
“Flooding financial markets inflates share and bond prices, which makes the rich richer, but does little to help households and business. In fact, QE is helping fuel a new financial bubble, laying the foundation for another financial crisis. The eurozone needs a more direct and efficient stimulus.”
European stock markets plunged on December 3, when Draghi announced that the current QE program would be extended by six months to March 2017. This is a sign that even large corporations and financial markets do not believe in Draghi’s QE and expect more.
The aim of the QE for People campaign is to push the ECB to spend the money differently, by focusing on public investment, key social services or redistributive mechanisms like a citizens’ dividend – the last idea resonating well with basic income activists.
The proposal was first put forward in a letter signed by 19 economists and published in the Financial Times in March this year:
Rather than being injected into the financial markets, the new money created by eurozone central banks could be used to finance government spending (such as investing in much needed infrastructure projects); alternatively each eurozone citizen could be given €175 per month, for 19 months, which they could use to pay down existing debts or spend as they please.
Cash transfers under QE for People and basic income have common features. Both are directed to all citizens, with no strings attached. The time dimension differs though, as QE measures are by definition temporary, while basic income is a permanent scheme.
The 75 experts who support the campaign include several pioneers of the idea, such as Professor Steve Keen, Professor David Graeber and fund manager Eric Lonergan, as well as other influential economists and financial analysts like Ann Pettifor and Frances Coppola. These experts signed a statement of support that lays out the reasons behind the campaign:
1. Conventional QE does not work
Since it started in March, the eurozone QE program has not helped to rescue the eurozone economies from stagnation.
2. Conventional QE is risky and harmful
Flooding financial markets inflates share and bond prices, which makes the rich richer but does little to help ordinary people and businesses. In fact, QE is helping fuel a new financial bubble, laying the foundation for another financial crisis.
3. A more direct approach is needed
Countries in the eurozone need to stimulate their economies without increasing public and private debt, without increasing inequality, and without creating bubbles.
4. QE for People is possible
Instead of flooding financial markets, money created through QE should be spent into the real economy, on essential public investment such as green infrastructure, affordable housing and/or distributed as a citizens’ dividend to all residents.
5. QE for People is urgently needed
Given the challenges facing the eurozone, we urge economists, civil society organizations, and people from across the eurozone to join us in calling on the ECB to implement QE for People as soon as possible.
The campaign will focus on raising awareness of the failures of the current QE program, building political momentum around alternative monetary policies and fostering further research. “Having more than 70 economists endorsing the idea is a huge milestone, but this is only the beginning. Our goal is to create a much bigger coalition with citizens, academics and civil society organizations,” said Stan Jourdan, campaign coordinator.
If you want to know more about the campaign, visit the campaign website.
You can join the movement QE for People by signing up here.
Economists can endorse the campaign here.
See also: Stanislas Jourdan, “Europe: 19 economists call on the ECB to make ‘QE for the people’ in a letter to the Financial Times,” Basic Income News, March 27, 2015.
by Stanislas Jourdan | Mar 27, 2015 | News
A letter published today in the Financial Times signed by 19 economists, including BIEN co-founder Guy Standing, calls on the European Central Bank to adopt an alternative quantitative easing policy. The letter includes a call to distribute cash directly to citizens of the eurozone.
As a response to the European Central Bank’s (ECB) plan to inject 60 bn euros a month for the next 18 months into the financial system, 19 economists have signed a letter to the Financial Times calling on the ECB to adopt a different approach which they consider a more efficient way to boost the eurozone economy.
“The evidence suggests that conventional QE is an unreliable tool for boosting GDP or employment. Bank of England research shows that it benefits the well-off, who gain from increasing asset prices, much more than the poorest,” the letter reads.
The signatories offer an alternative:
Rather than being injected into the financial markets, the new money created by eurozone central banks could be used to finance government spending (such as investing in much needed infrastructure projects); alternatively each eurozone citizen could be given €175 per month, for 19 months, which they could use to pay down existing debts or spend as they please. By directly boosting spending and employment, either approach would be far more effective than the ECB’s plans for conventional QE.
The idea of having central banks to distribute cash to citizens has often been called “quantitative easing for the people” – a term coined by Steve Keen, an Australian economist.
Prof. Steve Keen signed the letter, along with 18 other economists, including several advocates for basic income such as BIEN’s cofounder Guy Standing, David Graeber, Frances Coppola and Lord Robert Skidelsky. Guy Standing recently wrote an article outlining a proposal for having the ECB to finance basic income pilot studies in Europe:
“Monthly payments could be provided to every man, woman and child in, say, four areas on a pilot basis, with the sole condition that they would only continue to receive them if they were residing in those areas. People would still be free to move. However, it would help them to be able to stay. Such payments could be made for a period of 12 or 24 months.”
BIEN’s affiliate Unconditional Basic Income Europe also came out pushing for a similar proposal in a recent press release, as “a pragmatic, direct pathway towards an unconditional basic income for all in the eurozone.”
Although the concept of “quantitative easing for the people” and the basic income have common features in the sense that they consist in distributing cash transfers to all individuals no strings attached, a quantitative easing is usually not understood as a permanent scheme, rather a short term measure aiming at stimulating demand.
Here is the full list of signatories:
Victoria Chick, University College London
Frances Coppola, Associate Editor, Piera
Nigel Dodd, London School of Economics
Jean Gadrey, University of Lille
David Graeber, London School of Economics
Constantin Gurdgiev, Trinity College Dublin
Joseph Huber, Martin Luther University of Halle-Wittenberg
Steve Keen, Kingston University
Christian Marazzi, University of Applied Sciences and Arts of Southern Switzerland
Bill Mitchell, University of Newcastle
Ann Pettifor, Prime Economics
Helge Peukert, University of Erfurt
Lord Skidelsky, Emeritus Professor, Warwick University
Guy Standing, School of Oriental and African Studies, University of London
Kees Van Der Pijl, University of Sussex
Johann Walter, Westfälische Hochschule, Gelsenkirchen Bocholt Recklinghausen, University of Applied Sciences
John Weeks, School of Oriental and African Studies, University of London
Richard Werner, University of Southampton
Simon Wren-Lewis,University of Oxford
Photo Credit CC Alex Guibord
by Unconditional Basic Income Europe | Jan 31, 2015 | Opinion
The European Central Bank’s attempt to counter-attack deflationary pressure by giving banks funds raised through QE is doomed to be both ineffective and anti-redistributive. The ECB must consider more unconventional policies if it hopes to get the real economy going again.
Press release by our affiliate Unconditional Basic Income Europe (january 23, 2015)
Update November 2015:
UBI-Europe is one of the 20 organisations that have joined the campaign “Quantitative Easing for People.” Citizens and organisations can join the campaign here: www.qe4people.eu
At the announcement of its quantitative easing program yesterday, the ECB showed that it has learned nothing from recent quantitative easing programs in the UK and the US, where the effects of QE on the real economy has produced no significant results.
“The experience of the US shows that QE is useful to the real economy only when they are combined with expansionary fiscal policies. In Europe, the idea is to combine QE with austerity policies, guaranteed to offset any potential benefits of QE. So, in the absence of a radical change in the eurozone’s fiscal stance, we expect the depression to continue.” said Thomas Fazis, member of UBI-Europe, referring to the conclusion of a recent paper he wrote.
Quantitative Easing is anti-redistributive
At its worst, such a program could increase inequalities. As the Bank of England itself concluded in a recent research paper (pdf): “By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, but holdings are heavily skewed with the top 5% of households holding 40% of these assets.”
In short: this QE benefits the rich, not the poor.
There is an alternative: Quantitative Easing for the People
Unconditional Basic Income Europe calls the ECB for an alternative monetary policy such as distributing QE money directly to the pockets of citizens.
“QE for the people is not just a more efficient approach for directly stimulating the real economy, it is also more fair in the current context of deep social inequalities and the rise of extreme poverty in the eurozone. By doing so, the ECB could target two objectives at once.” Thomas Fazi said.
This might sound radical, yet many economists such as Anatole Kaletsky and Steve Keen have backed the idea.
Several proposals for such a policy have emerged recently, notably from Oxford economist John Muellbauer and the chief European economist for the French investment bank Natixis, Sylvain Broyer. Muellbauer calls distributing 500€ to every citizen in the Eurozone, while Broyer’s proposal amounts to 3,000€.
The amount of QE money unveiled yesterday by the ECB could, alternatively, fund a €2100 annual cheque to all residents of the eurozone.
“Such a policy could be a pragmatic, direct pathway towards an unconditional basic income for all in the eurozone. It would set a precedent.” UBI-Europe’s coordinator Stanislas Jourdan said. “Where citizens can be counted on to spend, banks have not shown with previous QE programmes that they can be counted on to lend.”
Quantitative Easing for the People would not violate EU Treaties
“As opposed to having the ECB financing governments and public entities, handing cash directly to the citizens is not explicitly prohibited by the EU Treaties.” Thomas Fazi explained.
Moreover, such a program would be far more protective of the independence of the ECB. By targeting the quantitative easing money to all citizens without distinction, the institution could not be blamed for interfering with governments.
by Andre Coelho | Dec 30, 2014 | Research
John Muellbauer
Oxford Economics professor John Muellbauer elaborates a rational justification and a simple application plan for giving each EU citizen a 500 €, no strings attached, monthly payment. The money would be printed in the European Central Bank and simply given to registered citizens in the eurozone.
John Muellbauer, “Quantitative easing for the people“, Project Syndicate, November 7 2014
