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Battling Eight Giants with Basic Income

Jan 14, 2019 Guy Standing

The post-1945 income distribution system is irretrievably broken, threatening the market economy. And traditional redistributive tools such as direct taxes, collective bargaining, and labor regulations cannot put things right.

LONDON – In 1942, William Beveridge issued an epoch-defining report that established a model for welfare states in the post-war era. He recognized that the old social protection system had broken down and that it was “time for revolutions, not for patching.” The challenge, Beveridge said, was to slay five giants: disease, idleness, ignorance, squalor, and want.

Today, it is the post-1945 income distribution system that has broken down irretrievably, threatening economic failure and jeopardizing what Klaus Schwab calls “Globalization 4.0.” Today we must fight eight new giants. To do so, we urgently need a twenty-first-century income distribution system in which a basic income plays a central role. Such a system might not slay today’s eight giants, but it would significantly weaken them.

The first giant is inequality – the huge growth in income and wealth disparities within countries that goes well beyond what is captured by measures such as the Gini coefficient. An increasing share of total income is being captured as rent by owners of physical, financial, and so-called intellectual property. Meanwhile, real wages have stagnated or fallen, and ever more people are falling through widening holes in the social safety net. Traditional redistributive tools such as direct taxes, collective bargaining, and labor regulations cannot reverse these structural shifts, however much those on the left might wish.

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Grappling With Globalization 4.0
KTSDESIGN/SCIENCE PHOTO LIBRARY/Getty Images

Grappling With Globalization 4.0

Klaus Schwab argues that global-governance processes and institutions must be redesigned from the ground up.

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Universal Basic Income or Universal Living Wage?
BSIP/UIG/Getty Images

Universal Basic Income or Universal Living Wage?

Laura Tyson & Lenny Mendonca show how minimum-wage laws and existing tax policies can be used to reduce US workers' economic insecurity.

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0 Comments on this paragraph, 8 Comments on this article

mckissick Jan 15, 2019

It's sad that so many, being so invested in this topic, still can't do the full research. They, like Mr Standing, research enough to find that it's a great solution to a pressing problem that includes "a" workable solution... And they stop there to promote that as what must be done.

Further research suggests that as fossil fuels die off, an income from them would also. But as technological advancement increased, income from that would also. But how to fairly and effectively tax technology? Easy. It's proportional to the increased economic activity resulting from it.

But how to separate that economy from the rest? More further research suggests that "the economy" is simply a measure of all economic activity. And since the value of that activity is by definition equal to the transaction amount, why separate at all? Why not tax all economic activity at an exactly equal rate? Would that work or be a problem?

So how much total economic activity exists in, let's say the US? The answer, drumroll 🥁, is estimated by most to be around $5,000 Trillion per year. So how much would that yours for each % that was taxed? That's $50T/yr. More than enough.

So what problems would such a tax create? Well, how would each player be affected? Who are the players? Who is making all those transactions if the official GDP is only 0.4% of that?

That answer is the banks, traders and financial manipulation. But isn't that a bastardization of the real economy anyway? It's just a manipulation by the rich to suck money from those below them by not making anything physically useful. So, can we tolerate less of that if it was reduced? Given that many movements are trying to do just that, is say yes.

So a 1% tax on every transaction would impact whom by how much? That depends on how many times you transactions your money to earn, save and spend it. If that's only once per dollar, then your total tax is 1%. For those leveraging money through 10 transactions per dollar earned, your rate is 10%. Easy. If you make hundreds of thousands of transactions per dollar earned, we don't want you. Your tax rate is too high for you to exist. C'ya. This means the total economy might drop to $1,000T, or $10T revenue. This is more than enough to pay all government spending plus give $5-7T out in a UBI.

So how do we get this implemented? Well those in power won't allow it in our current monetary system so we might look into creating a new one. But that requires it to be popular.

Would a new money system be popular with a tax rate of 1% and a basic income equivalent to what was remaining after paying the entire government and dividing the rest of $10T/yr between 320M people? Seeing as that yields around $20k per year PER PERSON for all individuals, including infants, I'm going to say yes.

And with that money to spend, won't they attract businesses to sell them thing in that currency? Yes. So this new currency would sustain an economy but would it disrupted the old one or work beside it?

If people earned money, from either business or from UBI and wanted to convert it to dollars to return to the old system, wouldn't that occur a transaction that still pays the tax? Yes. So there's incentive to keep your money in the new system.

But which country would do this? The answer is ready. All of them that this system voluntarily pays half of the revenue to as a replacement for taxes not captured in the old system. This means the system works on a global basis now.

What's the ramifications of the on national inequality? Well, if you belong to a group paying more than average, you pay more than average. If you belong to a group getting paid less then when you get the same as everyone else, you benefit more. Simple. It's a fully globally progressive, automatic, voluntary system. Opt in and get free money or don't.

Isn't this a bit better solution than trying for years to convince one government at a time to give away free money from tax system that can't afford a usefully sized Dividend?

Speaking of which, why call this an income when no work is being performed? Just call it what it is. It's a Dividend from the entirety of the economy.

Global Automatic Dividend
#GlobalAutomaticDividend
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Petey Bee Jan 14, 2019

Yes. Inequality is a vital issue, that has political effects today. I'd support redistribution by the methods described. I would also consider alternatives such as reducing hours worked per person, particularly if we assign a high priority to mitigating the effects of technological unemployment.

(In times past, industrialists feared the potential introduction of 12, 10, and 8 hour work days with the deepest dread - only to forget all such feelings, when increased demand for goods and services resulted).
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vivek iyer Jan 14, 2019

Rents accrue to factors in inelastic supply or arise from inelastic Demand. Increasing elasticity gets rid of rents.

The reason the tax burden is heavier upon the middle class than the super-rich is because their supply and demand is highly elastic- often for highly artificial reasons to do with tax loopholes and existing International Treaties. No doubt, one could soak the pure 'rentier' but that means plundering our own Pension pots and Insurance Schemes.
It is not the case that progressive taxes actually redistribute income from very high earners who can always relocate or employ sophisticated tax avoidance techniques. Rather there are transfers within classes & across generations.

A negative income tax or Basic scheme could easily be implemented. However, it would not last long. Its distortionary effects would be too great- as happened with Labour's tax credit scheme'. Essentially, low skilled workers quit tougher but necessary jobs for a selection of much easier part-time gigs which aren't as vital to the economy. Short run, immigration can fill the gap but medium term there is a crunch and a backlash- this is the Brexit train-wreck in slow motion.

It is easy to kill giants by issuing everyone with a fly swatter labelled 'guaranteed to kill giants'. So long as there are no giants, the thing works very well. However, the moment short people, like myself, start talking trash to tall and muscular men, we get our heads kicked in and feel the Government has let us down. We then vote for a 'populist' who says that Giant-killing is fake news.

Consider what would happen if there were a credible basic income. Then, we could borrow some proportion of its net present value. Either we blow the lot and become destitute in which case either the Government has a duty to feed us- so, there is a moral hazard- or there is no safety net- in which case we get a worse giant, one which involves people starving on the streets.

It is true that one can make a little money by talking nonsense about 'Basic Income' but one could probably make even more by talking nonsense about how the super-rich are actually shape-changing lizards from Planet X.

One immediate consequence of implementing Basic Income is that it would attract migrants- who should be prepared to pay an 'entry fee' equal to the n.p.v of the Basic Income stream- and to foster nativist xenophobia. Another would be to increase volatility in financial markets because Govts. which embrace this stupidity are likely to run deficits till forced to course correct. Finally, Basic Income is likely to disproportionately hurt disabled and elderly people who have less chance to hedge against the scrapping of the system by cultivating non-monetary or untaxable revenue streams.

This is not to say that bold and innovative policy proposals should not be made by people too stupid to do anything else. As the economic, political, and environmental threats to our future multiply, rolling out a universal individual piece of economic idiocy is more important than ever to self-important people.
- Paul Friesen Jan 15, 2019
  
  " Essentially, low skilled workers quit tougher but necessary jobs for a selection of much easier part-time gigs which aren't as vital to the economy."
  
  But if there are tough but necessary jobs that are not being done, elementary economics says that the wage for those jobs will rise until they are filled. The thing about basic income or negative income tax is that it really allows the elimination of many distorting policies. No need for minimum wages, rent controls, welfare, or unemployment insurance. There is always an incentive to work. These policies just make the incentive a bit less harsh.
  - vivek iyer Jan 15, 2019
    
    Elementary economics only says that about a closed economy. If migration is possible- e.g. within EU- then the 'tough but necessary' jobs will go to foreigners who will work under their own gangmasters who speak their language and who arrange very basic accommodation for them so they can maximise remittances for their families. If the migrants have equal entitlements, as happens under EU law, they may start bringing their families over. Meanwhile local people may find it difficult to get into the 'tough but necessary' job sector because they don't know the language and folkways of the population dominating that sector. Also, frankly, they simply may not have the stamina and discipline for the job.
    
    In the U.S, it is interesting that some 'tough but necessary' jobs- e.g. in meat packing- are done by refugees and that there is a nexus between the Big firms in the sector and the authorities responsible for resettling such people.
    You write-
    'The thing about basic income or negative income tax is that it really allows the elimination of many distorting policies.'
    
    This was certainly the theory behind it, however, by the late Seventies, it was clear that migration would work in the manner I have suggested. Since the benefits to disposable wage ratio was high (because of fiscal drag) in the mid to late Seventies and because 'Workfare' was still over a decade away, there was something like a Basic income already. Indeed, a negative income tax was supposed to tackle that. However, a superior alternative, for the elite, was Workfare and a type of Manpower policy which, by accident or design, enfeebled Trade Unions and the notion of Worker Participation by disintermediating local industry and privatising Training provision.
    
    Econ theory says only lumpsum taxes or benefits are non-distortionary and one way forward is to pick out likely 'poverty trap' victims and offer them a lumpsum for 18 months or whatever. However, this is likely to favour well educated 'middle class' people who already have good presentation and communication skills. The underclass, when out of work, may get deskilled entirely and drop out of the labour pool. No doubt, they can then be treated as disabled and thrown a life-line on that basis. However, this raises the fundamental problem with Basic Income- viz. it does not look at what prevents people from having or fulfilling capabilities. Most often, this has to do with mobility. But Basic Income decreases that across entitlement jurisdictions or increases it in a perverse manner.
    
    You say-
    'No need for minimum wages, rent controls, welfare, or unemployment insurance.'
    Minimum wages aren't necessarily a bad thing- at least at the local level where Labour demand is inelastic or monopsonistic. A Basic Income could become a 'Speenhamland system' which subsidises predatory employers, perhaps MNC's which already avoid a lot of tax, and penalises small and medium sized businesses and ordinary taxpayers who have to foot the bill.
    
    Rent controls are bad in themselves. The German approach to keeping rents affordable and reducing the mania for putting one's life savings into one's home, is more complex. However, their economy has some historical peculiarities which make them a poor model for Anglo Saxon countries.
    
    You write-
    'There is always an incentive to work. These policies just make the incentive a bit less harsh'
    
    I like the way you put it but the fact is there are social disincentives from working when you don't need to- consider the fate of the Stepford Mom who takes a job. Her peers consider she has let the side down and say mean things to her and gossip behind her back about all the affairs she is probably having in the office. 'Resource curse' countries which give the indigenous population what is in effect a Basic Income, create a leisured caste which becomes dependent on foreign maid-servants. Forget about doing 'tough but necessary jobs' these guys soon forget how to even wash themselves.
    
    There was a time when Academics thought that if the Govt. creates an entitlement or a 'universal right' then some legal mechanism automatically came into existence forcing the Govt. to honour its obligations. Austerity has shown this notion to be a pipe dream. Madoff created entitlements, so did the Greek Government- Madoff's investors were ripped off and Madoff went to jail. Greek pensioners and savers took a haircut, but nobody went to jail. Sovereign immunity works like that. Even the Judiciary is powerless if the Executive shows it has empty pockets.
    
    I had a friend at College whose received a bequest which made him financially independent. He gave up the 'boring but necessary' type of training he was receiving and went in for something more 'caring and sharing'. Unfortunately, he let himself be talked into becoming a 'name' at Lloyds and lost everything. He had to go back to 'boring but necessary' training in order to slowly climb back into the middle class. He had wasted 20 years.
    A Basic Income is like that bequest which allowed my friend to become a 'name' at Lloyds. In good times, it looks like free money which enables you to serve Humanity. Actually, you are taking on enormous risk and destroying your own life-chances because, sooner or later, the insurance ring crashes. Humanity has a good laugh at you and you have to pick yourself up and go back to doing 'tough but necessary' jobs.
    - Paul Friesen Jan 15, 2019
      
      All the problems you mention about immigration arise when immigrants are allowed in, but treated as second-class. Some oil-rich states give what amounts to a basic income, as you say, but only to the native-born. Then, they deliberately import people from the Philippines or wherever to do the work. Those people don't get basic income. Little wonder that the native-born can get a bit lazy.
      
      But if immigration is controlled and if immigrants are treated equally, this problem would not occur.
      
      I don't see a minimum wage as necessarily a bad thing, but it is certainly distortionary. There are people whose work just isn't worth that much, due to an intellectual disability or whatever. With a basic income and no minimum wage, even if your work is only worth a few cents an hour, you have an incentive to take the job, and an employer has the incentive to provide it, and you do not wind up dependent on hand-outs. This will become more and more important as there are more and more people whose work can be done by machines. What do you think a truck driver's work will be worth when trucks can drive themselves?
      
      A basic income is really a very market-based solution to poverty. It would just take away the harshness that would result if we tried to run a laissez-faire economy without one. But with that one intervention and basic things like enforcing the rule of law, governments could step way back and let the market do its thing.
      - vivek iyer Jan 15, 2019
        
        Academic Economics is derided because of its unrealistic assumptions and pretence at axiomatic method.
        
        Immigrants who 'are allowed in and not treated as second-class citizens' are known as 'conquerors' if they can bring in a lot more of their own and can thus swamp the indigenous population. Often, it is the most recent arrival who has the strongest desire to get the older immigrants of his ethnicity to discriminate against the natives and to exploit them to the hilt.
        
        I happen to be a black coloured immigrant to a 'white' country. But, in common with my fellow citizens, I want the traditions and culture of the 'white' people to flourish. After all, that was what made the country an attractive destination in the first place! However, this is easier said than done. We need careful 'mechanism design' to lift up the 'submerged tenth' and break centuries old cycles of deprivation. This means targeted assistance, not 'one size fits all' nostrums.
        
        In the old days, immigrants would be from geographical contiguous areas or else follow well-established migration routes replenishing an already existing stock. This meant the first generation migrant would probably have an indigenous son or daughter-in-law and, by the third generation, integration would be complete. Thus, migration did not necessarily lead to wealth or income inequality hysteresis effects.
        
        Now, the picture is quite different. 'Assortative mating' means that even if there is inter-marriage, still, increased ethnic diversity will imply increased income and wealth inequality as well as invisible barriers to occupational mobility even absent any motive to segregate. This is highly unfortunate! Only in recent years has Statistics advanced sufficiently for us to quantify- or begin to- the underlying Structural Causal Model.
        
        I appreciate your sentiments. Your heart is in the right place. However, mechanism design is idiographic, not nomothetic. There are no simple solutions.
        
        Basic Income is a 'panem et circenses' stopgap solution. It signifies the decay of the Republic and the death of Democracy. The argument for it assumes that the State can better insure against, not actuarial risk, but Knightian Uncertainty as if it were an omniscient God. Why not just let some Pope or other Pontiff run the economy for some Religious reason? At least, that way, Economics, my discipline, and SOAS, where my son studied, won't get a bad name.
        
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Paul Friesen Jan 14, 2019

I very much agree with the basic thrust of this. Just a couple of other things to think about.

First, a negative income tax scheme could do the same as a basic income, but require lower tax rates and thus provide less scope for the system to be undermined by tax avoidance. As I understand the term, a basic income would be paid to everyone, including those already well off. It is simple, but the payments to the rich can be seen as wasteful, requiring taxes to be raised to pay for them. In a negative income tax scheme, the poorest would receive an income, which would drop off as income increases. At some point, as income increases, taxes would become positive again. This is more complex, but the system is already mostly in place to do it, as countries already collect income taxes. Because there are no payments to those above that point, the total tax intake is lower.

Second, I think that we cannot ignore the likelihood that technology will completely eliminate the need for human labour in the not-too-far-distant future. We cannot tell when someone might come up with real artificial intelligence, something that can do anything a human can do. Some bright young person may be building something in their garage right now that will turn the world as we know it upside down. It probably takes some flash of insight to understand just how our brains are able to do the things they do, and put it into a machine. I am sure it will happen some time. If nature solved the problem of producing intelligence through a process of trial and error, I do not believe it will be forever beyond our capabilities. And then, we really will need another way to run our economy.
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