Category Archives: Universal Basic Income

Why we can’t afford the rich – Andrew Sayer.

“The ideology that the rich shower on us is meant to justify their privilege, but it turns the truth completely inside out.
When inequality reaches the insane levels it has done, the rich depend on hoodwinking us all into thinking that they are the source of jobs, prosperity and everything we value.
But once we stop believing this, either governments have to tackle inequality or revolutions arise.
Rich developed societies are very inefficient producers of well-being – particularly those with bigger income differences between rich and poor. Twenty per cent of the populations of the more unequal rich countries are likely to suffer forms of mental illness – such as depression, anxiety disorders, drug or alcohol addiction – each year. Rates may be three times as high as in the most equal countries.
At the same time, measures of the strength of community life and whether people feel they can trust others also show that more equal societies do very much better.
Tackling inequality is an important step towards achieving sustainability and high levels of well-being.
Large material inequalities mean that status becomes more important and social life is increasingly impoverished by status competition and status insecurities.
Social anxieties and our worries about how we are seen and judged are exacerbated. The result is that people start to feel that social life is more of an ordeal than a pleasure and gradually withdraw from social life, as the data show.
By intensifying status insecurities, inequality also drives consumerism, which is the biggest obstacle to sustainability. Any idea that we should consume less will be opposed as if it were an assault on our social standing and quality of life. But by reducing inequality, we not only reduce the importance of social status but, at the same time, we also improve social relations and the real quality of life. Reducing inequality is the first step towards combining sustainability with higher levels of well-being.
The super-rich now see themselves as superior beings who are doing us a kindness by living amongst us.
If we are to reduce inequality and stop the zombie-like extraction of more and more fossil fuel, we have to bring the economic and political dominance of the rich to a close.”

.

Richard Wilkinson Emeritus Professor of Social Epidemiology, University of Nottingham

***

There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.
Warren Buffett, estimated ‘worth’ $44 billion, Chairman and CEO of Berkshire Hathaway, New York Times, 26 November 2006

.

We are seeing an extraordinary phenomenon: for years the rich have been pulling away from the rest, with the top 1% taking an increasing share of national wealth, while those on low to middling incomes have got progressively less. And the rich continue to get richer, even in the worst crisis for 80 years – they can still laugh all the way to their banks and tax havens as the little people bail out banks that have failed.

Meanwhile a new kind of bank is multiplying – providing food for those who can no longer make ends meet. Austerity policies fall most heavily on those at the bottom while the top 10%, and particularly the top 1%, are protected. Generally, the less you had to do with the crisis, the bigger the sacrifices – relative to your income – you have had to make.

Youth unemployment has soared – in Spain and Greece to over 50%; this is an outrageous waste of young lives, and in many countries it’s become clear that young people are unlikely to experience the prosperity their parents enjoyed. How ridiculous that the answer to our economic problems is seen as wasting more of our most important asset – people.

Meanwhile a political class increasingly dominated by the rich continues to support their interests and diverts the public’s attention by stigmatising and punishing those on welfare benefits and low incomes, cheered on by media overwhelmingly controlled by the super-rich.

But, while the divide between the rich and the rest has certainly grown, how can it be claimed that we can’t afford the rich?

Here’s a short answer

Their wealth is mostly dependent ultimately on the production of goods and services by others and siphoned off through dividends, capital gains, interest and rent, and much of it is hidden in tax havens. They are able to control much of economic life and the media and dominate politics, so their special interests and view of the world come to restrict what democracies can do.

Their consumption is excessive and wasteful and diverts resources away from the more needy and deserving. Their carbon footprints are grotesquely inflated and many have an interest in continued fossil fuel production, threatening the planet.

Of course, this brief summary leaves out many qualifications, not to mention the actual argument and evidence. Some readers may agree straightaway, some may have a few objections, but others may respond with incredulity, perhaps outrage, for to claim that we can’t afford the rich is to imply that they are a cost to the rest of us, a burden. Aren’t the rich wealth creators, job creators, entrepreneurs, investors – indeed, just the kind of people we need? Don’t entrepreneurs like Bill Gates deserve their wealth for having introduced products that benefit millions? Aren’t the rich entitled to spend what they have earned how they like? What right has anyone to say their consumption is excessive?

Couldn’t the rich cut their carbon footprints by switching to low-carbon consumption? Wouldn’t the world miss their philanthropy and the ‘trickle-down effects’ of their spending? In fact, isn’t this book just an example of ‘the politics of envy’ – directed at those whom former UK Prime Minister Tony Blair used to call ‘the successful’? Shouldn’t we thank, rather than begrudge, these ‘high net worth individuals’?

It’s the objections regarding the alleged role of the rich in wealth extraction, as opposed to wealth creation, that present the biggest challenge and occupy the bulk of this book, though I’ll attempt to answer other objections too. In the process it will become clear that this is not about the politics of envy – a cheap slur used by those who want to duck the arguments and evidence – but the politics of injustice. I don’t envy the rich, in fact I regard such envy as thoroughly misguided. But I resent the unjust system by which the rich are allowed to extract wealth that others produce and to dominate society for their own interests.

What’s more, this is not only unjust but profoundly dysfunctional and inefficient, and it creates inhumane, rat-race societies. The time is ripe for examining where the wealth of the rich comes from. The Occupy movement has very successfully highlighted the growing split between the top 1% and the 99%, and the dominance of politics by the 1%.

The rich have made a remarkable comeback since the 1970s – the end of the post-war boom – rapidly increasing their share of national income in a large number of countries, Britain included. We are now getting back to early 20th-century levels of inequality between the rich and the rest. Having cornered ‘only’ 5.9–9% of total income before tax in the UK in the early 1950s through to 1978 – ‘The Golden Age of Capitalism’ – the top 1% of ‘earners’ now hoover up 13%.

The early post-war period was a time when the majority of the population shared in the post-war boom, with low-income households doing slightly better than others and the top 5% growing at slower rates, albeit from a higher base. But from 1979 the majority of incomes stagnated or grew only slowly, while the poorest fifth suffered a substantial loss and the rich roared ahead, swallowing up most of the spoils of economic growth, with the top 0.01% enjoying a 685% rise in real income!

This divergence has continued since the crash; indeed the gulf is widening as a result of austerity policies, which disproportionately hit those on low to middle incomes, contrary to the rhetoric of ‘We’re all in it together’.

In fact, the inequalities within the top 1% are much greater than between them and the 99%. Those in the top 1% in the UK have incomes ranging from just under £100,000 to billions. What’s more, the richer they are, the faster their income has grown: the top 0.5% have increased their share faster than the rest of the 1%, but not as fast as the top 0.1%, while the top 0.01% (ten-thousandth) have enriched themselves even faster.

Inequalities in wealth – the monetary value of individuals’ accumulated assets minus their liabilities (debts) – are even wider than income inequalities, and increasing. In the US, the top 1% own 35% of the nation’s wealth and the bottom 40% a mere 0.2%! In the UK in 2008–10, the members of the top 1% each had £2.8 million or more (14% of the nation’s wealth), though, given the opportunities for the rich to hide their wealth, this is almost certainly an underestimate. Twenty-eight per cent of wealth in the UK is inherited, not earned. Half of the population had wealth of less than £232,400, and the poorest 10% had less than £12,600.

In the US, the top 0.01% have gone from having less than 3% of national wealth in the mid-1970s to over 11% in 2013.

The richest one-thousandth – currently those with more than $20 million – own over a fifth of the country’s wealth.

Oxfam 2014 data:

• The richest 85 people in the world own as much as the poorest half of the world’s population, all 3.5 billion of them!

• 46% of the world’s wealth is now owned by just 1% of the population.

• The wealth of the richest 1% in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population.

• Seven out of ten people live in countries where economic inequality has increased in the last 30 years.

Have the rich got richer because those at the top have become more enterprising, dynamic wealth creators? Are today’s capitalists – or entrepreneurs, as they like to call themselves – so much better at leading economic development than their more moderately paid predecessors of the post-war boom?

The economic data suggests the opposite. Growth rates have been slower than in the post-war boom. The rich are clearly not taking the same share of faster growth, but an increasing share of slower growth. So how have they done it?

The rich are not only getting a bigger proportion of nations’ gross incomes, but keeping more of it, thanks to massive drops in top rates of taxation.

From the 1930s onwards, tax rates on the rich soared, topping 90% in the UK, US, France and, briefly, Germany. It’s hard to believe this now when they have fallen to less than 50%, with many governments repeatedly trying to drive them down still lower. The sky did not fall down when top rates of tax were high, indeed the economies of these countries boomed, yet we are now told in severe tones that taxing the rich merely restrains growth.

To show why we can’t afford the rich we need to do more than find out just how rich they are and describe how they got their money and spend it. We need to do something that most books on the rich and the financial crisis fail to do – question the legitimacy of their wealth. But it is important to realise just how rich the rich are. I don’t want to put readers off with an indigestible mass of figures, but some are needed, especially as few people realise how unequal our society is and just how wealthy the rich are.

In the US the boundary isn’t quite so sharp, with the 4% below the top 1% getting a slight increase in share of national income since the post-war boom, though nothing like as big an increase as those above them, but it’s at the top of the 1% where the big gains have been made.

The richer people are, the higher the proportion of their income is likely to be unearned, through being based on power rather than some kind of contribution.

The UK has 63.9 million people and yet many of their most important needs could be met several times over just by the collective wealth of the richest 1,000. (Could there be a solution here?) When people worry about the effect of an ageing population on the pension bill and the NHS bill, we need to remember that just the annual growth of the wealth of the super-rich could easily pay for it. This is a ridiculous and obscene misallocation of resources. And why should we celebrate the growth of the financial sector, but see the growth of the health sector as a problem? Globally, according to the Bloomberg Billionaires website, the top 100 billionaires controlled $1.9 trillion in 2012, adding $240 billion that year. Oxfam calculates that just over a quarter of this – $66 billion – would have been enough to have raised everyone in the world over the $1.25 per day poverty line.

With a ‘net worth’ of $76 billion, Bill Gates of Microsoft is the richest person in the world, according to the 2013 Forbes list of billionaires. Second, with $72 billion, and for many years the first, is Carlos Slim Helu, a Mexican who took over his country’s telecommunications industry when it was privatised – a nice example of the consequences of privatising state monopolies.

Warren Buffett, whose candid statement about class war heads up this introduction, is fourth.

The richest woman, at ninth, with $52.5 billion, is Christy Walton, who inherited part of the Walmart fortune. Three other members of the Walton family are in the top 20. Rupert Murdoch, the media mogul, with $13.5 billion, comes in at 78th.

Very few of the rich and super-rich are celebrities. The wealthiest, Steven Spielberg, with $3 billion, is 337th on the Forbes list. Next is Oprah Winfrey, at 442nd with $2.7 billion.

In the UK, the Sunday Times often uses a montage of photos of celebrities to publicise its Rich List, but as in the US, few of them reach the upper levels. The highest (2012), Paul McCartney, with £665 million, owes his high position partly to marrying Nancy Shevell, an American heiress. Author J.K. Rowling, came in at 148th, the Beckhams at 395th. Most of the super-rich above them are unknown to the vast majority of British people.

The top six in the UK are all foreign nationals resident in the UK, attracted by special tax deals open to them: Alisher Usmanov (first, with £13.3 billion) owns Russia’s biggest iron ore producer; second is another Russian, Leonard Blavatnik, who’s involved in a range of industries including music, aluminium, oil and chemicals; in third place, the Hinduja brothers inherited their father’s conglomerate, with interests in power, automotive and defence industries in India and overseas; Lakshmi Mittal, in fourth place, is an Indian-born steel magnate who owes much of his wealth to buying up former Soviet state enterprises when they were privatised; Roman Abramovich (fifth), from Russia, best known in the UK for his ownership of Chelsea football club, owns an investment company with interests in a wide range of sectors, particularly oil; Norwegian-born Cypriot citizen John Frederiksen (shipping and oil) is sixth.

‘Non domiciles’, like these individuals, take advantage of a rule unique to the UK and Ireland that allows those who can claim to be linked to some other domicile to escape UK tax on their income and capital gains in all of the rest of the world, providing they do not bring the money into the country.

At eighth, the richest British-born person on the list is the Duke of Westminster, with £7.8 billion, who inherited property in Lancashire, Cheshire, Scotland and Canada and prime sites in London.

Although only a minority of the super-rich around the world list their speciality as finance, most of those in non-finance business are nevertheless also heavily involved in finance, in playing the markets and making deals25 and, of course, steel, power or telecommunications companies and the like are chosen for financial gain.

Why have the rich got a bigger share?

The return of the rich over the last four decades has been closely associated with developments in capitalism. Most important has been the rise of a new political economic orthodoxy, called neoliberalism.

Initiated aggressively by Margaret Thatcher and Ronald Reagan in the 1980s, it was consolidated with more stealth by their successors, New Labour as well as Conservative, Democrat as well as Republican.

Now, after the crash of 2007–08 and in the ensuing recession – exactly when it has most clearly failed – it is being imposed with renewed vigour. It has three key features.

1.

Markets are assumed to be the optimal or default form of economic organisation, and to work best with the minimum of regulation. Competitive markets supposedly reward efficiency and penalise inefficiency and thereby ‘incentivise’ us to improve. Governments and the public sector, by comparison, are claimed to be inferior at organising things – monopolistic and prone to complacency, inefficiency and cronyism. Governments should therefore privatise as much as possible.

Financial markets should be deregulated and there should be ‘flexible labour markets’ – political code language for jobs in which pay can fall as well as rise and in which there is little security. Where parts of the public sector can’t be privatised, league tables should be established and individuals, schools, universities, hospitals, museums, and so on should be made to compete for funds and be rewarded or penalised according to their placing.

Democracy needs to be reined in because the ballot box can’t match markets in governing complex economies; people can express themselves better through what they buy and sell.

Unsurprisingly, neoliberals keep their anti-democracy agenda under wraps.

2.

The rise of neoliberalism also involves a political and cultural shift compatible with its market fundamentalism. Through a host of small changes in everyday life, we are increasingly nudged towards thinking and acting in ways that fit with a market rationality.

More and more, the media address us as self-seeking consumers, savvy investors, ever pursuing new ways of supplementing our incomes through ‘smart investments’.

Risk and responsibility are transferred to the individual. Job shortages are no longer acknowledged, let alone seen as a responsibility of the state: there are just inadequate individuals unable to find work: ‘skivers’, ‘losers’. No injustice, just bad choices and hapless individuals. The word ‘loser’ now evokes contempt, not compassion.

Those unable to find jobs that pay enough to allow them to cope and who still need the welfare state are marginalised, disciplined and stigmatised as actual or potential cheats. State health services and pensions are run down and replaced by private health insurance and private pensions.

You’re on your own, free to choose, free to lose, depending on how you navigate through the world of opportunities and dangers.

Instead of seeing ourselves as members of a common society, contributing what we can, sharing in its growth, pooling risks and providing mutual support, we are supposed to see ourselves as competing individuals with no responsibility for anyone else.

Want to jump the queue for medical services? Click here. Want to give your child an advantage? Pay for private tuition. We should compete for everything and imagine that what is actually only possible for the better off is possible for everyone; everyone can win simultaneously if they try.

We are expected to see ourselves as commodities for sale on the labour market, but also as ‘entrepreneurs of the self’. Hence the rise of the cult of the curriculum vitae (résumé) and self-promotional culture.

Education is increasingly debased by efforts to turn it into a means for making young people in this mould.

Some people – probably many readers of this book – may want to resist these tendencies, but in a neoliberal society it is impossible to avoid them totally, not least because in so much of life using markets (disguised as ‘choice’) and competing in league tables have become the only choices we can make.

3.

Neoliberalism has ushered in a shift in the economic class structure of the countries it has most affected.

It involves not only a shift of power and wealth towards the rich, marked most clearly by the weakening of organised labour in industrialised economies and the enrichment of the 1%, but a shift of power within the rich: from those whose money comes primarily from control of the production of goods and services, to those who get most of their income from control of existing assets that yield rent, interest or capital gains, including gains from speculation on financial products.

The traditional term for members of this latter group is ‘rentier’. Many of the changes noted in 1 and 2 above benefit them.

Neoliberalism as a political system supports rentier interests, particularly by making the 99% indebted to the 1%.

.

A different approach: ‘moral economy’

The deregulation and spectacular growth of finance are central to neoliberalism and the rise of the rich – and to the biggest economic crisis since the Great Crash of 1929.

There has been a small avalanche of books on the financial crisis of 2007, some of them illuminating, many merely providing superficial narratives of successive financial disasters and the key players in them, served up with journalistic brio. Some critiques have targeted the hubris of the financial sector, identifying mismanagement, poor judgement and questionable legality.

But some have seen the credit crunch and recession as evidence of something more basic – capitalism’s crisis-prone nature.

Why We Can’t Afford the Rich isn’t just about the financial crisis, dire though it is. It’s about what underpins and generates such crises – the very architecture of our economy. It treats the economy not merely as a machine that sometimes breaks down, but as a complex set of relationships between people, increasingly stretched around the world, in which they act as producers of goods and services, investors, recipients of various kinds of income and as taxpayers and consumers.

The problems it identifies are as old as capitalism, though they have become much more serious with the rise of finance over the last 40 years. It goes beyond a focus on irrationality and systemic breakdown, to injustice and the moral justifications of taken-for-granted rights and practices. It’s not only about how much people in different positions in the economy should get paid for what they do, but about whether those positions are legitimate in the first place.

Is it right that they’re allowed to do what they’re doing?

There is of course a long history of critiques of capitalism aimed at different targets: alienation, insecurity and poverty; the treadmill of working and consuming; economic contradictions and irrationalities; and environmental destruction. There are useful things to learn from all of these critiques, but at the current time, when the rich have increased their power so much, and inequalities have widened, I believe we need a new line of attack, one that focuses on the institutions and practices that allow this to happen.

Too many books on economic justice, and especially on the economic crisis, take as given the very institutions and practices that need questioning. This book is about the injustices of some long-standing economic relations that have come to a head in the crisis. It could be described as an example of ‘moral economy’. By this I mean not moralising about greed but assessing the moral justifications of basic features of economic organisation. It’s about the huge differences between what some are able to get and what they do, need and deserve.

What people should get is a difficult issue, particularly where it’s a matter of what we think people deserve or merit, but in the case of the rich, it can be shown that what they actually get has more to do with power. I shall argue that basically, the rich get most of their income by using control of assets like land and money to siphon off wealth that others produce. Much of their income is unearned. What’s more, over the last 35 years, particularly with the increasing dominance of the economy by finance – ‘financialisation’, as it’s sometimes called – the rich have become far richer than before by expanding these sources of unearned income.

This book is not only about money and goods, but about the very language of economic life, for the history of our modern economy is partly one of struggles over how to describe or categorise economic practices, as this affects what we see as acceptable or unacceptable: words like ‘investment’, ‘speculation’ or ‘gambling’ invite different evaluations. Who wouldn’t prefer to be called an ‘investor’ rather than a speculator or gambler? But what do such terms mean and what practices fit them? When a top banker is described as having ‘earned’ £x million, we might question what ‘earned’ means in such a context: is it just what they’ve managed to extract from the economy?

This struggle over words has been largely won by the rich and powerful, so how we speak about economic life systematically conceals their activities. Mainstream economics has proved to be a helpful if largely unwitting accomplice to this process, fearful of anything that might be construed as critical of capitalism.

To show why we can’t afford the rich we need to go into some basic economic matters, but in a different and yet simpler way than usual. Most basically, we need to remember something that has been forgotten in modern mainstream economics: economics is about provisioning. As anthropologists and feminist economists have reminded us, it’s about how societies provide themselves with the wherewithal to live. Provisioning requires work – producing goods, from food and shelter through to clothes and newspapers, and services, such as teaching, providing advice and information, and care work. Almost all provisioning involves social relations between people, as producers, consumers, owners, lenders, borrowers and so on. It’s through these relations that provisioning is organised.

Some kinds of provisioning take place through markets; some do not. The market/non-market boundary does not define the edge of the economy: unpaid work in preparing a meal for someone is as much an economic act as preparing pizzas for sale – or selling computers or insurance. Most economists and political theorists think of economic actors only as independent, able-bodied adults, forgetting that they all started off as helpless babies, unable to provide for themselves and dependent on others, and who sooner or later reach a stage where, whether for reasons of illness, disability or age, they become unable to contribute to provisioning themselves and others.

There is nothing exceptional about these conditions. We all go through them: they are universals. We can never pay back our parents for all the work they did for us, just as future generations will never be able to pay their parents back. Dependence on others, particularly across generations, is part of being human; it derives from the fact that we are social animals, ‘dependent rational animals’, as the philosopher Alasdair MacIntyre put it; we cannot survive on our own.

Robinson Crusoe depended on having been brought up in society; the newborn Crusoe wouldn’t have lasted more than a few hours on his own. And like Crusoe we depend on the resources of the earth to survive; we cannot flourish if we damage the planet.

No one would deny the right of children to be fed (‘subsidised’) by their parents when they are too young to contribute anything in return. But would it be OK for me to buy up the company that currently provides your water and slap an extra 10% on your bills so that in effect you subsidise me, enriching me greatly? Would that be a defensible form of dependence?

Or if I seized a park or beach that you had visited regularly all your life and charged you for access, would that be all right? Dependence can be defensible or indefensible; it depends.

Because we are so dependent on each other, there are always likely to be questions of fairness and justice where economic activities are concerned. Are you being paid fairly? Is it right that some get so much/little, and pay so much/little tax? Should students pay for their university courses? Should you get interest on your savings? Should there be more/less/no child benefit? More money for carers, or none? Who should pick up the bill when a company goes bankrupt, and who should pay for clearing up a derelict site left by deindustrialisation? Who should pay for pollution?

These and other such questions are about moral economy. I believe we need to think much more about them – about whether our familiar economic arrangements are fair and justifiable, instead of taking them simply as immutable facts of life – or equally bad, as matters of mere subjective ‘preferences’, or ‘values’, beyond the scope of reason.

Individuals may sometimes give more than they get, or get more than they give, for justifiable reasons, as in the case of parent–child relations, but sometimes they do so for no good reason other than power. Sexist men free-ride on the domestic labour of women for no good reason. This free-riding is particularly likely where people or organisations are very unequal in power. Minority control of key assets that others need is a crucial source of power and inequalities.

Because they can.

Important though it is to think about moral economy, it’s different from explaining economic arrangements. Few of our ways of doing things in economic matters are arrived at through democratic decision or careful deliberation on what is good and fair. Most are products of power. Usually, the best explanation of what people do and what they get in economic matters is because they can.

Why do chief executive officers (CEOs) of big companies pay themselves such vast amounts? Because they can. They may offer justifications, but these are not only invariably feeble but redundant. They can get their pay rises even if the majority of people think they’re unjustifiable. And usually the fuss over their pay hikes dies down in a week or two anyway.

Equally, when we ask why care workers get so little for doing work that clearly benefits people, the answer is because that’s all they can get, given their limited power. What we think people should justifiably get or contribute is one thing, and what they can actually get is another. Justifications and explanations are usually different.

Many of the defences of existing economic institutions are surprisingly weak, but particularly if people start treating those arrangements as natural – as ‘just how things are’ – they can persist on the basis of power.

The landowner and the stranger

Here’s an example of a taken-for-granted economic institution – private ownership of land by a minority.

You may know the story of the stranger who trespassed on a landowner’s land and was told to ‘get off my land’, whereupon the stranger asked the owner how he got this land. ‘From my father’, was the answer. ‘And where did he get it from then?’ ‘From his father’ . . . , who got it from his father, and so on. ‘So how did one of your ancestors get this land in the first place?’ asked the stranger. ‘By fighting someone for it’, said the landlord. ‘Right’, said the stranger, ‘I’ll fight you for it. If it was all right for your ancestor to seize the land in the first place, it must be all right to seize it back now. And if it wasn’t all right for them to seize it, it should be seized back now!’

The story is striking but it’s not clear what a better alternative might be. Would private ownership of land be OK if it was divided up equally so everyone had some? Or should land be publicly owned with individuals renting plots from the state, with the use of the rent revenue to be decided democratically? What the story does, at least, is jolt us out of our uncritical acceptance of the institution of minority land ownership. At this time of crisis we need much more jolting.

Mainstream economics takes the particular features of capitalism – a very recent form of economic organisation in human history – as if they were universal, timeless and rational. It treats market exchange as if it’s the essential feature of economic behaviour and relegates production or work – a necessity of all provisioning – to an afterthought.

It also focuses primarily on the relationship between people and goods (what determines how many oranges we buy?) and pays little attention to the relationships between people that this presupposes. It values mathematical models based on if-pigs-could-fly assumptions more than it values empirical research; so it pays little attention to real economies, having little to say about money and debt, for example!

Predictably, the dismal science failed to predict the crisis. When the UK’s Queen Elizabeth asked why no one saw the crisis coming, the economists’ embarrassment was palpable.

I’ll be drawing on the work of thinkers who had a more critical view, including, in chronological order, Aristotle, Adam Smith, Karl Marx, John Maynard Keynes, the Christian socialist R.H. Tawney and many recent so-called ‘heterodox economists’ and political commentators. Significantly, many of the latter did predict the current crisis.

Capitalism: a mixed bag

While this is as much a critique of capitalism as a critique of the rich, capitalism is both good and bad in a host of ways. There is no doubt, in particular, that it has produced unprecedented growth in technology and science and led to the integration of formerly largely separate parts of the world, as eulogised by Marx and Engels in The Communist Manifesto.

Marx and Engels were less prescient as regards the improvement in living standards for many workers, who turned out to be better off being exploited than not being exploited, though that does not mean there were no losers or that there cannot be better alternatives to capitalism.

The media have a depressing tendency to favour simple stories of good versus bad over ones that portray the world as a complex mix of good and bad. This book should not be seen as ignoring the benefits capitalism has brought; nor, in criticising it, to be legitimising the state socialism of the former Soviet Bloc.

‘Neither Washington nor Moscow (former or contemporary!)’ would be my slogan. A recent Russian saying goes: ‘Marx was completely wrong about communism, but damn, it turns out he was right about capitalism!’

I don’t think he was entirely right about capitalism by any means, though his thinking on its dynamics and on its generation of inequalities was more illuminating than most. But I’ll draw on plenty of other thinkers too, many of them in varying degrees critical of Marx. If you’re wondering whether I’m a Smithian, Marxist or Keynesian or whatever, my answer in each case is yes and no: yes where I think they’re right, no where I think they’re wrong.

The belief in a just world

For New Labour and Conservatives it’s become an article of faith to deny that the rich are rich because others are poor. To get ahead, any career politician has to parrot this claim; it helps to keep corporate funders of their political parties happy, as well as media owned by the super-rich. No evidence or argument is needed, apparently; they just have to profess the belief, as if swearing on the Bible.

This book shows that whatever they might want to believe, the rich are indeed rich largely at the expense of the rest. How tempting it is for not only the rich but also the merely comfortably-off to imagine that, through their own efforts and special qualities, they deserve what they have, disregarding the fact that by the accident of birth they were born into an already rich country and in many cases an already well-off family within it that gives them significant advantages. How easy to overlook that they rely on getting cheap products made and grown by people from poor countries, who are no less hard-working or deserving but can be paid much less because they have little alternative.

But it’s not only the rich who believe that they deserve their wealth. Many in the rest of the population think so too: ‘they’ve earned it so they’re entitled to it’ is a common sentiment, even among those on low incomes. This is an example of what US psychologist Melvin Lerner called ‘the belief in a just world’. In economic matters, it’s the idea that, roughly speaking, we get paid what we deserve and deserve what we get paid.

Believing the rich deserve their wealth may seem a pleasingly generous sentiment, though assuming the poor also deserve their lot does not. It produces an unwarranted deference to the rich. As Lerner noted, the belief in a just world is a delusion, a kind of wishful thinking. Who wouldn’t want to live in a just world, where need was recognised and effort and merit rewarded, while their opposites were not? But it doesn’t follow that we do.

Understandably, since the 2007 crash, people have become more critical of the rich, especially those identified as bankers. Yet, according to recent surveys of public attitudes, they are even more critical of those at the bottom, scorned as ‘welfare mothers’, ‘chavs’, ‘trailer trash’, ‘scroungers’ and so on. What’s more, it seems that as societies become more unequal, their members become less critical of inequality!

The rule of the rich Economic power is also political power. The very control of assets like land and money is a political issue. Those who control what used to be called ‘the commanding heights of the economy’ – and increasingly that means the financial sector – can pressure governments, including democratically elected ones, to do their bidding. They can threaten to take their money elsewhere, refuse to lend to governments except at crippling rates of interest, demand minimalist financial regulation, hide their money in tax havens and demand tax breaks in return for political funding.

Investigative journalists have revealed the circulation of individuals between political posts and positions in key financial institutions, and the role of powerful lobby groups in maintaining the dominance of unregulated finance, even after the crash. Prominent financial institutions have been involved in illegal money laundering, insider dealing and manipulation of interest rates, yet in the UK no one has been prosecuted and, where banks have been fined, the fines have not been imposed but arrived at by negotiation, as ‘settlements’! They have infamously pocketed gains while the losses they have incurred have been dumped on the public, who have suffered substantial drops in income and services as a result.

Of course, many politicians are already from an upper-class background in which supporting the rich is as natural as breathing, but even if they are not, ‘our representatives’ have become increasingly unrepresentative of the majority of the population at large.

Even if they want to resist, they face an environment dominated by financial interests.

Spending it

The problem of the rich goes beyond issues of how they get their money, to how they spend it. Their massive spending on luxuries distorts economies, diverting producers from providing goods and services for the more needy. It’s a waste of labour and scarce resources.

In some cases, it makes things worse for those on low incomes, for example, by driving up house prices beyond their reach. The super-rich have so much that there is no way they can spend all of it on things they can use, so they recycle the rest into further rounds of speculation, buying up property, companies and financial assets that generate little or no productive investment, and merely siphon off more wealth that others have produced.

No one treads more heavily on the earth than the rich. Private jets and multiple mansions mean massive carbon footprints. Yet the inconvenient fact is of course that even though most of us have smaller footprints, in the rich countries they are still seriously in excess of what the planet can absorb. Even if we could afford them in money terms, we cannot afford high-carbon, high-consumption life-styles if we are to stop runaway global warming.

We are in deep trouble, not just because of the economic crisis, but because it’s overshadowed by a bigger and more threatening crisis – climate change. The solution to the economic crisis is widely thought to be growth. But that will only accelerate global warming.

The rich countries need to switch to steady-state or ‘degrowth’ economies to save the planet, but capitalism needs growth to survive; it’s in its DNA.

Soviet state socialism proved no better environmentally. We need a different model. If that seems a gloomy conclusion, there is a very important and positive counter message: that beyond a certain level, attained already by most people in rich countries, well-being is not improved much by further increases in wealth, and well-being tends to be higher in more equal countries.

Above this threshold, well-being is improved by greater equality, reductions in stress, exercise, being with others, both caring for and being cared for, developing interests and skills and projects and experiencing the world at large beyond the confines of narrowly defined jobs.

Ending the rat race will do us, and the planet, a lot of good.

***

Why we can’t afford the rich.

by Andrew Sayer

get it at Amazon.com

.

A philosopher’s take on Global Basic Income – Hillel Steiner. 

Philosophy and Economics

Inequality and poverty are bad. Almost everyone agrees on that. The solution? A basic income guaranteed to everyone on Earth. Renowned political philosopher Hillel Steiner explains why and how we should implement it.

One of the more rarely encountered phenomena in this world is agreement between people on opposing sides of the left-right political spectrum. And yet there are two separate, fairly specific policy proposals that seem to be emerging as objects of consensus among many contending political parties.

The first and more widely familiar of them is the increasingly publicised idea of an Unconditional Basic Income, known acronymically as UBI. Unlike the benefit provision of the standard welfare state — a provision conditional on its recipients being ill, single parents, disabled, unemployed or retired — a UBI is intended to be given to everyone, rich and poor alike. There are, of course, many different views about both the appropriate size of UBI and whether it should replace or supplement welfare state provision. But one point on which all agree is that its administration would be far less costly than that of any conditional benefit provision since, being universally supplied, UBI would require no assessment of its recipients’ personal circumstances. And so, as we might expect, the main objection to UBI is that it would thus amount to a charter for the lazy, enabling work-shy, able-bodied people to live parasitically off wealth created by hardworking taxpayers.

The second policy proposal, generally only familiar to economists, political philosophers, and people interested in public finance, is Land Value Taxation or LVT, also known as site or location value taxation. This tax is a levy on the unimproved value of a land site — a levy that, unlike property taxes, disregards the value of buildings, personal property and other improvements to that site. LVT has been referred to as “the perfect tax” and its economic efficiency has been recognised since the 18th century. Many economists since Adam Smith and David Ricardo have advocated for this tax, but it is most famously associated with the late 19th century American economist Henry George. In our own time, it has been endorsed by such otherwise ideologically divergent economists as Nobel laureates Milton Friedman and Joseph Stiglitz. The reasons are not hard to fathom. As The Economist notes,

When thinking about any tax, economists focus on how it affects decision-making. Income tax reduces the incentive to work. Corporation tax reduces the incentive to invest. Stamp duty deters some marginal house sales. Such prevention of mutually beneficial transactions is generally considered bad… Land value taxation is so beloved of economists because, in theory, it does not distort decision making. Suppose a land value tax of one per cent on land value is introduced tomorrow. There can be no supply response: there would still be as much land as there is today.

The moral justifications for LVT go back even further than the 18th-century origins of their economic counterparts: they can be found in works of 16th- and 17th-century political philosophy and, arguably, even in the Bible itself. The thought is that, originally, land sites and their natural resources were entirely unowned. So everyone was morally at liberty to make use of any of them. Someone wishing to privatise one of those sites — to acquire and maintain exclusive private ownership of it — incurs a moral duty (which transfers to their successors) to compensate everyone else for their loss of that liberty. That is, in order to rightfully exclude others from sites which they might otherwise have used, you must compensate them. In modern societies, where all land sites are owned, this compensation liability would assume the form of a tax borne by landowners on the value of their sites. And the revenue fund formed by that tax is one in which all persons have an equal share, representing their respective entitlements to compensation for the loss of their equal liberty.

If superior efficiency is what commends LVT to economists, its being distributively just is why it’s so attractive to many political philosophers. Centrally concerned with questions of who is morally entitled to what from whom, those philosophers often converge on the idea that persons are entitled to the fruits of their labour and that it’s therefore unjust to deprive them of what they’ve produced. Indeed, this is the very same idea that underpins the previously mentioned main objection to UBI: the objection that it would enable the work-shy to live parasitically off wealth created by hardworking taxpayers.

But — and here’s the crucial point — a UBI funded by LVT entirely escapes that objection! This is because no one made the land. It, and all the natural resources it encompasses, are not the products of any person’s efforts. Mark Twain’s financial advice to his nephew wasn’t mistaken: “Buy land, son”, he famously said, “they’re not making it any more”. A tax on the raw value of a land site — on the site’s value alone, and not on the value of the improvements made to it by human labour — deprives no one of the products of their efforts.

It is relatively easy, then, to see how this argument extends globally. Nations are owners of the land sites comprising the territory of their jurisdictions. Claiming the right to exclude foreigners from those sites means that they owe them compensation. Each national LVT revenue fund thereby rightfully becomes a component of a Global Fund: a fund in which, as before, all persons — regardless of their nationality — have an equal share. It’s this entitlement that would form the basis of a global UBI.

A global UBI funded by a global LVT promises considerable left-right consensus inasmuch as it would make a significant contribution to promoting economic development in poorer societies, disincentivising economic emigration from those societies, and incentivising settlement of international territorial disputes. Crucially, it would accomplish these things at relatively low administrative cost and without depriving persons of the fruits of their labour. Opportunities to link the demands of justice with those of economic efficiency are rare enough, and it would therefore be a great pity to forgo them when they are found.

***

Hillel is Emeritus Professor of Political Philosophy at the University of Manchester. A Fellow of the British Academy, he is the author of the prize-winning book An Essay on Rights. His current research is on the concept of ‘the just price’ as well as the application of libertarian principles to global and genetic inequalities.

KnowItWall

.

Modeling the Macroeconomic Effects of a Universal Basic Income – Rakeen Mabud and Felicia Wong. * A universal basic income would grow the economy – Dylan Matthews.

Our colleagues at the Roosevelt Institute, together with the Levy Institute, just published an exciting new paper entitled, “Modeling the Macroeconomic Effects of a Universal Basic Income.”

The paper takes a major step forward in answering an important question: How would a massive federal spending program like a “universal basic income” (UBI) affect economic growth and economic inequality? We live in a time when many big new economic policy ideas are suddenly on the table—from unconditional cash assistance programs like UBI; to single-payer health care, which would have the federal government as our sole medical insurance system; to significant increases in both individual and corporate taxes. At Roosevelt, we do our best to use data and analysis to understand who would benefit from new policies, who would lose, and how the economy as a whole—our institutions and the power relationships among them—would change as a result. So it is exciting to see our report on UBI, one of the biggest proposed game-changers, generate thoughtful media coverage. 

All models, of course, have baked-in assumptions, which are important to unpack. So, the rest of this post explains a little more about what those assumptions are; why many Roosevelt economists and researchers believe those assumptions have merit; and why we are proud members of the UBI research community. But we should note up front: We view this as part of a much larger conversation about UBI and other associated questions, including our assumptions about just how much the economy still has room to grow. Our paper shouldn’t be read as pro- or anti-UBI. We believe strongly in the goals that many UBI adherents have: the importance of alleviating poverty and suffering, the importance of giving workers and other low-income people more power and greater tools for self‑determination, and the importance of economic security for all Americans. But our position is that we still have a lot to learn about UBI, cash assistance, and improving the social safety net.

The Levy model and what we tested

The paper explores the macroeconomic effects of a UBI using the Levy Institute’s macroeconomic model. Important note: Economic models are simply stylized approximations of how our economy works, and we should be careful not to conflate what the model says with reality. The Levy model was developed over the course of years by comparing the model’s predictions to what actually happened in the real world. Through this iterative process, each round honing in on a “truer” picture of the economy, the team at Levy developed a baseline forecast—a prediction of what would happen to important components of the macro economy (e.g. household wealth and income and the government’s net debt) if nothing else changed and the Congressional Budget Office’s overall GDP forecasts came true. By comparing the effects of different sized UBIs to the Levy baseline, we can roughly predict how huge amounts of federal spending would affect inflation and other macroeconomic outcomes.

In the paper, we examine three versions of a UBI: $1,000/month for all adults, $500/month for all adults, and a $250/month child allowance. The headline result is that the model predicts that if we funded a UBI without raising taxes, GDP would grow—an eye-catching 12.56%, in the case of the full $1,000/month UBI. The model also predicts that even in tax-financed UBI scenarios, the economy would grow (because we incorporated the assumption that an extra dollar going to a poorer household is more likely to be spent rather than saved, something wonks call “the marginal propensity to consume.”) Dylan Matthews at Vox did a great job of explaining all of the results, so we won’t go further here, but it is worth reading his piece and the paper itself for the detail.

Economic worldview, and why it matters

We did want to emphasize the big-picture context here, because it’s important. The Levy model, and the results it offers us about the macroeconomic effect of a UBI, is situated in a larger worldview that many of our Fellows, including Mike Konczal and Marshall Steinbaum, hold: that there’s a lot of room to grow in our economy. Crucially, this is a Keynesian view, assuming that total spending is what determines economic output. As such, the model holds that policies that would increase total spending, like UBI, will grow the economy. The model also makes two other important assumptions that adhere to the broader perspective that the economy is not operating near potential output. First, unconditional cash transfers do not mean that people stop working, which our recent paper by Ioana Marinescu, surveying extensive empirical evidence, demonstrates. Second, the paper takes seriously the idea that when the government takes away an additional dollar of a rich household’s income through taxes, the household doesn’t respond by dropping out of the labor force. Instead, we believe that each marginal dollar taxed away reduces rich households’ incentives to bargain for a larger share of the economic pie. Our belief about this “bargaining elasticity” derives from important work by Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva, who show that the bargaining effect trumps the labor supply effect—it isn’t even close. This means that high progressive tax rates could have a very positive effect on reducing inequality, without harming growth. This is a big assumption, and we fully recognize that.

Implications and today’s economic debate

The fundamental idea that there’s a lot of room to grow in our economy, and as a result, a lot of room to think bigger about our social safety net, has implications for problems far beyond what a UBI is designed to address. What is the optimal interest rate? What is the best trade off between inflation and unemployment? What are the most effective ways to increase long-stagnant wages? The answers to each of these questions stem from one’s view of whether the economy is operating at its fullest capacity.

Further, the UBI conversation happening right now is important because it forces us to tackle big questions head on: If we can do more to expand the social safety net, what should that expansion look like? Who should get that expansion? Workers? What does it mean to work? Does going to school or raising a child count as “working”? Who is deserving of government support? We are privileged to be a part of the UBI community—one that enthusiastically tries to answer these very big questions, and, as a result, ends up breaking past all kinds of constraints in the way we think about how our economy and society are structured.

Of course, today’s political destabilization produces deep anxiety, and indecisions, or bad decisions, on the part of our current political leadership has caused real suffering in the lives of real people. But in one respect, our political era is liberating. We are now talking not just about a guaranteed cash income, but also about job guarantees (the idea that everyone who wants to work will have paid work to do); baby bonds (wherein all children, at birth, would be given a bond that would come due when that child became an adult—and thus all, regardless of their family wealth, would have some economic security); much higher tax rates on the wealthy; and innovative ways to break up monopoly companies that may be choking our economy and our workers: These are all real conversations today. And they are all radical ideas that embrace the concept that we as a society are able to solve big problems. We hope that this paper contributes to this ongoing conversation, and serves as one more piece of evidence that thinking bigger is not foolhardy, but rather, imperative.

Download the report: Roosevelt Institute.com

***

Study: a universal basic income would grow the economy – Dylan Matthews.

A universal basic income could make the US economy trillions of dollars larger, permanently, according to a new study by the left-leaning Roosevelt Institute. 

Basic income, a proposal in which every American would be given a basic stipend from the government no strings attached, is often brought up as a potential solution to widespread automation reducing demand for labor in the future. But in the meantime, its critics typically allege that it is far too expensive to be practical, or else that it would spur millions of Americans to drop out of the labor force, wrecking the economy and depriving the government of a tax base for funding the plan.

The Roosevelt study, written by Roosevelt research director Marshall Steinbaum, Michalis Nikiforos at Bard College’s Levy Institute, and Gennaro Zezza at the University of Cassino and Southern Lazio in Italy, comes to a dramatically different conclusion. And it does so using some notably rosy assumptions about the effects of large-scale increases to government spending, taxes, and deficits, assumptions that other analysts would dispute vociferously.

Their paper analyzes three different models for a universal basic income:

  1. A full universal basic income, in which every adult gets $1,000 a month ($12,000 a year)
  2. A partial basic income, in which every adult gets $500 a month ($6,000 a year)
  3. A child allowance, in which every child gets $250 a month ($3,000 a year)

They find that enacting any of these policies by growing the federal debt — that is, without raising taxes to pay for it — would substantially grow the economy. The effect fades away within eight years, but GDP is left permanently higher. The big, $12,000 per year per adult policy, they find, would permanently grow the economy by 12.56 to 13.10 percent — or about $2.5 trillion come 2025. 

It would also, they find, increase the percentage of Americans with jobs by about 2 percent, and expand the labor force to the tune of 4.5 to 4.7 million people.

They also model the impact of the plan if it’s paid for with taxes. That amounts to large-scale income redistribution, which, the authors argue, would stimulate the economy, because lower-income people are likelier to spend their money in the near-term than rich people are. Thus, they find that a full $12,000 a year per adult basic income, paid for with progressive income taxes, would grow the economy by about 2.62 percent ($515 billion) and expand the labor force by about 1.1 million people.

These are extremely contentious estimates, borne of controversial assumptions about the way the economy works and the effects that a basic income would have on it. Many, if not most, economic modelers would come to very different conclusions: that a basic income discourages work, that raising taxes to pay for it could have profound negative economic impacts, and that not paying for it and exploding the deficit is a recipe for fiscal and economic ruin.

But the authors argue that the economic model they’re using, run by the Bard College Levy Economics Institute, uses more realistic assumptions than alternative models, and is particularly well-suited for predicting a UBI’s impact.

If nothing else, the paper should provoke other analysts with less rosy models to come up with their own predictions of what a large-scale basic income would do.

The predictions driving the model

Predicting how policies will change the economy is difficult, and requires making tricky and contestable assumptions about the way the economy currently works. And the Levy Institute model and Roosevelt Institute researchers make some big assumptions that many macroeconomists and public finance economists are likely to disagree with.

Perhaps the single most important assumption is that the economy is suffering from a lack of demand — consumers and businesses aren’t buying enough stuff. This is traditionally the problem in recessions, and it’s typically addressed through monetary or fiscal policies meant to boost demand. Governments can spend a bunch of money on infrastructure or tax breaks, which juices demand by having the government buy more or giving consumers more money to spend; this was the approach of the 2009 stimulus package. Or central banks can print a bunch of money and bring down interest rates, which makes it easier for businesses and individuals to borrow and spend money.

But in recent years there’s been growing concern that this might be a “secular” problem — one that persists even after the economy has seemingly recovered from a downturn. Larry Summers, the former Obama adviser, Harvard president, Treasury secretary, and eminent economist, has since 2013 warned of an ongoing “secular stagnation”, borrowing the term from the early 20th century economist Alvin Hansen, who coined it in the 1930s. Thomas Piketty’s book Capital in the 21st Century has prompted research tying this decline in aggregate demand to the surge in high-end inequality, if the rich control more and more money, and aren’t spending it, that helps explain sluggish demand.

The Roosevelt Institute has done a bunch of work on this theme, arguing that a shortfall in aggregate demand, tied to inequality, is strangling the economy. Roosevelt’s JW Mason argued in a June 2017 paper that the US economy is still quite far from full employment, and GDP is falling below its potential level, largely because of low demand; he argues for more aggressive Federal Reserve policy to correct the problem. Roosevelt’s Steinbaum and Mike Konczal argued in 2016 that low levels of demand have led to less labor mobility (fewer people switching jobs and moving for work), less entrepreneurship, and more concentration of profits in a handful of companies at the expense of competitors and potential new challengers.

So the Levy model used in the basic income paper, building off this research, assumes that demand is well below where it could be. That helps explain why big, unfunded increases in spending, like a basic income not funded by taxes, could be stimulative. Many economists would agree that in, say, 2009, when unemployment is surging and the economy’s in recession, it makes sense to do big deficit spending to get demand up again. The Levy model is arguing that a demand shortfall is still a problem, and similar measures would thus be effective in 2017 just as they were in 2009.

Plenty of other models would come to different conclusions. The Penn Wharton Budget Model, a widely used economic forecasting model used by politically unaligned groups like the Tax Policy Center, tends to project that policies that increase the deficit dramatically will have significant economic downsides. For instance, when the Tax Policy Center looked at Donald Trump’s likely tax plan, it used the Penn Wharton model and found that over two decades the tax plan would reduce GDP by 4 percent, mostly because the increased deficit would lead to a surge in interest rates on government debt, and then on small business loans, mortgages, and credit cards as well.

The Roosevelt-Levy model, by contrast, finds that any negative effect due to the deficit would be swamped by the positive economic impacts of increased demand.

The Roosevelt-Levy model also makes two other significant assumptions:

  1. A basic income does not discourage work at all
  2. Households don’t respond to changes in their tax burden

These are both contentious, but reflective of Roosevelt’s broader view of how the economy works. University of Pennsylvania economist Ioana Marinescu recently conducted a wide ranging review of the literature on unconditional cash programs for Roosevelt, focusing on programs in the US and Canada. She examined experiments in the 1970s and ’80s that evaluated “negative income taxes” (NITs, essentially basic incomes that phase out as you earn more), Alaska’s Permanent Fund (which taxes oil extraction and returns the money directly to every man, woman, and child through an annual check), and a dividend the Eastern Band of Cherokees issued to members of the tribe from casino revenues.

All of these cases find reductions in work that are, at most, modest. In the Cherokee case (where members got about $4,000 to $6,000 a year) there was no effect on work; in the Alaska case, where checks are generally $800 to $2,000 per person (so up to $8,000 for a family of four), there’s a small increase in the share of people working part time, but no overall effect on the share of the population working. Indeed, the part-time work boost could come from people entering the workforce anew. The negative income tax experiments are more complicated. Most of the studies found no statistically significant reduction in work; only one, the Seattle/Denver experiment, found a reduction, and it saw the employment rate fall by 4 percentage points

In any case, Marinescu concluded that the effects on work are small but minimal. “Our fear that people will quit their jobs en masse if provided with cash for free is false and misguided,” Marinescu writes. 

The new Roosevelt paper cites Marinescu’s finding as support for its assumption that there’d be no decline in work. But even if there’s a modest decline in work — or a socially salutary decline, due to new mothers taking more leave or kids staying in school longer or people choosing to retire earlier because they want to — that could have significant economic effects, which the model will not pick up.

The assumption of no household response to changes in taxes is also sure to be contentious. It cuts two ways. On the one hand, most conservative/libertarian leaning economists would argue that taxes, especially corporate and investment taxes and high individual income tax rates, have a tremendous impact on business decisions and individual decisions about work. This is the whole idea behind supply-side economics as practiced by the Reagan, Bush, and most recently Brownback administration in Kansas: that lowering taxes on economic activity will lead to more of it, which grows the economy. Correspondingly, enacting big tax increases to pay for a basic income would be predicted to hurt the economy.

The right-leaning Tax Foundation, for instance, has an economic model that predicts huge positive impacts from cutting taxes on corporations and high-income individuals, and significant negative impacts from raising them. For instance, the Tax Foundation found that the House Republican plan to cut individual and business taxes would lead to a 9.1 percent boost in GDP And a 7.7 percent boost in wages, and that Bernie Sanders’s tax plan WOULD CUT GDP by 9.5 percent and would lower the average American’s income by nearly 13 percent.

On the other hand, some left-leaning economists have argued that raising taxes on high earners has positive effects on household behavior. Berkeley’s Emmanuel Saez, Piketty, and Harvard economist Stefanie Stantcheva have argued that very high marginal tax rates (the top rate on wages was 91 percent for most of the 1950s) discourage the rich from making very large salaries. In particular, it prevented them from bargaining with their employers to divert money from shareholders or lower-ranked staffers into higher executive compensation.

Think of it this way. In 2017, the top federal income tax rate is 39.6 percent. So if a CEO convinces his company to raise his pay from $5 million to $6 million, he’ll get to keep $604,000 of that raise (I’m ignoring state and payroll taxes for the sake of simplicity). That’s a really healthy after-tax raise, so that CEO has a very big incentive to lobby for pay hikes like that. But in 1955, the top federal income tax rate was 91 percent. So that same pay raise would only net him $90,000. Not nothing, but a way, way smaller windfall. So back then, executives had less reason to try to fight to earn more, which kept down inequality.

The Roosevelt paper predicts that the super-negative Tax Foundation story, where big tax increases translate into economic calamity, would not come to pass, nor would the rosy Saez/Piketty/Stantcheva story, in which big tax increases translate into a quite big reduction in inequality, which in turn could alleviate secular stagnation by putting more money in the hands of the middle-class to spend.

This is predicting a huge, huge policy change

It’s worth being clear about just how significant some of the policies envisioned in this paper are.

Some of them are relatively modest in cost. A $3,000 per child per year child allowance is well in line with what other rich countries do; Canada gives family with children under 6 about US$5,000 a year, and families with older children about US$4,250 (the benefit phases out for the rich). That plan would be totally affordable for the US with relatively small tax increases, especially if we replaced other income support programs for children. A group of influential US property experts have recently recommended a $3,000 to $3,600 a year child benefit, and the Child Tax Credit Improvement Act from Congress member Rosa DeLauro, legislation backed by Nancy Pelosi and John Lewis, would create a new $3,600 fully refundable tax credit for kids under 6. This is well within the American political mainstream, and it could cut child poverty by a quarter, a third, or even in half.

But a $12,000 a year per adult basic income is another matter. The Roosevelt paper finds that paying for it would require increasing household tax revenue by 120 percent — a more than doubling. To do that, it assumes that all but the poorest 40 percent pay more in taxes. The middle quintile (households with an income between $48,300 and $85,600, per the Tax Policy Centre) would see their average tax rate go from 14 percent to 25 percent; the top one percent would see its average tax rate go from 32.9 percent to 67.9 percent.

This would be historically unprecedented. Note that even in 1979, when the top marginal tax rate was 70 percent, the top one percent paid only 35.2 percent of their income in federal taxes on average. To nearly double that number, we’d need much, much higher income tax rates, and likely a few other new measures to tax the rich.

Of course, implementing a basic income and not paying for it would not have these problems. But it would explode the deficit so dramatically that even many left of center economists would consider it dangerous.

All of which is to say, the most ambitious proposals that the Roosevelt paper considers would need to be refined considerably to be ready for implementation. There are big tradeoffs between growing the deficit and forcing big tax increases on the rich and middle class alike, and it may be that the child allowance, which Roosevelt predicts would do the least for the economy, is the most fiscally viable option.

Vox.com

.

If you think Basic Income is “free money” or Socialism, think again – Scott Santens. 

First, saying basic income is socialism is as absurd as saying money is socialism. It’s money. It’s all it is. What do people do with money? They use it in markets. In other words, basic income is fuel for markets. Markets are a wonderful invention that serve to calculate via a massively distributed computer comprised of people, what goods and services should be made, using what, going where, by whom, of what quantity, etc. It’s an incredible act of decentralization built upon supply and demand signaling.

When someone has money and wants to buy something, that is a demand signal. Businesses meet this signal with supply. Basically, buying is like voting. We vote on what we want using money as our ballots, and we do this over and over and over again, every day. Now imagine someone has no money in a system built around markets. How do they vote? They can’t. The market thus confuses this lack of a vote as a “no” vote. These two signals are of course very different. One is zero and one is null, but markets don’t know that. They can’t differentiate between them. This means markets containing people who don’t have enough money to signal their demand can’t function properly.

continued at ScottSantens.com

.

Universal basic income could expand whole economies, claims US think tank – Josie Cox. 

The study finds that the economic benefit of UBI would particularly be seen if the government were to finance it by increasing federal debt.

The potential advantages and drawbacks of Universal Basic Income have been debated fiercely in recent months, but a new study suggests that paying everyone an unconditional salary could have a welcomed side effect.

According to US think tank The Roosevelt Institute, a system of universal basic income – or UBI – in the US, under which every citizen is given a basic government salary unconditionally could actually grow the economy on a permanent basis.

But there is a catch.

The research, compiled by the institute’s Marshall Steinbaum, Michalis Nikiforos at Bard College’s Levy Institute, and Gennaro Zezza from the University of Cassino and Southern Lazio in Italy, finds that the economic benefit of UBI would be seen if the government were to finance it by increasing federal debt rather than, for example, by raising taxes.

The research examines three versions of unconditional cash transfers: $1,000 a month to all adults, $500 a month to all adults, and a $250 a month child allowance. When modelled on a plan based on increasing federal debt, all three versions led to economic expansion. The largest cash programme – $1,000 for all adults annually – expands the economy by 12.56 per cent over the baseline after eight years, according to the research.

When modelled on a plan that pays for UBI by simply raising taxes on households, the research found no effect on the economy.

“In effect, it gives to households with one hand what it is takes away with the other,” the academics wrote.

They examined a third model, under which – in the tax-financed scenario – the plan is adapted to include distributional effects: lower income households are taxed less than higher income households. Under that scenario the economy would also grow, the research shows.

“This occurs because the distributional model incorporates the idea that an extra dollar in the hands of lower income households leads to higher spending,” the academics write.

“In other words, the households that pay more in taxes than they receive in cash assistance have a low propensity to consume, and those that receive more in assistance than they pay in taxes have a high propensity to consume. Thus, even when the policy is tax- rather than debtfinanced, there is an increase in output, employment, prices, and wages.”

The study would likely be discredited by some economists who have argued that UBI discourages work and therefore would not contribute to economic expansion. The impact of raising taxes or increasing federal debt to pay for UBI would also likely be a matter of debate.

Earlier this month Richard Branson backed the idea of UBI, joining Facebook FOUNDER Mark Zuckerberg, Slack chief executive Stewart Butterfield, and Tesla boss Elon Musk who have also spoken out in favour of the concept.

A trial is currently taking place in Finland, which rewards 2,000 unemployed people an unconditional monthly sum of €560 (£515). The amount is paid even if recipients find work.

Participants have reported lower levels of stress, greater incentive to find work and freedom to pursue entrepreneurial ideas.

Cities across the Netherlands are launching their first universal basic income trials in October later this year. Other cities in Italy, Canada and Scotland are also at various stages of investigating and launching trials. 

NZ Herald

Forget the future of workers. What about the future of consumers? – Scott Santens. 

Universal basic income as a response to both falling demand and the rising sharing economy.

Discussing the future of work is all the rage these days. Some say we’re on the verge of the robot apocalypse of jobs. Others say jobs will always be created in sufficient numbers (and at sufficient rates) and that everything will be fine. Regular readers know where I fall on this particular question, that either way, our goal should be eliminating as many of the jobs as possible that we as humans don’t enjoy doing.

However, what doesn’t tend to get discussed is the flip side of all of this, which is the fruits of the all the work by humans and machines, the limited amounts any of us as humans can consume them simply because of limited time, and how our consumer preferences are being permanently and irrevocably altered by short-sighted greed.

… continued at Steemit



It’s Time to Shift the Economy into Fourth Gear Capitalism with Basic Income – Scott Santens. 

The economy is in between gears right now, and that’s a growing problem because as is true with all higher gears, we could be accomplishing so much more with so much less and prosperity could be greatly increased for not only the lucky few, but everyone. What do I mean? Well let’s look at the gears of capitalism, of which there have so far been three, before moving on to what fourth gear is, what’s stopping us from it, and how we can achieve it.

The Gears of Capitalism

First gear was made possible by the invention of the steam engine which allowed for the beginnings of industry and the bridging of great distances with trains and steam-powered ships.

Second gear was made possible by the invention of electricity which allowed for industrialization to go into overdrive while bridging even greater distances with the telegraph and telephones.

Third gear was made possible by the invention of the computer which allowed for full globalization and the connection of everyone to each other all over the world with information technology and the internet.

So what is fourth gear?

Fourth gear is the handing over of labor to machines, and that does not only include muscle labor as was already true in lower gears, but mental labor. It is the long awaited freeing of humanity to pursue human interests, paid or unpaid, as payment is of less concern when machines are working for us… that is as long as we humans are earning the machines’ paychecks to purchase what they’re producing.

And that’s the rub. That’s why we’ve so far refused to shift into fourth gear capitalism, because in fourth gear, human labor necessarily becomes unnecessary. This can be an obstacle within the mind, for capitalism itself was built to combat scarcity, and the division of labor meant everyone need pull their weight so that all may survive. But each gear along the way has enabled us to do more with less energy expended, so where once a majority of humanity’s time was spent in the fields, now about one percent is.

continued … Medium