The Basics of Basic Income

in #politics8 years ago (edited)

The “basic” concept, pun intended, is that everyone whether rich or poor, black or white, deserves a minimal income to live a “middle class” life by first world standards. In other words, no one should have to live in poverty.

There is a wide range of theories on what the “best” amount should be, but most seem to agree that $1000 per month is a fair number. There are a wide range of supposed benefits to such a system and I agree that many of these benefits would be an improvement over what we have today.

Under a Basic Income system there would be no need for complex welfare systems or unemployment benefits. People could hold out for higher paying jobs and thus there would be no need for a minimum wage. Many people who can work a low paying job choose not to work because they would lose their welfare or unemployment benefits. Basic Income solves that problem.

Replacing Existing Welfare & Social Programs

If you assume the Basic Income budget is set at a level that would replace existing spending on safety net programs then we could probably get everyone a $400 Basic Income. This would give every individual enough money for some simple food and a shared room and some clothing. Most people would consider this situation poverty and thus not really achieving the desired goal, but it is still a life equal to a college student. That said, I would consider a $400 per month basic income vastly superior to our current welfare system. Assuming it applied to children as well it could even completely eliminate the corrupt child support racket. The median child support payment is only $280 per month which means that over half of all single parents would be better off while billions are saved in legal fees.

So how big of a difference would it make to me personally if a basic income was adopted to simply replace existing government spending? For starters, I could buy a new car if this were adopted today. If it replaced child support I could buy a new house as well. Based upon this assessment it is a no-brainer for me to support a Basic Income that merely replaced current government spending.

Unfortunately those who are currently benefiting from welfare, excessive child support, and large social security checks would end up with a lot lower payments. In effect, Basic Income would actually reduce wealth redistribution in the economy and thus a big improvement for those of us who like liberty.

The unfortunate reality is that political forces would always lobby to increase the Basic Income like they do the minimum wage.

Paying $1000 per month Basic Income

If this were to be implemented in the United States with a population of 320 million people, the cost would be 3.8 trillion dollars per year. A staggering sum greater than all the taxes collected by the federal government and even greater than all spending which includes borrowing $500 billion dollars or more every year.

As the founder of a crypto currency, those who are interested in Basic Income often ask me if BitShares could help implement it. As you know I am a libertarian which means I do not believe in taxes collected at gun point, which leaves only one option for funding it: inflation. But before talking about how inflation would work, I want to dispel the belief that taxes could pay for it.

Taxes

Economists who study taxation know that as taxes approach 100%, tax revenue approaches $0. The Laffer Curve tells us that increasing the tax rate has diminishing and eventually negative returns. The only question that is often debated is whether or not we have hit the point of negative returns on tax revenue. Sadly, those who support taxes never stop to consider the opportunity cost of the wealth that is never produced as a result of higher taxes and instead only focus on the increasing percentage collected of a smaller pie.

If we assume that taking taxes from 20% to 30% (a 50% increase in rate) only results in a 40% increase in tax collection then a little math will tell us that if the original size of the economy was 100 with initial tax revenue of 20 and the new tax revenue is 28 (+40%) the new size of the economy must be 28/(30%) or 93. The “cost” to the private sector is thus 7 + 8 or a total of 15. With these numbers it is clear that the cost to society is almost twice the benefit to government. Now these are just theoretical numbers that are still very far away from the theoretical maximum tax rate where a 1% increase in taxes results in a reduction in tax revenue. The closer you get to the maximum tax rate the more significant the opportunity cost relative to the revenue collected.

Even if you assume a Basic Income would replace all welfare related expenses including social security, medicare, education, and other safety net programs the federal spending would still be over 1.5 trillion. This means that taxes would need to collect a total of 5.3 trillion dollars, an increase of 76% from 2014. Because we are already very close to the maximum tax rate defined by the Laffer Curve, we cannot simply increase taxes by 80% and hope to see revenues grow by 76%. I would be very surprised if there existed any tax rate that could generate the desired tax revenue necessary to fund a $1000 per month Basic Income.

Monetary Inflation

There remains a single tool left to pay for Basic Income; inflation. Inflation is a redistribution of money-wealth from those who have it to those who receive the new money. Unlike taxes which operate on income and transactions, inflation is a direct tax on the capital of society. It is also a hidden tax which means that people do not perceive it as clearly as they do an income tax and therefore are less likely to take actions to avoid it. Printing new money is, in theory, progressive in that it takes more from the rich who have money. At first glance inflation appears to be the ideal candidate for funding Basic Income.

Because monetary inflation is the most obvious approach it is also an approach well suited to crypto currencies and this is why many people have approached me.

Replace Taxes with Monetary Inflation

Each and every year taxpayers spend $200 billion dollars complying with tax laws and that number doesn’t include the money that companies spend on tax compliance. Then after that the taxpayers spend a large fraction of the money collected attempting to comply, the IRS and other government agencies spend countless billions every year auditing, convicting, and imprisoning people who failed to comply to their satisfaction. Given that the government has direct access to the printing press why should we waste so much time and energy complying with and enforcing taxes when we could simply print the money we need. No one could escape it, the “rich” pay more, and it could literally save enough money to balance the budget and eliminate the interest due on the national debt.

The answer is simple: without taxation there would be no demand for federal reserve notes. Without the threat of force, no one would hold their wealth in an asset that is being debased to the tune of $5 trillion dollars per year to fund consumption.

This is why a crypto currency project will never be able to implement the concept of a “Basic Income”. The inflation rate would be so high that the wealthy would never choose to hold it. There would be no buyers, only sellers.

Other Arguments

While I have argued Basic Income to be impossible via both taxation and inflation, there are still people that insist that they have a tax scheme that would be able to fund it. To them I will leave the Silver Rule and suggest that violence does not justify an unprovable end. Any attempt to create and enforce such a widespread redistribution of wealth will result in millions of people taking the oath of John Galt:

I swear, by my life and my love of it, that I will never live for the sake of another man, nor ask another man to live for mine.

In effect, the Laffer Curve is merely a measure of the point where people disappear from the official productive economy. If you implement a Basic Income you can bet that many people would opt to take their Basic Income and then work outside the tax system in their own version of Galt’s Gulch known as the black market, if they choose to work at all.

It is the fear of poverty combined with the hope of riches that balance economic decision making. If you remove the fear of poverty then significant wealth will be wasted taking excessive risks.

At the end of the day I would support Basic Income that replaced the current system without increasing taxes, but only because it is better than what we have today. I still consider the scheme wrong and morally bankrupt and likely to result in an uncontrolled growth of taxes and spending that will quickly become far worse for me than todays system.

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Alaska in the United States already has a pretty good model. It's called the Alaska Permanent Fund and it pays a dividend to all citizens of Alaska. Under this model it does not require redistributive means to produce a basic income and in the United States this would be more plausible to implement under libertarian social norms.

In my opinion the best way to produce basic income is to leverage automation and pay a dividend. Either a on a state by state level or a national level. The purpose of this dividend would be not just to help resolve technological unemployment (currently millions of truck drivers are facing replacement by self driving vehicles) but also because by having a national or state level dividend you can unite the people within the United States along economic lines. Currently people fight over money and politically are divided specifically because people are all invested in different stuff. We simply do not share a stake in America's future but a universal basic dividend would change that overnight.

Stakeholder analysis can be conducted today and would reveal how some Americans are invested heavily in the future of the nation while other Americans don't own a single stock. In fact around 50% of Americans don't own any stock in any company. A shared dividend would have a similar effect on the country that it has on crypto communities and it would create unity around shared stake which according to game theory might actually be a way to bring a country together.

The key is to base the universal basic income on growth rather than on redistribution. There are several options we have in the crypto community which don't exist in the political community. For example Solarcoin exists and if you think about it the perfect way to generate a basic income could be through distributed generation of renewable energy. Energy is work and renewable energy is a form of real wealth which the crypto community is starting to tokenize. Tokenization of solar energy, wind, and other forms, along with distributed generation, can allow for basic income to be distributed to all who produce new energy in the form of crypto tokens.

As technology gets better we will be able to farm energy distribution and automation. Automation requires the energy in order to produce any value or do anything at all. So if automation does the work this is still fine. In addition we will have intelligent agents that directly act on our behalf so when you think of the big picture basic income will become easy when the basis for it is automation and renewable energy rather than taxing the wealthy.

In summary

  1. You can produce basic income without using redistributive methods like tax which means libertarians can avoid violating the NAP.
  2. You can leverage automation and through distributing automation widely you will allow people to farm intelligent agents and robots which will be able to pay tribute to them.
  3. You can leverage distributed generation of renewable energy and tokenize energy so that the actual wealth which is the energy itself can become money. This would allow people to mine the sun, the wind, or other renewable resources, and sell it back to the grid in exchange for a basic income. Decentralize access to energy, automation, and through ubiquitous access to these resources basic income can come from robot labor rather than human labor. AI which will not mind paying taxes because it will be programmed to want to.
  4. As a side effect you can unite a community, a city, a state, or a country around shared stake in some cases.

References

  1. https://en.wikipedia.org/wiki/Alaska_Permanent_Fund
  2. https://en.wikipedia.org/wiki/Distributed_generation
  3. https://en.wikipedia.org/wiki/Intelligent_agent
  4. http://solarcoin.org/http://solarcoin.org/
  5. https://en.wikipedia.org/wiki/Stakeholder_analysis

It looks like Finland will be the first to attempt this idea.
http://www.basicincome.org/news/2015/12/finland-basic-income-experiment-what-we-know/
I think it will just cause rice increases in basics like rent, heat\power, and food. Since the locals know everyone has more money, the price to live there should naturally rise. It will be interesting to watch what happens.

Finland will be a great experiment for it. I'm not sold on Basic Income at all, but technological change is going to put so many people out of work that we'll need to come up with something. Either the government provides some benefit like this or else we need a full-scale economic transformation. Those people who cannot work can certainly work in the P2P economy and/or start their own businesses, but not everybody has those skills or opportunities. I doubt that huge corporations and wealthy individuals are going to willingly give back a big chunk of the economy to small-scale entrepreneurs. But maybe they will if there's no one who can afford to buy their products and services.

As a Finn, I'm quite pessimistic on this. The experiment will be probably too short to draw any conclusions and it's not going to be full basic income. It will only replace some of the current welfare subsidies. Most of our politicians are really, really stupid (as they are all around the world) so they will probably fuck up this.

The price of living is already very high, thanks for massive taxation and regulation. Especially rents are high, partly because landlords know that current welfare system pays the rent up to a certain amount. Of course rents usually don't go below that amount.

Best form (or least harmful from libertarian perspective) of welfare subsidy that I know is The Life Account. People can withdraw money from there whenever they need (no need to ask any permissions), so it's almost like a basic income. But it's way more better than basic income because it's personal.

If needed, the account can go negative, but voluntary deposits are encouraged with incentives for saving. If an individual doesn't need any welfare benefits at the moment, he doesn't need to withdraw any, unlike what happens with basic income.

I don't know how much it has been discussed globally, but a few years ago Finnish thinktank Libera published a report: The Life Account – Reforming the Nordic Social Security Model to Encourage Work, Employment and Saving (pdf).

You can skip first few chapters and start reading from page 31 (The Life Account).

Switzerland is actually having a referendum for basic income very soon (June 2016). Being one of the countries that could pull it off quite easily (money-wise) it will be an excellent example for other countries to follow.
Details: http://www.basicincome2016.org/

There's no right living in the wrong.
I'm finally convinced that the whole system is so screwed up, you can't just change a few bits here and there and end up with something substantially better. We're ruled by thieves and liars, and the population adapted hoping to get to the top when they follow their example. Waiting for the reboot...

The number of people on welfare has been skyrocketing. Why? Because once they get on welfare, we make it almost impossible for them to get off. In order for somebody who gets on to get off, he or she has to be able to have a really good job, because to get off gradually, to earn a little bit, now doesn't pay...Under a negative income tax you would give people, give the poor people, a possibility of getting off gradually. They can earn an extra $1000 or an extra $2000 and be better off.

If a country suddenly jumped into UBI of 1000$/month, what would happen is that people would start to take much more loans, wages would rise and consumption would incease. As a consequence the value of the dollar would decrease until some kind of a natural balance is reached, where the new value of 1000$ is substantially lower than currently. Whether that amount would support a western lifestyle is questionable, but such a situation would not be unsustainable. Taxation could continue as before.

Using basic income to increase debt is an example of how this can turn into a trap. People would spend until the interest on the debt matched the basic income.

You couldn't even force people to use the basic income for food or rent because money is fungible.

Technically it's possible the federal reserve can produce a digital currency and go completely cashless so in theory maybe under certain scenarios people can be restricted in how they can spend their money. Of course this would go against libertarian principles but most people don't seem to care about that.

People would spend until the interest on the debt matched the basic income.

That's the equilibrium. You're right.

It really all depends. If the US government were to discover a way to make cold fusion work and builds a reactor then would it be such a bad idea to give all citizens a basic income once you have abundant energy? In the current time where we don't have cold fusion we cannot see where the future growth is going to come from to pay the debt. If we wake up tomorrow with cold fusion then we know automation can be built with nearly unlimited energy so the debt will not need to be paid by human beings. Suddenly basic income becomes physically and scientifically feasible but politically might still be difficult because to do it through centralized political means is still hard even if you have the science right.

Labor does not have to come from humans and as long as you have abundant energy you have the potential for abundant labor. Debt is labor owed but automation can easily produce the value and do the labor. The debt and or even the majority of taxes could be paid by robots and AI in the future if we politically determine to take that route. There is no real reason to believe only a human being can pay a tax nor is there a reason to believe we can't have intelligent agents which own themselves.

If we develop the technology it is certainly possible to built a smart contract (intelligent agent) on some future platform similar to Ethereum which starts out owned by humans, but then which buys-back all of it's shares until it keeps 100% of it's profits. In that case it could be programmed to give some percentage as basic income or it could be programmed to pay taxes when it operates on a jurisdiction in physical space such as if it runs a network of self driving cars as part of a cyber physical system which operate in New York. Of course it should pay federal and state taxes even if it's a self owned intelligent agent operating on the blockchain and even if it can't be shut down. It could pay these taxes as a tribute to humanity or pay it just so the humans who built it will be perceived as heroic.

Enough tax paying intelligent agents like these and eventually if a majority of the labor is automated the tax payers eventually become mostly intelligent agents as well. This would allow automation to directly pay down the debt while freeing humanity at least in theory. Unfortunately our society is not run by engineers, scientists, so even if a clear solution like this does exist it is doubtful the political class will have the foresight to think about it as they can barely wrap their heads around smart contracts.