Saturday, June 25, 2005

Basic Income for the Economy's Sake

In my introductory post on the universal basic income, I suggested some reasons to think that it is a better idea than conditional welfare benefits, in that it would be more successful at relieving poverty. In this post I want to explore another utilitarian justification from the UBI, which is the counterintuitive claim that it would actually help the economy.

There are two obvious reasons for thinking that the UBI would harm the economy. Firstly, funding it would require significant taxation, and, all else being equal, higher taxation stunts economic growth. Secondly, a guaranteed basic income would mean that people are no longer forced to work - it would offer them the option to work less, and some people would choose to take up this option, thus decreasing productivity. Frankly, I think this latter argument has little moral force, as it is a stock argument against emancipation (compare: "the slaves might not work so hard if given the choice, so we shouldn't free them"), and treats people as a means only, which is repugnant. Another way of putting the argument is that having a guaranteed income boosts the bargaining power of those that previously were in desperate positions and so (previously) could be exploited by capitalists to great profit. Relieving this desperation might thus harm productivity - but again, only a moral monster, or a slave-driver, could object to the UBI on these grounds.

In any case, there are two countervailing reasons which may outweigh the above, and suggest that the UBI could actually help economic growth.

Firstly, it would serve to foster a more flexible economy. As Van Parijs writes:
With a basic income, individuals could go through repeated and protracted periods in which their activities earned them less than a subsistence wage - for example, as they retrained between two jobs... [or] as they launched new businesses, and so on. As a result and without the (often opaque and costly) aid of special schemes, adjustments of all sorts would be easier and an entrepreneurial spirit would be encouraged throughout society.

The UBI would also indirectly contribute to the economy's flexibility by relieving the need for various labour regulations, as we have already noted that the guaranteed income would increase workers' bargaining power, protecting them from exploitation. So we could abolish minimum wage laws, restrictions on patterns of working time, and so forth. We could realize the ideal of a genuinely free market, in which all participants - and not only the rich ones - can voluntarily participate.

This added flexibility is the main reason to think the economy would benefit from the institution of a universal basic income. But there is also a second, more speculative, argument. It highlights two major trends of the modern economy: (1) the "spread of significant environmental externalities"; and (2) the development of wealth "held in the form of information rather than material goods". What these trends have in common is that "they greatly enhance the importance of property rights which are extremely difficult to define and enforce." Van Parijs continues:
[I]t seems safe to predict that these trends will persist, and hence that it will become increasingly difficult to make sure that whoever is responsible for wealth destruction/creation actually pays/is paid for the damage/benefit caused.

This is important because markets cannot function adequately in situations of high uncertainty - that's why pro-market economists are always appealing to models in which people are fully informed. Or, from Van Parijs again:
Using Ouchi's (1980) typology, one can distinguish three types of social co-ordination. Bureaucracies are optimal when there are neither sharp conflicts of interest nor significant uncertainties about who is entitled to what. Clans are optimal when there are no conflicts but high uncertainties. Markets are optimal when there are conflicts but no uncertainties. When there are both sharp conflicts and high uncertainties, co-ordination breaks down and chaos sets in. This is what is increasingly threatening to happen in a market economy pervaded by the two trends mentioned above... Assuming that conflicts of interest are with us for ever, the only option open to forestall economically damaging chaos consists in reducing what is at stake in the market game - that is, in making an increasing part of people's material welfare depend on society's overall productivity, rather than on their individual contribution. A basic income is the most natural way of institutionalizing this solution.

I'm not entirely convinced by this second argument, I must admit. Market breakdown just doesn't strike me as a very likely scenario, especially compared to its opposite - the free-rider problem - which would be exacerbated by this collectivising solution.

Anyway, I'm no economist, obviously, so I'm in no position to be making any conclusive judgments about the arguments outlined here. But it does seem to me that the advantages of flexibility could potentially offset the costs of higher taxes. Even if the UBI wouldn't explicitly benefit the economy, it might do a lot less harm than its knee-jerk detractors assume. And this slight cost would be well worth the benefits to human freedom and welfare that it would bring about.

14 comments:

  1. > Treats people as a means only, which is repugnant.

    I'm not sure this argument makes any sense in these context since the end is (by implication) the welfare of all (for example higher GDP, all else being equal) where if everyone under a UB system decided not to work then everyone would die (of course that isn't likely but it is the opposite position).

    the argument that it actually lowers welfare of all by lowering the weak without significantly raising the powerful is a stronger argument. It is hard to see how a slave owner could benefit so much by slavery and slavery alone to justify enslaving someone.

    > Firstly, it would serve to foster a more flexible economy.

    Flexible economies are good for competing with others but actually quite bad for human psychology. Most humans particularly those in the lower end of the socioeconomic scale would prefer to have a single career over most of their life.

    In addition in my experience regardless of their bargaining power people will permit employers abusing them. For example a High ranking manager might work 14 hr days to impress the CEO this could be coinsidered abuse but it is unlikely he will complain and in extreme cases these people may work themselves to death. It is probably a similar problem of "miscalculation" going on with low income employees if anything I think this may be a lesser issue for the poor.

    > [I]t seems safe to predict that these trends will persist, and hence that it will become increasingly difficult to make sure that whoever is responsible for wealth destruction/creation actually pays/is paid for the damage/benefit caused.

    One problem on the paying side is htat that you cant get a person to pay more than they can afford. So a person on a UBI cannot be penalized properly for their actions (any actions at all really) unles the UBI ceases to really be Universal.

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  2. The UBI is merely a guaranteed income, not a guaranteed positive bank balance. It can be spent on fines or repaying debts just like any other source of income.

    But your first point is right, assuming higher GDP really would benefit "the welfare of all".

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  3. of course all that is being a bit devils advocate.
    I think the gains are
    1) Incentives to work no matter what income you are on (solves the problem of "abatement")
    2)makes it easy to understand and reduces chances of people falling through cracks or abusing system.
    3) related to 2 - fairly easy to administer
    4) fairer for savers vs spenders (who would be penalized in many other systems)

    and so forth

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  4. Yup, those were the sorts of issues discussed in my introductory post.

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  5. Has a UBI been introduced in any other countries? I would normally just look up Wikipedia to find that info, but I can't seem to access it right now.

    Was it Social Credit that advocated this was back?

    The idea of the UBI was bought up in one of my economics lectures last year (though my lecturer used Milton Friedman's wording - Negative Tax Model) and he claimed that he had got an ACT member and an Alliance member to both think that it was a good idea.

    I personally always thought it was a good idea though haven't really thought it through. It's been great to be able to read through your two postings on the subject.

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  6. Thanks Bren. I don't know much about the politics of it, but I don't believe it has ever been tried in its purest (i.e. unconditional) form.

    Also, I should point out that the UBI is subtly different from a negative tax, for the former is provided unconditionally to everybody, without regard for how much (else) they earn. The two systems can be tweaked to yield identical results in theory, but in practice the UBI is much simpler and less open to manipulation. (Or so I've heard -- I don't know much about negative tax though.)

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  7. > The UBI is merely a guaranteed income, not a guaranteed positive bank balance.

    there is a question regarding those individuals in society unable to spend money in their own best interests.
    The argument for supplying food stamps or getting a government department to pay for rent seperatly or somthing along those lines.

    the problem I see is that I can live fairly happily on a fraction of the unemployment benefit - but many claim to struggle (which could be a bargaining thing, but probably not) - this as far as I can tell means that either
    1) I could tell them what to do and solve the problem
    2) their desires are out of "wack" with their needs probably a result of too much television watching and slick advertising campaigns. (geezz I sound like a grandad)
    3) it is a "poor me" bargaining tactic

    anyway solving (1) largely solves the problem regardless. Not sure if we are ready for it though.

    > It can be spent on fines or repaying debts just like any other source of income.

    Yes but if you allow a lender to be able to claim money back against a universal benefit you must accept that there will potentially be people who will slowly starve to death due to your system (because they may have money deducted from thei UBI before they can spend it on essentials - this relates to the argument above for the food stamp system). This sets off my "utilitarian alert" alarm.

    >assuming higher GDP really would benefit "the welfare of all".

    Jst as with anything else if you pursue it with no regard for other needs you will eventually end up sacrificing those needs. GDP is not everything, but it is SOMTHING - in fact it is better than most other measures.

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  8. bren
    look on greyshade's (RIP) site for some good information he was a proponent of this and pursued politicians on it

    http://greyshade.blogspot.com/

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  9. The way the Negative Tax model was explained to me, it sounded exactly like the UBI... but regardless, I did like the stuff about how we'll be able to free up the markets a bit more. I've always felt free markets can do powerful things but they can leave quite a number of people in the dust.

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  10. the relevant post is

    Tax and Welfare - A Window of Opportunity

    of course

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  11. argggh
    his document links don't see to work anymore.. oh well...
    that's really a little depressing, hmm someone should keep the links alive
    :\

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  12. Just finished reading the post/comments, it's a pity that the links are dead. I have managed to find Keith Rankin's site...
    http://www.ak.planet.gen.nz/~keithr/

    The .com site doesn't work.

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  13. A wage subsidy (such as the earned income tax credit) avoids the problem of disassociating effort and reward. If financed by a "progressive consumption tax" (in which the tax rate applies to income minus net contributions to savings and investments) it could lead to higher rates of savings and investment (and hence economic growth) than no tax at all. See The Expenditure Tax by Nicholas Kaldor; Irving Fisher and Milton Friedman have also written about this idea in the past, though until the advent of computerized banking it was judged to be practically infeasible to implement.

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  14. On "www.basicincome.be" we find the only working partial UBI for the moment.


    ALASKA Citizens Dividend http://www.apfc.org/
    Alaska's Permanent Fund Dividend Program Website http://www.pfd.state.ak.us/
    Each Alaska resident (who has lived in Alaska for at least one year) is considered to be a part owner of the state’s oil resources and receives an annual dividend that was nearly $1600 in 2002. http://www.apfc.org/alaska/dividendprgrm.cfm?s=4
    "Far from reducing work incentives or promoting financial irresponsibility, the Alaska dividend has contributed substantially to job creation in the state and has allowed Alaskans to provide for their educations, health insurance, and retirement.
    " Effects of the "Permanent Fund Dividend" http://www.etes.ucl.ac.be/BIEN/Files/Papers/2002Goldsmith.pdf

    The Negative Income Tax (and his experiments) are still studied http://www.etes.ucl.ac.be/bien/Files/Papers/2002Widerquist.pdf on http://www.policylibrary.com/redistribution/bibliography.htm


    websites:

    BIEN (Basic Income Earth Network) www.basicincome.org

    USBIG (United states Basic Income Guarantee) www.usbig.net

    All the best
    Paul

    webteam www.vivant.org

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