Friday, June 3, 2016

Basic Income (Or "Why Don't We Just Give Everyone Money?")

This Sunday, Switzerland will be voting on a concept called "basic income".

If passed, this new law would guarantee that all citizens of Switzerland would receive about 2500 Swiss francs every month, no questions asked. FiveThirtyEight estimates this as being about the equivalent of $2000 in the US if adjusted for cost of living, and while Nikki Sixx apparently disagrees with this assessment (check the comments of the article), $2000 a month seems like a workable income in the U.S., so I'm rolling with it. Anyway, this payout would be given regardless of income, regardless of employment, regardless of family status, regardless of anything except age and citizenship. Every adult citizen gets enough money to live a reasonably comfortable life.

Now before you go all, "Switzerland must be CRAZY!" you should know that this measure won't pass. When it goes up to vote this Sunday, polls are showing that about 70% of voters will say "no", and the reasons are fairly obvious. Higher taxes, less incentive to work, it's a largely untested idea in the first place... Yeah, the world probably isn't ready for this idea.

But ready or not, is basic income an inherently bad idea, or could it work?

For starters, this idea probably sounds a lot like communism, but that's not quite the case. This would only be communism if this was the only income anyone would ever receive or if it could only be spent on government-approved necessities or something. But all the government would do here is collect taxes and write checks. A person holding a job would still take home their paycheck (minus whatever new taxes were put in place), but then they'd receive another $2000 on top of that each month. So capitalism would still be the name of the game. People who put in the extra work would still be better off than those who don't and the government isn't controlling who gets what income and what they can spend it on. It's just money being funneled through the federal government and going to every citizen (and only citizens, not immigrants who have yet to earn full citizenship).

But communism aside, there are the more obvious problems that we touched on. Higher taxes is the first issue, but let's really figure out what that would mean. I'm not even going to attempt to understand the Switzerland tax system, so I'll apply this based on U.S. tax and revenue. In the U.S., we would need about $7 trillion more each year in tax revenue to pay each adult American citizen $2000 every month. So in other words, it would literally double our current annual federal budget. How much would we need to tax to make that happen? I'm not a tax expert, but just for the sake of argument, let's see what would probably have to happen. Well, let's start by saying that this new system would replace most other need-based social welfare programs like food stamps or what have you, but not programs like Medicare, Medicaid, or Social Security. We could roll health care into one single payer system (maybe that's pie-in-the-sky, but we're already talking about basic income, so I doubt single payer would be a stretch) and that would eliminate the burden on employers and individuals to pay health care premiums. The main reason I'm keeping Social Security is because people paid into it and they should probably get what they paid in. We could probably phase it out, but it would take a generation, so I won't account for it to help pay for basic income. Anyway, eliminating the other welfare programs would save us about $400 billion annually, which still leaves us with $6.6 trillion that we need to raise. Let's also say that we revert tax breaks for investment income to bring that down to a rounder $6 trillion. Then let's say we find ways to close loopholes and such to make sure corporations and the wealthiest Americans are actually paying the taxes they should be paying (easier said than done, I know, but this is just a thought experiment, so let's go with it). It's hard to know how much that would actually save us, but let's say we get the one-percenters and their corporations to cough up another $2 trillion tax revenue annually, bringing us down to $4 trillion.

To make this slightly less awful for corporations, we could also probably lower or abolish the federal minimum wage. After all, we wouldn't really need it anymore. That combined with no longer having to provide health care to employees would make it a lot cheaper to hire people for smaller, part-time positions.

Anyway, the remaining $4 trillion would be roughly half of our current taxable income each year. Yikes. Well, let's just say that income tax brackets across the board increase by 50% for everyone. Not a flat tax of 50%, but increase all the tax bracket rates by 50%. For example, income taxed in the 35% bracket would instead have 85% deducted. It's extreme, but $4 trillion is a lot of money and this is pretty much the only way we could realistically generate enough revenue to pay for it.

So what would this increase in taxes mean for most working Americans? Speaking for myself, I'd be paying about something like another $30,000 each year in federal income tax.

That sounds terrible, but considering that I'd be making $24,000 a year from basic income, that means I'd be losing about $500 a month. That would suck, but I could manage it. I was able to manage having that level of income a few years ago, so I could probably do it again. I'd just have to buy fewer video games and less snack food, mostly. That said, I do have a bonus, which is that I have a girlfriend. She's unemployed, so she would pay no additional taxes, but she'd get the $2000/month basic income as well, so we'd actually be way better off in this system.

You could say that this unfairly targets the wealthy, but everyone gets the basic income and everyone's tax rates would be increased equally across the board. I'd say that's the very definition of fairness.

It would also mean that lower income individuals would make even less from their jobs than they do now, particularly if we got rid of the minimum wage, but the basic income would more than make up for it. If you make $14,000 a year as a barista, you'd suddenly be making closer to $30,000 a year without needing to negotiate a pay raise or go full time.

And that brings us to the next big obvious problem with basic income, and that's whether or not this would disincentivize work. And yeah, it probably would. I mean, if you can live off $24000 a year and you don't feel like you need more than that, you probably won't want to work.

Well, what's wrong with that? I'm serious. Other than some arbitrary measure of "fairness", I can't really think of a good reason why everyone in this nation should have to do paid work to earn a living, especially when millions of Americans are trying to find jobs and can't.

Hear me out.

We have way more people than jobs, and as we improve technology and operating efficiency year after year, we'll probably continue to have fewer jobs and more and more people as our population keeps increasing.

A common attitude (particularly in America) is that a person shouldn't get something for nothing. They should have to work in order to receive an income. Otherwise they're a burden on society.

Maybe I'm crazy for asking this question, but... why? Why should a person have to work to have a basic existence? I mean, it's not like it's fun to live on a $24,000 salary, but at least it's possible. It allows a person enough security that they can pursue specialized training or an education. More people could start businesses. More people could move to a part of the country that they like, even if it doesn't have a terrific job market. Why should a person have to work at a job they hate to survive and have a chance to pursue their real dreams?

This idea of "everyone should work for a living" made sense when we had more jobs than people, but we've gotten to a point where most Americans don't need to work in order for our economy to stay strong. Heck, having all of these Americans without jobs and without a livable income makes them more a burden on society because they can't buy anything. The problem is that we don't have enough jobs for people to earn enough money to afford that living, even if they want to. The solution seems to be to try and create incentives to create more jobs, but if our economy doesn't need more jobs in order to function optimally, maybe more jobs isn't the best solution. We'd just be having corporations hire extra people that they don't need so that they can work jobs they probably don't want so they can earn a currency that is inherently worth only what we collectively agree it should be worth.

Fiat currency was created to be representative of some kind of arbitrary value for goods and services. It's kind of an abstraction of a trading system. It essentially exists so that a person doesn't take more goods and services from the economy than they contribute. If the work you do produces enough value into the economy to offset what you take, then you provide a net benefit to the economy. The problem is that the amount we're paid often has no direct relation to the value of our work, and this has only become more pronounced as our economy has become more based in services than in goods. People who play professional sports get paid millions of dollars for providing entertainment. How much is that entertainment worth? It's worth whatever people are willing to pay. Meanwhile, a person making minimum wage at a coffee shop is probably generating way more wealth than they're taking home because that person is easily replaceable and has to take whatever pay they can get.

This notion of a worker getting paid less than they are worth is the source of most income inequality and it's what has inspired a lot of communist revolutions in the world over the past century or so, but they often attack the problem in the wrong way. The state would often just control too much of the economy to stifle greedy capitalism. Eventually the workers started to get tired of the government having too much control and not being able to take advantage of their new wealth. To quote from "A Complete History of the Soviet Union As Told By A Humble Worker, Arranged To The Melody Of Tetris":
The winter is cold, I’ve got plenty of gold
And I’m standing in line for a loaf of bread
So while communism fails because it lacks capitalism's ability to grant successful and hard-working people a better standard of living and puts too much power in the hands of the government, this was also happening in an era where powerful nations still needed a lot of low-skilled workers. These days, low-skilled American workers are becoming an endangered species, partially because of foreign labor, and partially because of inevitable obsolescence. We just don't need as many as we used to, and the ones we need are often being filled by foreign workers.

We could try and bring back jobs for these workers, but if those jobs were really needed, they would still exist. Without the minimum wage, perhaps a number of outsourced and downsized jobs would return to America, but probably not enough to single-handedly fix poverty. We just have way too many people.

Having jobs that we don't need--like Wal-Mart greeters for example--would make us feel like these people are earning their keep, but why can't we just be honest with ourselves and acknowledge that a Wal-Mart greeter doesn't contribute any real value to the economy? We're just wasting their time. Why not just give that person $2000 a month and let them spend their time however they want?

And more than that, having millions of Americans suddenly all have a lot more money and time would be great for our economy.

Part of the problem with hoarding wealth is that there are some things that a person usually only buys once or twice. Houses, cars, phones, insurance, movie tickets, you get the idea. Even billionaires generally only buy a handful of these things if they want to collect. But if millions of Americans suddenly got a massive boost to their income, imagine the possibilities. For example, imagine a whole bunch of people moving to Detroit or Cleveland to take advantage of the dirt cheap housing markets. It wouldn't matter that there are no jobs in Detroit or Cleveland. They could just move there and live off of basic income. With more people living there (and with most of them having a lot of free time on their hands), more companies would have incentives to create more businesses in that region, which would improve the economy further.

People without jobs surviving on basic income would probably contribute to society in other ways. Perhaps through art and literature, perhaps through dedicated study of esoteric academic subjects, or perhaps through innovation. Time is a precious resource, and we'd essentially be giving millions of Americans tons of it to do with as they see fit.

There's this cynical notion that if we give a whole bunch of people a ton of free money with no strings attached, they'll just sit around and watch TV all day everyday. And yeah, a fair amount of people probably would. But look at retirement age people. A lot of them try to stay active for the sake of staying active. A lot of them want to maintain a standard of living that costs more than their fixed income can provide on its own. And these are people that have largely earned their rest and could get away with sitting at home and watching TV all day without anyone calling them lazy. If those people are still willing to stay active in our society and economy despite having enough money to survive and no social pressure to contribute, why should we expect younger people to behave any differently?

And really, if a person's instinct is to spend their whole day sitting around and watching TV... why would we want that person to work? If they did, they would probably be lazy workers. Why not just let them stay home if we as a society can afford it? Wouldn't it be nice to go to McDonald's and only interact with employees that actually want to be working there? And besides, those lazy people would probably pump all of their basic income back into the economy since lazy people aren't usually very good at saving money. If that's the case, they wouldn't be much of a burden on society. The people who wouldn't be using the basic income would be the people more likely to lose more money in taxes than they'd make from the basic income, so that would actually hypothetically improve the economy.

We have about 150 million jobs in America and about 300 million adults. If about half of Americans just didn't work, we'd still have enough people to fill all of those jobs. More importantly, a lot of the open job positions in the U.S. simply don't have enough qualified people to fill them, and there aren't a lot of paths that allow lower income people to pursue the necessary training to qualify for those kinds of jobs. Perhaps basic income would give them enough financial freedom to change that.

So laziness probably wouldn't be much of a factor.

The only way this basic income structure wouldn't work (at least as far as I can tell) would be if we as a nation simply didn't generate enough GDP to give everyone a basic income without negatively impacting business. Since my rough calculations required taking about $3 trillion from the wealthy, that means we'd be risking dropping our GDP down to where it was during the Great Recession. The hope, however, is that since that money would be put back into the economy through a sudden dramatic increase in disposable income for about half of Americans, we wouldn't actually see our GDP dip down. The businesses that suffer from higher corporate and investment taxes would likely benefit from being able to get rid of the minimum wage. If we also implemented single payer health care, that would also make it easier for businesses to hire cheap labor since they wouldn't have to worry about expensive benefits. They might have a harder time filling those positions, but that would just create an incentive to either innovate ways to eliminate those positions, or just treat their employees better. Beyond that, business would probably be booming thanks to all of this money being pushed back into the economy. The only difference would just be that people making money in the highest tax brackets would have a lot less of it than they used to, and that would mean less investment and philanthropy. However, regular people could still invest and create new businesses through crowd-sourcing (see Kickstarter) and philanthropy would be less essential in the U.S. as we essentially eliminate poverty.

Obviously, I'm not an economist, so I'm probably not accounting for certain factors. In addition, a lot of this was conditional on the assumption that we'd actually be able to get the wealthy to pay their fair share and that they wouldn't "go Galt" or find other loopholes to exploit. I essentially paid for this by removing most existing welfare programs and then taking $2.6 trillion from corporate income (mostly targeting corporations that make over $1 billion a year in profit), and $4 trillion from the individual income of all Americans. The goal would be to make it so that corporations still had enough money to maintain profitability, and to make it so that people making less than $75,000 a year would see little to no impact on their overall income once you account for the basic income in addition to their increased tax burden. It is said that people making $50,000 a year reach peak happiness. Making more than that doesn't apparently improve happiness by very much. A person making $50,000 a year is about as happy as someone making $1 million a year. As someone who makes more than $50,000 a year, I'd agree that I could probably be perfectly happy with this level of income and making more probably wouldn't make a significant difference in that regard. I mean, I'd be able to travel more and go out to eat more, but right now I have a job I like, a decent place to live, a good car, more than enough food, a cat, good health care, high-speed internet, a great computer, a 50" HDTV, a bunch of video game consoles, and a manageable amount of debt. I'm living the dream and I don't think my lifestyle would change all that dramatically if I made more. I mean, I'm still going to try and make more money because I'd like to pay down debt faster and budgeting is hard, but if I was making $100,000 a year and new tax laws made it so I was instead making $80,000 a year in order to end poverty in the U.S. practically overnight, I think I could learn to adjust. So, in my opinion, so long as someone making more than $50,000 a year doesn't suddenly start making less than $50,000 a year, I don't think we'd severely impact anyone's individual happiness in any significant way.

On of the few complications I can think of is how the economy might respond to the higher demand, particularly as corporations are losing money in tax revenue. They could respond by jacking up prices, but not to the extent that would prevent people from being able to buy things, otherwise they'd be passing up on an opportunity to break sales records. We typically think inflation only happens when the treasury creates more money, but since a lot of this money is kind of already out of the economy, reintroducing it like that might have the same general effect. That's what it's important that a good portion of the money comes from income tax and not just from corporations and investments.

In addition, we'd probably need to produce a lot more goods to satisfy the increased demand. We'd easily have enough labor, particularly if we got rid of the minimum wage, but resources are already a problem and this would likely just make it worse. Still, I think that's the sort of problem Americans are pretty good at solving, and the alternative is basically just throwing up our hands and saying, "I guess America can only support a certain number of people and everyone else has to leave or slowly die."

There's probably a lot that would need to happen to make a system like this viable, but think of all of the problems it would solve if we could make it work:

People over 18 wouldn't have to live with their parents as much.

College would be more affordable.

A person could take their time to find a good job without worrying about whether or not they can pay rent.

Landlords wouldn't have to worry about their tenant's ability to pay rent.

No more food stamps.

Fewer people would have to declare bankruptcy.

Way less crime (at least crimes generally committed out of desperate poverty).

People looking for work will have an easier time finding it.

Employees will work harder because they will be more likely to have a job they actually want.

People will choose professions based on their desires and skills more than what professions are more financially stable.

More people would be able to risk quitting their job to start a different career path or start a new business.

Fewer people would need to work multiple jobs.

More parents would be able to stay at home and raise their children.

Employees would have more leverage in negotiating with their employers without having to unionize.

Populations would be less likely to concentrate in big cities.

Businesses would suddenly have way more customers than before, which could in turn mean needing to hire more employees.

Retail would be more profitable on weekdays as people surviving on basic income wouldn't be busy at work.

We wouldn't have to burden employers with mandated benefits or the minimum wage.

Will the idea as presented in Switzerland work? Probably not. But the general idea itself seems plausible. It seems like it could be the optimal hybrid of both socialism and capitalism where both sides feed one another and keep them balanced. Socialism keeps capitalism from hoarding wealth and capitalism keeps socialism from stagnating the quality of living and crippling small business.

Proponents of basic income say that it will drastically reduce the administrative overhead we have with current welfare programs, that it takes government decision-making out of the equation when it comes to socialism (so government incompetence wouldn't be a potential factor), and that it applies to everyone equally so it seems generally pretty fair.

The biggest obstacle is just figuring out how to make the necessary tax revenue to afford it and to make sure that revenue largely comes from places where the money is just sort of sitting around and not doing anything. Once that wealth goes back into the economy, the system will largely sustain itself through increased consumerism and less administrative burden on the private sector.

I think the main reason I'm currently liking the idea of basic income is because it's more forward-thinking. Our current system isn't sustainable. A distressingly large number of Americans simply have no way to escape poverty, and as our population increases and our work force becomes more and more automated and dependent on foreign workers, this problem will only keep getting larger. It's probably too difficult to try and get corporations to behave in a way that would actually benefit Americans, so why not just let them do what they do and just take half of their money and give it to everyone equally?

Basic income eliminates this inevitable problem and creates a system that is less vulnerable to the ups and downs of capitalism. Yes, it means higher taxes, but it also means smaller government, and unlike taxes that go towards programs that only some citizens benefit from, everyone will receive basic income. Granted, it would only benefit about half of Americans, but the other half would still be doing fine. The wealthy would still be wealthy, just less so, and the poor would have about twice as much money as they currently get from welfare without having to go through the bureaucracy. More importantly, they wouldn't have to deliberately avoid work or luxury in order to continue to qualify, which is one of the current problems with welfare as it can sometimes incentivize a person to not try and improve their standard of living.

In a more practical sense, the biggest obstacle this idea has is just people. Even if a lot of people all agree that it's a good idea, the people who have the strongest influence in our government are the people who would probably be inconvenienced the most by basic income. They like having their exorbitant wealth. But that's one reason why I think it's important to tie this in with eliminating welfare programs and the minimum wage. These are things that the wealthy have been trying to eliminate for years, and the biggest obstacle they have is that eliminating those things would destroy millions of American lives. But this is a system that could work for everyone.

I don't know if I'm 100% sold on the idea. There are probably downsides I'm not considering or anticipating. It needs a lot more debate. And I suppose that's why I'm writing this.

This is an idea that needs to be debated more. Economists should crunch the numbers and see if we could make it work. A smaller nation like Switzerland has to try it out and see if it can work. It's crazy, but not crazy enough to be completely dismissed outright.

Is this is the economy of the future? Let me know what you think.