Basic Income

Basic Income During Quarantine: The Only Way To Avoid Societal Collapse

April 2, 2020 by admin

China has high rate of personal cash-savings. For this reason, painful though the lockdown in China was, as long as some shops stayed open and some people were willing to make deliveries, most Chinese had sufficient savings to purchase the essentials they required to live. The same cannot be said for many other countries.

So far, crime has fallen in many countries, such as the U.S., India, Ireland and in many other countries…so far.

Perhaps criminals are committing them less due to the infection risk posed by having altercations with people. Or perhaps gathering limits prevent criminal gangs from wandering around causing trouble, or perhaps, since there are no crowds, criminals can’t blend into the crowd. In any case, the drop in crime, so far, has been one of the few silver linings in an otherwise woeful situation.

Unfortunately, in the absence of sweeping fiscal reforms, this situation is unlikely to last.

Italy : The Canary In The Coalmine

One notable exception to this is Italy, the country that first imposed a lockdown on its citizens. Crimes in Italy have recently surged with large numbers of Italians increasingly defying lockdown orders as the people start to lose patience with the government’s lockdown. There are pitiful videos of starving people begging the police to come to their home to see they have no food and scary videos of angry Italians, who are running out of money to buy food, threatening revolution against the Italian government while other Italians are using social media to organise groups to raid food from supermarkets.

Organised criminal gangs are seeking to exploit the general discontent as a means to recruit people and destabilize the entire system.

Things are starting to look very dire in Italy, and if society starts to break down, new COVID-19 cases will resurge and millions – rather than tens of thousands – could die.

Italy is the Canary in the coalmine, it was the first country with low levels of personal savings to institute a nationwide lockdown and it is the first country where social order is beginning to disintegrate.

Italians are just as concerned as everyone else about getting infected by COVID-19, but ultimately, if complying with a lockdown results in starvation, then many people will not comply. History has shown us that when a government fails to feed its citizenry, social disorder and, ultimately, civil war often follows.

Other nations, whose populous are complying with the lockdown – for now – may not believe they will follow Italy’s slow descent into chaos. These are the same nation who, just a few weeks ago, did not believe that COVID-19 would spiral out of control within their borders. These are the same nations who, a few weeks ago, believed they were somehow different from Italy and that there would be no need for any lockdown at all.

Italy is not fundamentally different to other countries. Italy is just ahead of them. What happens in Italy today, will happen elsewhere in several weeks – at least in countries with low levels of cash savings.

Desperation causes social disintegration.

There will be mass social disorder in other countries whose governments cannot assuage the fear and uncertainty felt by their citizens.

Lockdowns In India : All Stick And No Carrot

India is the other country where the lockdown is starting to show cracks. Although police are running around the streets beating people with sticks migrant workers in the city, who have lost their jobs and their income, are still violating the lockdowns in large numbers for the simple reason than they have no money to buy food, are afraid of starving and, because of this, are migrating on mass back to their home villages. The mass exodus of desperate people crowding onto buses to get back to their hometown that resulted from job losses due to the shutdown might even spread the virus more quickly than if there was no shutdown at all.

As with Italy, no one in India wants to catch the virus, the problem, as with Italy, is desperation stemming from lack of money to buy food however, the size of the crowds resulting from the lockdowns in India dwarf even the number ignoring government lockdown orders in Italy.

The Problem Is Not The Supply Of Essentials, But The Distribution of Money To Pay For Them

Despite terrifying featured images of empty shelves in articles about panic-buying, if you watch videos YouTubers have made of shopping in supermarkets during lockdown (here is another video) you can see that, while one or two shelves are empty, by and large, there is plenty of food available for shoppers to purchase. And even in Italy, the shops aren’t empty, it’s simply a matter of people not having enough money to buy the produce.

In every country under lockdown, governments have allowed workers who perform essential services to go outside and continue to work at their job. So the basic goods are still being produced and the basic utilities are still being maintained. The problem is not a lack of essential services, but rather that those who do not work to provide essential services have no money to pay for the goods and services which essential workers are providing.

Mass Unemployment Is Paralyzing Welfare Systems

Reports from Americans, suggest the welfare system is on the brink of paralysis. Welfare applicants can’t get anyone on the phone, the website keeps crashing. Initial unemployment claims have surged to levels that are over 5 times higher than at any previous point in recorded history and some economists even predict that unemployment rates could exceed 30%. Furthermore, the U.S. is not alone, benefit offices everywhere are overwhelmed with a tsunami of claims to process in the U.K., Norway, and many other countries.

The existing benefit systems of countries were not designed to process and monitor this many applicants and, undoubtedly, many benefit applicants will slip through the cracks, have their applications rejected, and be unable to find anyone with the time to process their appeals.

Only Basic Income, Combined With Freezes In Rent, Mortgage and Debt Payments Can Stave Off Calamity

The current COVID-19 response of most governments to the newly unemployed over the course of the emergency is to give everyone a fraction of their previous salary. This is leading to a ridiculous situation where the government is paying everyone to do the exact same thing (i.e. to sit at home and twiddle their thumbs) but where some people get paid vastly more money to twiddle their thumbs at home than others – and there may even be scope for some people not to qualify for any benefits at all.

Someone who earns 30,000 GBP, gets paid 24,000 GBP to twiddle their thumbs at home. Another person who earns 10,000 GBP per year gets paid 8,000 GBP to twiddle their thumbs.

This is ridiculous and unfair.

Every healthy person has roughly got the same basic needs, therefore everyone should be paid the same amount of money. Furthermore, giving people government handouts based upon their previous salary is a terrible use of resources as those with large salaries are more likely to have significant savings to weather the lockdown.

So the government is paying less money to people who probably have less savings…what’s with that?!?!?!

There is only one necessary item of expenditure that those on large salaries may have which those on small salaries lack – housing costs.

Therefore in addition to basic income and disability allowance, the government should place a moratorium on rent and mortgage payments and outlaw evictions for the duration of the pandemic.

After all, people won’t be able to stay at home and save lives if their landlord, or the bank, turfs them out of their home. But beyond that one measure of securing people existing accomodation the government should pay people the same amount for doing the same thing.

Means-testing (other than for disability) is also silly during a lockdown.

The main goal of means-testing is to only pay money to those who lack the skills to earn their keep by working and who have high expenses. In a lockdown, the overwhelming majority of people don’t have the means to work, so testing people’s means to work will only result in huge processing costs (from the tsunami of applications) and delays in payment and the only result will be the welfare department effectively saying “O.K., fair enough, you can’t earn anything during this lockdown here’s some money”. If the benefit office is just going to end up saying the same thing to 70% of applicants, then why not cut the red tape and just pay everyone the same amount of money?

Furthermore, there are some pretty critical jobs like delivery men or seasonal workers that we desperately need more of.

Do we really want those on means-tested benefits who are thinking of working in these important jobs to worry about having to declare their additional earnings to their benefit officers and having their benefits withdrawn as a result?

Furthermore, checking up on those who receive means-tested benefits often requires interviews, inspectors visiting homes to check for benefit fraud, etc., to make sure people aren’t lying. Do we really want all this going on during the middle of a pandemic?

The penalty for lying about your circumstances in order to get benefits can be prison.

Do we want to crowd prisons and courts with people guilty of benefit fraud during a pandemic?

The penalty for lying about means-tested benefits can also be steep fines or the suspension of benefits.

Yet if we suspend people’s benefits during the lockdown, we’ll end up in the exact same situation as Italy with desperate people storming supermarkets and violating lockdown orders.

And if people don’t get punished for lying on their means-tested benefit form during the pandemic, then all we’ll be doing is giving less to honest people.

Most healthy people have the same basic biological and dietary needs (roughly speaking). So why not keep things simple, eliminate processing times and just pay everyone the same basic income?

Across the world, from Ecuador to Italy, those who are violating lockdowns orders are all doing so for the same basic reason: lack of money.

At a time like this, it crucial for everyone to comply with lockdown orders. A small number of violators could compromise the whole containment effort.

Fortunately essential workers can still produce enough necessities to cover everyone’s basic needs.

Because of this, the solution to desperate, starving people not complying with lockdown orders is very simple follow South Korea’s example and pay everyone enough money to allow then to procure the necessities of life.

Also, if we don’t want essential workers to start quitting their jobs it’s probably a good idea to pay them this amount on top of their wages (i.e. don’t withdraw the payment for those earning money).

Simple as that.

Lockdowns Cause Inflation – Basic Income Doesn’t

Assuming the entire financial system doesn’t collapse, we are heading for a period of high inflation.

This is unavoidable.

The result of a lockdown is a reduction in the quantity and variety of goods and services available to be purchased with cash.

If the same amount of cash chases a smaller number of goods and services, the price of each good will go up; this logic is inescapable.

The only way to avoid inflation when the quantity of goods and services, available to purchase, contracts would be to correspondingly contract the amount of cash in circulation.

If there is any significant reduction in the quantity of cash in circulation, then it will fall far short of what is required to pay all the aggregate outstanding debts plus interest – this, in turn, will result in waves of debt defaults.

And because the debt owed by borrowers to the bank backs up the outstanding loans owed by the bank to depositors, if large numbers of borrowers default on their debts, and fail to make payments, then depositors will lose their deposits which will cause a further contraction of the money supply, which will cause further debt defaults, which will cause the loss of more deposits, which will contract the money supply further, which will cause more debt defaults and on…and on…and on…

The net result of contracting the money supply to the point of causing debt defaults that exceed the emergency reserves held by banks will be the complete collapse of the entire financial system.

If the financial system collapses, the banks close down and everyone loses their savings. Furthermore, they lose the ability to make payments conveniently into other people’s accounts or accept payments into their own – such as payments from their employer in exchange for work, or welfare payments from the government. Paper cash, which is 3% of the money supply, would be all that would remain. International payments between companies would grind to a halt, global supply chains would collapse. Furthermore, at a time when we are supposed to socially distance ourselves from others, our ability to make remote payments without exchanging physical cash with other human beings would disappear.

In other words, the complete collapse of the banking system would be really bad.

The only alternative to this is to continue to increase the supply of money in circulation so that it is sufficiently large for debtors to continue to pay their outstanding debts to the bank and if the supply of money increases at a time when the supply of goods contracts sharply you will get inflation.

So, during this lockdown, we have two options:

Let the entire global banking system collapse
Accept fairly high inflation that significantly erodes the value of people’s cash savings

Or, alternatively expressed your two options are:

Lose the entire value of your savings deposit (other than cash in your wallet and in your house) and also lose the ability to receive digital payment or, indeed, any form of payment other than cash
Lose a significant portion of the purchasing power of your cash savings due to inflation

These are both pretty lousy options, but clearly option 1) is a great deal lousier than option 2). For this reason, we are going to have to accept the fact that we are about to enter a period of high inflation – there is no acceptable way to avoid this.

In scenario 2), people may lose a portion of the value of their savings, but at least they will still possess the means to conveniently receive further cash transfers from the government, such as basic income, disabilty benefits or the state pension.

It is worth mentioning that even if only a few banks collapse, this is still the last thing we want to happen during a nationwide lockdown. We don’t want pensioners with internet banking to suddenly lose their ability to receive payments from the government into their account because the particular institution that they banked with went bankrupt. We don’t want crowds of people rushing into high street banks to try and start new accounts because the bank they held their previous account with went bankrupt. This is not desirable at the best of times and certainly not desirable when a potentially lethal pandemic is spreading through the population.

I must confess, that before I heard about the surging crime rate of Italy as the society there begins to unravel, which convinced me of the desperate need for basic income, I was reluctant to advocate introducing basic income during this pandemic as, due to the sharp recession produced by the lockdown, we are inescapeably heading towards a period of high inflation and I was concerned that, if basic income is introduced at a time like this, it might forevermore become associated with high inflation…

However, basic income does not necessarily cause inflation. In fact, although universal basic income cannot prevent the inflation that will inevitably occur over the next few months, it will actually minimize the amount of inflation we will have to put up with.

Basic Income Is The Least Inflationary Path Forward

In order to minimize inflation we need to:

Contain the coronavirus and restore the production of goods and services to pre-crisis levels as quickly as possible
Promptly issue the minimum necessary amount of cash required to secure compliance over the period of the lockdown

Given that the lockdown has gutted economic activity, governments are not going to be able to find sufficient tax revenues to finance the expenditure required to hold society together over the period of this pandemic and, hence, all (or the lion’s share of) government spending will have be financed with debt – and must hence be inescapeably inflationary.

It’s entirely possible that, once governments really get going in using massive amounts of debt financing to avoid complete economic collapse we could easily see inflation rates of 5-10% per month. For this reason, it is crucial to minimize the number of months over which lockdown is maintained. Over 2-4 months, this level of inflation will not be the end of the world, but if inflation rates like these last much longer than a few months, things could rapidly snowball.

In order to minimize the duration of a lockdown everyone must comply. If even a small fraction of the population doesn’t comply with lockdown restrictions, this will greatly extend the necessary lockdown period required to contain the virus and – hence – the amount of aggregate inflation.

Everyone will only comply with lockdown orders if they can comply without starving to death. People who face starvation in the event of a lockdown will violate lockdown orders and even commit crimes if doing so is necessary to feed themselves.

Existing benefit systems usually result in most people getting what they need, but the complex application process often results in a few people falling through the cracks, of a few people not getting the money they desperately need. With the flood of benefit applications, resulting from mass unemployment, the number of applicants that fall through the cracks, don’t get their applications processed properly and don’t get the money they need, is likely to skyrocket.

So, in order to ensure widespread compliance with lockdowns, governments must pay everyone enough money to buy what they need for the duration of the lockdown. To prevent hoarding, this money should be paid in small, regular installments as opposed to a large sum.

Furthermore, in order not to discourage essential workers from performing their tasks, those whose work at essential jobs should receive their salaries on top of the basic income paid to everyone else.

How does Basic Income compare to the existing plans of governments?

The U.K. government’s current plan is to pay everyone 80% of their wage all this money will come from government debt.

This is more inflationary than Basic Income because:

Many people will receive more money (ultimately printed out of thin air) than they need to survive – this means the government will print more money out of thin air than necessary, accelerating inflation to even higher rates than they need to.
Some people, who cannot produce the required paperwork to provide proof of their previous income, may not get enough money to survive and may run into desperate financial problems and risk starving. Desperate people will violate the lockdown and will continue to spread the virus, this will increase the R0 and even if the R0 remains below 1 this will still extend the lockdown and, hence, the period over which high inflation rates are necessary.
Even if everyone qualifies for benefits from the government in theory, in practice the processing time is likely to be long as benefit officers work out how much everyone was previously paid and, in the absence of previous employment, assess them for means-tested benefits. During these waiting times, many people may find themselves in cashflow crisis and may still starve to death. Only basic income – one person, one payment – can be processed fast enough to get everyone the money they need to buy the essentials necessary for survival in a timely manner.

We urgently need to pressurize our representatives to institute a basic income in any way possible, such as by signing petitions, like this one.

During the best of times, universal basic income is a good idea, during this crisis, it is absolutely essential.

John McCone

How Basic Income Promotes Environmental Sustainability

December 8, 2019 by admin

Basic Income, Wages, Self-Provision and Full Employment

First, a recap on what I’ve discussed in a previous article, on how basic income can facilitate self-sufficiency thereby raising wages and promoting full employment, as this is crucially relevant to the positive environmental influence of basic income.

The ability of Basic Income to facilitate self-provision is much neglected in discourse on this subject.

At the most fundamental level, humans are rearrangers – reconfigurers. We cannot magically make things of value appear from nothing – out of a vacuum, so to speak – but we can rearrange things of low value and little use into assemblies of high value and greater use.

Every time the demand for a given object exceeds its supply, that object acquires a price. Human labour always has a price as the supply of it will tend to shrink to maintain its price – since people will not work for nothing. When it comes to nature, however, some naturally occurring, yet scarce, things such as mineral resources, fertile farmland and forests containing high quality timber, have a price, while other plentiful things, such as air, for which supply exceeds demand, are free.

In principle, penniless people can create value with their labour from nothing through reconfiguring plentiful resources that can be obtained for free into things of value. In practice, some natural resources yield more value per unit of human effort, put into reconfiguring them, than others. A given quantity of effort applied to fertile soil will produce more food than the same effort applied to sterile soil. A given quantity of effort put into mining a mineral seam close to the surface will yield more ore than the same effort applied to a mineral seam located deeper down. A given quantity of effort applied to a rich fishing ground will yield more fish than the same time and effort spent fishing poorer waters.

In general, since people tend to want to use their time as productively as possible, they will tend to prefer to access raw resources which yield a lot of value for given amount of effort applied compared to resources that yield a less value for the same effort. However, resources which can be reconfigured into things of high value, when a given quantity of labour is applied to them, are usually simultaneously somewhat scarce and also in high demand.

This means that favourable inputs for labour – that can be reconfigured into something of high value with a modest degree of effort – have a price associated with them in addition to the finished product.

Labour is therefore best described as a value, or capital, amplifier which, through some process of rearrangement, multiplies the value of inputs.

However, a given amount of effort spent on worthless plentiful inputs, generally leads to outputs of minimal value – for if such inputs delivered more value, many people would want them and they would acquire a price…

…and since people need to constantly consume a given rate of value – in the form of nutrition and maintenance of shelter – to survive, it is entirely possible that the rate at which someone can produce value from plentiful resources in low demand may be less than the rate at which they must consume value to survive: in which case, people that lacks access to input capital would die.

In his book, Progress And Poverty, Henry George made the point that in a state of nature the condition of unemployment would be unthinkable as productive activities would always be available for people to occupy their time with, whether hunting, fishing, gathering berries, crafting shelter, tools, etc., etc. He then asks: “What is different to the lot of primitive man, who can always find productive activities with which to employ his labour, and a modern unemployed man who can find nothing useful to do?”

Henry George author of Progress and Poverty

Henry George writes:

“…what, in the conditions of freedom, will be the terms at which one man can hire others to work for him? Evidently, they will be fixed by what the men could make if labouring for themselves [on free land]. The principle which will prevent him from having to give anything above this, except what is necessary to induce the change, will also prevent them from taking anything less. Did they demand more, the competition from others would prevent them from getting employment. Did he offer less, none would accept the terms, as they could obtain greater results by working for themselves.”

His concluded that productive labour requires access to the resources and wealth of nature. In early times, this resource was once open and available to all; today, the institution of land ownership denies the penniless unemployed pauper access to the basic resources he requires to employ his time productively.

The solution: redistribute all land rents out as a per capita income. Then everyone will have equal access to the wealth associated with the raw materials of nature with which to occupy their time productively – essentially giving rise to conditions of full employment.

The most sensible way to think about employment (at least in the context of it being a social good) is having access to the ability to use your time productively. This could be access to paying customers who demand your time OR it can be access to capital that you can expend effort into rearranging into configurations of higher value.

The size of the Basic Income will likely be fairly modest. The magic happens when this modest incomes combines with low interest loans (and as explained later, basic income has the effect of reducing interest rates). £5,000 a year can service a £250,000 loan at 2% interest. So quite a modest income – when combined with a low interest loan – could facilitate access to a great deal of capital.

The point of basic income is not to enable people to live well without working, rather, it is to enable people to live well without selling their work in the labour market.

And by combining basic income with low interest self-sufficiency loans, people could access sufficient capital to spend money today to save money tomorrow.

Productivity is about applying your labour to produce something of value for someone. Whether that someone is yourself, or someone else, is irrelevant to the amount of wealth that a given effort gives rise to.

And the great advantage of producing wealth for yourself, is you are guaranteed not to get fired or lose your customers.

The simplest thing we need is shelter, after that comes food. So, in this respect, a self-sufficiency loan would mainly be used for homesteading. Procuring the tools and raw materials which, once mixed with hard work, (in an activity such as house construction) will produce a shelter whose value is a multiple of the value of the inputs. Ditto with food production. In this case, a self-sufficiency loan would be used to procure materials and tools that enhance the productivity of the land (such as fertilizers, greenhouses, etc.,) while reducing the labour required to maintain it (gardening tools, tractors, other farm equipment etc.,) other examples of using labour and time, to provide a service that saves money, would be cycling rather than driving. It’s slower and involves more effort, but you expend less money for the same end result (getting from A to B).

All-in-all by industriously applying one’s labour to raw materials, purchased with a self-sufficiency loans, (whose yearly repayments are serviced with basic income ) to construct and maintain your own house and set up your own homestead. to produce all the high quality food you need, it should be possible, with the application of labour, to amplify the value one’s basic income many-fold. Basic Income should not be compared with a wage as at the end of the week, when the wage earner receives their salary, 40 hours of their time has been depleted. In the case of the basic income recipient, they still have 40 hours of their time left to amplify the value of their stock of capital with their labour. In that sense, while the money paid to a basic income recipient might be £5,000/year, the value they generate, through amplifying the value of the capital they purchase with their labour, (house construction, growing food, brewing beer etc.,) could easily be equivalent to a time-depleting salary of £20,000/year or more.

Furthermore, self-sufficiency will also have the effect of propping up wages. For a homesteader, used to using his time productively to improve his life, every hour working for someone else is one less hour available to provide value for himself. Thus, he will only accept a wage that can purchase goods and services whose aggregate value is higher than the same value he could have generated working to supply his own needs.

The net effect of basic income will, therefore, be to stabilize wages at the level of the self-sufficient lifestyle. When wages rise above this threshold, due to scarcity of labour, homesteaders will start emerging from their homestead to work in the labour market. When wages fall below this level, homesteaders will return to their homestead and the supply of labour will go down (which in turn will maintain its price and hold up wages).

Furthermore, self-sufficient economic activities are key to maintaining a flexible, yet humane, labour market. One of the root anxieties surrounding “precarious” labour, is the concern that, if there are suddenly no jobs available, you have no outlet to productively apply your activities and efforts that will bring benefit to yourself. Yet an industrious self-sufficient population will have no fear of a flexible labour market. If a gig opens up where the money’s good, they can earn some extra cash; if there aren’t any jobs on offer that pay well, they can focus on the homestead instead. This situation works well for both employee and employer.

Furthermore, industrious self-sufficiency also eliminates the concern of many employers, that if someone has not worked for a long time, they get “out of the habit” of working. A self-sufficient population will retain the habit of working effectively, concentrating on the task at hand, and carefully planning their time and resources – whether or not they are working for someone else. As such, the activity of self-sufficiency will simultaneously create effective full employment while at the same time ensuring a guaranteed stock of competent labour for any business that needs it which is willing to pay decent wages that induce people to leave their homesteads.

Basic income and low interest loans promote the activity of self-provision, this will simultaneously promote full employment, raise wages and support a flexible labour market which benefits both employee and employer.

How Self-Sufficiency Promotes Environmental Sustainability

Basic Income facilitates the activity of self-provision, enabling people to withdraw their labour from the workforce. This inherently strongly motivates people to conserve the limited capital they acquire.

The goal of someone who provides for themselves will be to maximally inflate the value of any capital they import with their labour. If you only apply your efforts to provide for yourself, then you can think of whatever valuable material you can purchase with a loan (for which the interest payment is your basic income) as the only valuable material you have to work with. If too much of your capital breaks, you’re screwed. So self-providers will focus on using and reusing the same capital again and again and again and – in general – minimizing capital inputs. If giving plants a little tender loving care reduces the amount of pesticide or fertilizer you need, then, since pesticide and fertilizer cost money (which is irreplaceable for a homesteader who has taken out a large self-provision loan) that could be used for other things, self-providers will likely finds ways to minimize these inputs.

Capital depreciation is the enemy of all self-providers, whose stock of input capital is limited. Hence, self-providers have a strong incentive to work hard to preserve capital value, including natural capital, like soil quality, and are likely to practice agricultural techniques which preserve it.

Furthermore, in addition to self-providers producing as much value with their own labour as possible, with the minimum amount of capital, self-providers also consume value at the point at which they create it. If we think of a supply chain from:

raw material -> component -> more advanced component -> product

In our current economy, many of the different factories which assemble input components into more advanced components, higher up the supply chain, are thousands of miles away from each other. So, for many products, between every step of their assembly journey there is often a lot of transport. And the final product can also be thousands of miles away from the customer. Also, the assembly process is usually very energy intensive these days.

Self-providers, will tend to purchase cheaper component lower down the supply chain, or simply second hand products in their local area, and then either apply their labour to move them up the supply chain, or perhaps repair products that are on sale for cheap that would otherwise be thrown away. By importing products lower down the supply chain and moving them up the assembly process with their own labour, rather than an energy intensive factory process, self-providers can dramatically reduce the energy input required to create a final product and deliver it to the customer.

The closer the point of value production is to the point of value consumption, the less energy is needed in transportation.

By producing value in the same location where they consume it, self-providers, who consume their own value save a huge amount on transport.

We can also think of the daily commute to work as a geographic separation between the point of value production from the point of value consumption, or even a trip to the shops – and one that contributes a great deal to CO2 emissions. Self-providers won’t commute: their day of work will consist of walking out the back door into their garden and tending some plants – or doing repairs on the house and the like.

In almost every respect, self-provision gears people towards capital conservation – including natural capital, along with the minimization of resource dissipation. This is inherently environmentally friendly and conducive to sustainable living.

Initially it is likely that less than 20% of people will be self-providers, but, as automation progresses, participation in the commercial economy will likely reduce to an ever shrinking pool of elite super-organizers of capital, who may compose less than 5% of the population with perhaps, 95% of the population living as self-providers who each manage their own heavily automated micro-production systems for food and house repair.

By facilitating self-provision rather than bullshit city jobs and global supply chains, Basic Income will result in a major reduction in CO2 emissions – especially as automation progresses.

How Low Interest Promotes a Long Term Outlook

In addition to facilitating a high quality self-provision lifestyle on a modest basic income, low interest loans can significantly reduce the production of pollution in other ways as well.

And basic income, combined with self-provision, will tend to create a low-interest environment.

As an initial simplification, the stock of consumer products is a reasonable approximation to people’s quality of life, while the rate of product manufacturing is a reasonable approximation to the rate of pollution.

This would suggest that the best way to optimize the ratio of public well-being to the production of pollution is to maximize the lifetime and energy efficiency of each product, and minimize the rate of material consumption required to maintain them.

All else being equal, products that don’t break, provide the same service to consumers for less energy, and require little in the way of maintenance and the replacement of parts are more desirable than products which don’t possess these characteristics.

The only problem is: designing products to never break, consume very little energy and last forever is really hard…and expensive!

For this reason, lower quality products that break quickly and consume more energy tend to be cheaper than high quality products which are more efficient and last longer.

So which product should you buy? The cheap product that is going to break and consumes more energy…or the way more expensive product that won’t break, requires less fuel and will last forever.

The answer is…it depends on the interest rate!

Let’s define the “running costs” of a particular product/item of capital as:

Running costs = Fuel Costs + Maintenance Costs + Replacement Costs + Breakdown Costs

(Where breakdown costs might be the cost of a piece of hardware that is essential to a production line and will stop the entire production line until it is fixed or replaced, or perhaps the costs of hiring a taxi rather than driving because the car broke down etc.,)

Running Costs > ( Purchase Cost Premium ) * (Interest Rate)

Then you should buy the more expensive product with the lower running costs.

Running Costs < ( Purchase Cost Premium ) * (Interest Rate)

You should buy the cheaper product with the higher running costs.

As a general rule, products with higher running costs, which need to be maintained and replaced regularly and consume more energy, are more polluting than products with lower running costs that are more energy efficient and require less maintenance and replacement.

Therefore, by encouraging the procurement of less polluting capital, lower interest rates encourage lower levels of long term pollution for a given quality of life.

The inverse of the interest rate is the time horizon for planning to minimize costs. A 10% interest rate is compatible with a 10 year planning horizon. At 10%, owners of money will purchase capital so that the combined purchasing and running costs are minimized over the course of 10 years. At 2% interest, the owners of capital will purchase capital to minimize the combined purchasing and running costs of that capital over 50 years.

The higher the interest rate, the less we care about the future, the lower the interest rate, the more we care about the future.

When central banks set the interest rate, they are telling industries all over the country how important the future is.

If central banks set interest rates at 10%, then they shouldn’t be surprised if, after 10 years time, cities get flooded, agricultural yields crash causing mass famine as a result of runaway soil erosion, natural resources that run energy guzzling equipment run out, causing that equipment to shut down, along with the civilization which depends on it, to collapse.

If central banks set interest rates at 10%, they shouldn’t be surprised if society collapses and everyone dies in 10 years time, because by setting interest rates at 10%, they just told the market it doesn’t matter what happens to society after 10 years!

While this view may be a slight simplification it is, broadly speaking, true. With very few (possibly no) exceptions, the deployment of environmentally friendly technologies is most favourable in a low interest rate environment.

Whether we are talking about installing wind turbines, solar panels, home insulation, heat pumps, purchasing a battery powered car to replace your existing petrol powered car practically all of these energy saving measures involve a heavy resource outlay today to save on future resource extraction costs – a strategy that uses more resources today, to save the aggregate amount of resources used in the long term.

This strategy only makes sense in a low interest rate environment.

Low interest rates promote environmentally friendly strategies for providing people with capital, to live high quality lives with minimal long term pollution and resource depletion, across the board.

Basic Income Reduces Real Interest Rates

When I talk about interest rates, I mean real interest rates which real businesses and private individuals can access to invest in projects that will save them energy and money over the long term. Today, even though central bank interest rates are low, private individuals and businesses can rarely obtain loans at anything like the interest rates advertised by central banks.

Basic Income, however, ensures that real interest rates, which individuals and businesses can access, will be as low as nominal interest rates.

The main thing which causes real interest rates to rise above baseline central bank interest rates is the risk of debt default.

The main thing that cause people to default on their debts is a cessation, or uncontrolled drastic reduction, in their wages/income.

Basic income will provide everyone with a reliable income both:

Directly – as it is itself a reliable income
Indirectly – through facilitating the activity of self-provision, Basic income will create a vacuum in the workforce that will both, prop up wages and ensure that anyone who wants a job that pays decent money (in order to meet their debt payments) will be able to readily find one as self-provision will ensure there is always demand on the part of employers for those willing to do an honest day’s work, and that such employers will always give them an honest day’s pay in exchange.

When we combine the effect that basic income will have on radically lowering the default rate, with its effect on lowering interest rates, it is clear that Basic Income will serve to drastically increase the sustainability of our society.

Finally, high levels of social capital essential for, long-lived stocks of material capital. There is little point in paying 3 times as much money to build houses, and other infrastructure, to last a thousand years in a community that’s filled with terrorists, arsonists and vandals. However, through reducing poverty and practically eliminating unemployment, basic income will create functional societies that are capable of responsibly maintaining their capital stocks and usher in a future that is both prosperous and environmentally sustainable.

John

The Persuasion Economy

December 14, 2018 by admin

What stands out about the newest multi-billion dollar, multi-national corporations, founded in the late 1990’s and early 2000’s (Google, Facebook and Amazon) is that two of them… hardly manufacture, or sell, any physical products at all!!!

Something strange is afoot…

Though manufacturers are more productive than ever, they employ less workers and make less profit. They are victims of their own efficiency and are undercutting each other out of existence. So while the world is awash with cheap products and gadgets made by increasingly automated systems, most profits go elsewhere…but where?

To make secure profits, you have to ring fence some kind of monopoly. Broadly speaking, there are 5 modern monopolies:

Land
Attention/Trust
Information
Government Contracts
Legal Fiat ( IP rights, Brand Ownership, etc., etc., )

I’ve previously mentioned how the monopoly of land works and how fiscal policy, a form of legal fiat, is systematically skewed to give newly-printed money to rich people for free. Well-connected contractors can also lobby governments to get taxpayer’s money for virtually nothing in return – the Iraq War being a good example. Modern IP laws resemble the royal charters that monarchs of old issued to favoured merchants and guild masters. All these are lucrative streams of profits which armies of financiers, realtors, lawyers and lobbyists hired by rival corporations, battle against each other to secure.

This article focuses on one particular monopoly. The monopoly of attention-trust.

Let’s begin with this self-evident statement:

“The simplest way to make money is to persuade someone to give you their money.”

Con-men are good at persuading people to pay them money for nothing. Snake-oil salesmen are good at persuading people to pay high prices for cheap items.

Whenever lots of people do something, we tend to think it’s O.K., but when Coca Cola persuades us to pay 50p for a can of carbonated, sugary water… is this really distinguishable from selling snake oil? And if that’s bad, then what about selling bottled still water at a similar per gallon price to gasoline?

Every day, fewer people work to produce items of actual value, and more people work to persuade others to buy cheaply manufactured items at prices far above their production cost. Armies of advertisers, psychologists, marketing researchers, influencers, celebrities, telemarketers, website designers and data analysts, work tirelessly round the clock to sell cheap products at inflated prices.

As production gets cheaper, physical products become little more than tokens to legitimize the exchange of money. Naomi Klein’s book No Logo discusses how many profitable companies increasingly outsource production and focus on marketing, brand building and design. Perhaps advertisers and brand managers can persuade you that branding creates “real value” – they are, after all, master persuaders – but any industry that persuades people to buy products that cost 5 times more than identical products elsewhere is clearly selling snake oil.

The recent fascination of mainstream advertising with predatory religious cults is a red flag if ever there was one!!!

The Attention Economy

Broadly speaking:

Persuasion = Attention + Information

Persuasion + Overpriced Products = Profit

Facebook and Google lead the attention economy – by a mile. Of their 25 largest competitors (not counting Chinese ones which don’t compete) all their revenues put together (except Amazon) are only 84% of what these two search and social giants make – and though Amazon has huge revenues, its profits compared to the Big Two are miniscule.

These companies’ business model is to capture our attention and information and charge sellers money to direct attention to their displays of products and services. They make large profits because attention is a monopoly – an hour gazing at one thing is an hour not gazing at something else. If everyone only looks at Google and Facebook all day, advertisers literally have nowhere else to go. In principle, these monopolies are not unbreakable, people can theoretically shift attention to something else at anytime. In practice, however, we are creatures of habit and the habitual use of something useful or rewarding, is hard to break. It is our habitual nature that gives Google and Facebook their monopoly over us and the virtuous (or perhaps vicious) cycle that content providers want viewers and viewers want content and both gravitate to where attention is, attracting yet more attention and yet more content.

In addition to attention, there is also a feedback loop in information. The more people use the Big Two, the more data they get, relative to competitors, for market research and to train algorithms in order to create more user-friendly (or perhaps more captivating) products.

Facebook and Google provide many useful services. That’s why we use them. Nevertheless, there’s something unsettling about the idea that armies of psychologists, advertisers and analysts constantly monitor what we do, and influence what we see. As we spend more time gazing at our screens, a few powerful monopolies influence an ever larger share of our daily visual experience, harvest information about our digital activity and use it in sophisticated ways to sell us things.

Facebook and Google lie at the entrance to a much larger advertising funnel. Overall, the internet advertising industry, dwarfs even these behemoths. 4.1 million people in the U.S. currently work directly for the ad-supported internet industry which has had 20% annual growth since 2012. In the U.K., market research has grown by 62% and data analytics by 350% since 2012. All this sits on top of the emergence of hollow brands since the 1980’s.

*PostCapitalism…Or Zombie Capitalism?***

In 2015, Paul Mason’s book PostCapitalism predicted that the increasing economic importance of information would end capitalism. He argues that as the marginal cost of replicating and spreading information approaches zero and as information becomes the dominant economic commodity (i.e. when a solar powered 3D-printers and harvester robots can make most things from information) the marginal cost of everything would approach zero meeting all our needs in abundance. I’ve also written an optimistic article agreeing with this and a pessimistic one on how advanced weapons systems could also be manufactured in abundance.

Things take time and traditional drugs companies, car companies and retailers are still out there – becoming more productive, cheaper, and less profitable. However, looking at future trends, the newest big companies and the fastest growing sectors are not manufacturing, but the persuasion economy. Evermore people, psychologists, salesmen, internet marketers, website designers, celebrities, social media influencers, brand managers, search engine optimizers, analysts of all kinds and many more, are piling into the persuasion sector. An exponentially increasing flow of capital and labour is being invested into influencing – and perhaps eventually controlling – human behaviour.

And, unfortunately, this is something overlooked by PostCapitalism. While information is naturally abundant, attention will remain scarce and valuable so long as our brains remain unchanged. Furthermore, attention is something companies can ring fence, captivate and make a tidy profit from – more so than any other resource.

It’s certainly true that 3D-Printing, along with the miniaturization and generalization of manufacturing, erodes the underlying justification for economies of scale, and indeed the entire hierarchical capitalist mode of wealth production. Yet US and UK companies have never been more profitable. Arguably capitalism has never been stabler and more dominant and than it is today.

Why is this? How can obsolescence coincide with record strength?

The answer is that continuously falling costs of production have steadily transformed capitalism from a system of wealth production into a hollowed out, ever more naked, system of pure control. This is the irony : the less necessary capitalism is for production, the more surplus labour and resources it can devote to controlling and propagandizing the population.

The less capitalism is required, the more spare resources it has to perpetuate itself.

Once power structures are summoned into existence, they rarely retire gracefully.

…And this would not be the first time an originally useful system of organization transformed into a useless system of pure control…

The first civilizations developed in river valleys to collectively manage large scale irrigation ditch networks for watering crops. This required a centralized hierarchy and an army loyal to a despotic king to make sure each irrigation ditch digger pulled his weight. However, once a large army, loyal to one leader, was established, the political system spread far beyond regions that justified this mode of production. The river valley civilizations ignited an age of empires, and even those who weren’t conquered by river valley civilizations had to form hierarchical political systems in order to defend themselves.

Without intense conscious effort, an analogous fate could await us. The mythical honest, productive businessmen eager to turn a profit for himself while serving customers and making the world better – the flagship species of capitalism – is rapidly becoming endangered. They can still be spotted, huddling in rocks and crevices, but when you find one, far from prospering they are usually struggling to stay afloat. Most new money is accumulating in the system’s instruments of persuasion and coercion. The jobs of the future will be: defense contractors, surveillance companies, lawyers, accountants, tax officials, public notaries, financiers, traders, marketers, advertisers, psychologists, brands managers, politicians, regulators, social welfare officers, realtors, fund managers, economists, social media influencers, NLP coaches, self-help gurus, celebrities, website designers, search engine optimizers, telemarketers, marketing analysts, security guards…in an economy where less than 10% of workers produce goods in abundance for practically nothing but which perpetuates artificial scarcity with planning restrictions, IP laws and sophisticated propaganda that convinces people, with increasing efficacy, to buy on credit excessive amounts of overpriced, disposable merchandise that soon becomes “unfashionable” or “obsolete”, attend over-hyped events and pay interest on their debts for the rest of their lives. Where a minefield of laws against copyright infringement, defamation of character and incitement of hatred, become so generalized that anyone with a large team of lawyers can sue anyone else for anything, where free speech dies the death of a thousand cuts and all political movements (that tell the establishment to take a one-way trip on ARC-B ) get litigated out of existence. Where all we need gets produced for nothing but where everyone has debt problems is stressed and constantly works their arses off at completely useless jobs as the high priests of economics shout in ever shriller tones that the sales price of a product IS its value to society. That if a sales team convinces customers to pay ten times an item’s production cost then BY DEFINITION they must have MADE the item TEN TIMES MORE VALUABLE and anyone who questions this logic is a HERETIC.

Is this really the future we want?

John

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A Rights-Based Basic Income

November 30, 2018 by admin

When the topic of basic income arises, people often ask me: “Why should we pay people to do nothing?” We generally think that hard word generates income, and that workers rightfully own that income. The idea of taxing hardworking people to pay those who (might) do nothing seems unjust. Should workers slave for money that mostly gets confiscated and given to others?

Yet not all income is paid to labour. A portion of income is used to rent assets of value. An owner of valuable assets can receive rent from others who wish to use them. This will provide him with an income for little to no work – possibly indefinitely. Some of the value of rentable assets was produced by labour, however a portion, perhaps a third to a half, was not.

I propose (as Henry George once did) that only the value created by labour can rightfully be privately owned. The only assets of value that can rightfully be purchased are assets created by labour, and if labour is only responsible for a portion of an asset’s value, then only that portion which labour produced should be owned privately.

There is no reason why one person should have a greater claim than another to value that is not produced by labour and, therefore, the rental income proceeding from the use of all natural value, by right, should be distributed evenly throughout society. The only way to own something is to produce it or purchase it from the rightful owner. This requires a voluntary exchange of ownership extending back to the original producers of the item of value. The purchaser of private ownership rights to natural value is like a buyer of stolen bicycles – as all private entitlements to natural value were originally stolen from the commons.

This article explores the revenues that a basic income based on equal rights, could generate. An income based on the principle that all people have:

An equal right to the unimproved value of land
An equal right to newly printed money
An equal right to inheritance
An equal right to benefit from bads whose quantity must be limited

The Portion of Land Value Not Produced By The Owner

Anything for which the demand at zero price exceeds the supply has monetary value. For some of these scarce, yet desirable, items (such as a piece of jewellery) the source of value was the labour of a craftsman, in which case the value rightfully belongs to its creator. Yet in other cases, at least a portion of the value is naturally occurring (a lakeside view, for example). Usually, human labour must mix with natural value to produce the final item. However, some natural resources require less effort to extract value from than others. Consider two coal resources: one far below the surface branching into narrow seams, another deposited on the surface, extractable with open cast mining. The value of coal from both mines is equal, yet one requires far more labour to extract than the other. This will make the mineral rights of the easily mineable deposit more expensive than the rights for the deposit that requires more capital and labour to extract coal from. But when one mining company out bids the others and pays the higher sum for the right to mine these easily accessible deposits, to whom should the money be paid? Who was responsible for that coal deposit being closer to the surface? Who deserves to be paid for this service? No one! It is simply a fluke of nature. And if no one deserves the cash proceeds from selling the rights to this resource, then everyone is equally entitled to these proceeds.

Beyond that, there is value that arises from proximity to other people. It is valuable to live close to shops, restaurants, discos and workplaces from which to earn a living. Yet the land owner creates only a tiny portion of this value. If most people on a street paints their house, the location value of the street will rise even for those who don’t. If a shop or railway station opens up, nearby house prices will go up even if their inhabitants did not build the railway or work in the shop.

We can thus see that, while much of a location’s value does arise from human activity, the rental proceeds from location value are not paid to the creators of that value. Since it is impossible to identify who is responsible for each pound of increased location value, it is better to tax the rental value of location and distribute a per head payment to everyone.

How do we assess what portion of land value arises from its unimproved location value and what portion arises from improvements which the owner has made? The value of the improvements is the cost of producing the improvements. If a house in London costs £150,000 to build and sells for £750,000, then it’s unimproved land value is £600,000. The cash value of the yearly benefit that proceeds from the exclusive use of a location is the location rent (the site rent). The appropriate level to set land value tax (a sum payable to the government for the exclusive use of a location) in a neighbourhood, is therefore whatever level reduces the prices of houses traded in an area to the cost of producing all the improvements present at that location. Mark Wadsworth estimates that a tax on the full site rent of residential property in the U.K. would bring in around £200 billion. Existing business rates offer a conservative ballpark estimate for what a tax on the unimproved value of commercial land could raise – around £30 billion.

Natural resources and farm land would not significantly change these figures.

So an equal right to the rental proceeds arising from the unimproved value of land in the U.K. would split £230 billion per year among 50 million adults and yield a yearly basic income of £4,600 per person.

An Equal Right to Newly-Printed Money

Any civilization that permits usury must continually create new money to remain stable. The current way that central and private banks create and distribute new money is highly unjust. So who should receive the newly printed money? Newly created money is not produced by labour, we certainly don’t reward private individuals who labour to create money! Forgery, the production of money by private individuals, is a criminal offence. Money is an – albeit useful – artificial monopoly imposed by legal fiat. Because it is produced by legal fiat, rather than labour, all people have an equal claim to the value of newly printed money. In a previous article, I discussed the precise financial policy reforms required to stabilize our system. Suffice to say they involve paying £1,840 to every adult, every year.

An Equal Right To Inheritance

Imagine a think-tank asked you to summit a design proposal for an equitable welfare system that addresses poverty to a report they were writing. Imagine you proposed a system where the welfare each recipient received was proportional to the net worth of their parents at their time of death. The response of the editor would probably be: “That’s the dumbest, most arbitrary, welfare system I’ve ever heard! Come back when you have something better!”

Inheritance is welfare. It’s unearned wealth some people receive in exchange for no work.

Some people accumulate a great deal of wealth over the course of their lives, which doesn’t go away when they die. So what to do with that value? Since no living person produced it, no living person has earned it. As such, everyone should have an equal claim to the wealth left behind by the dead.

So how much money would an equal right to inheritance bring in?

Let’s neglect land (whose value would already be taxed away) and just include financial assets. The HMRC estimates the total value of financial assets in the UK to be £1.6 trillion. If we take the gap between generations to be 33 years, as Richard Murphy does, this would yield a yearly revenue of £53 billion to be redistributed. Let’s assume, for the sake of being conservative that half of this is avoided or evaded. This would leave ~£25 billion a year, or £500 per person per year.

An Equal Right To Bads Whose Production Is Restricted

It is impossible to quantify with any accuracy, how much income this would bring in as the extent to which bads are restricted, and how they are restricted, is a political one. A slight modification of David Fleming’s proposal of Tradeable Energy Quotas ( TEQs ) would distribute rights, to purchase CO2 emitting fossil fuels, equally throughout the population. Every time you buy coal in the shop, you would have to surrender a portion of your quota. Companies would not be issued with any carbon ration but would have to purchase it from private individuals who could sell their carbon rations on the market to companies instead of burning it.

An alternative would be to charge a fixed price per unit bad emitted. There is a case for spending this price on clean-up costs rather than giving it to the population in general.

Beyond that, companies must often be approved for a license to engage in potentially harmful activity. The quantity of this activity could be reduced by increasing the cost of the license (whether selling liquor or gambling). The money raised should be distributed evenly throughout the population.

Conservatively, I will add £500 per person per year as the proceeds of the redistribution of fees, duties, rations, licenses, etc., etc.

Getting Real About Basic Income

Adding it all together, a rights-based basic income, which makes no claim on the proceeds of other people’s productive labour, would amount to about £7,440 per person. That this is far below the average wage should not be surprising for, as Piketty has mentioned, capital accounts for 30% of income (and some of that capital is justly earned), while wages account for 70% of income.

We need to be realistic about basic income. The purpose of basic income is not to enable people to live comfortably without working, rather it is to enable people to live without working in the labour market. If instead of using basic income as something to buy meals and pay rent, you think of it as money that enables you to purchase building materials, gardening and maintenance tools, and fertilizer to which you apply your labour to set up and run a homestead, then an unconditional payment of £7,440 a year could go a long way to enabling a sufficiently industrious person to establish quite a high quality of life for himself without selling his labour to others.

And since no customers or employers are required to give people permission to provide for their own needs, anyone could access this lifestyle. While not everyone would choose it, a universally accessible option of self-provision would greatly strengthen the negotiating position of workers with their employers and increase both wages and employment.

So a modest basic income could go a long way.

My article Basic Income, Self-Provision and Full Employment discussed the higher credit value of basic income as well as it effect on wages and employment in greater detail.

John

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Let’s Stabilize The Business Cycle – Once And For All!

November 16, 2018 by admin

Any civilization that permits usury must continually create new money to remain stable. Since the industrial revolution, loans at interest have become an indispensable means of financing important infrastructure to greatly improve living standards. Yet there is a price pay for this practice: the economic busts that have plagued the 19th, 20th and 21st centuries are the bitter fruits of usury.

It is not a coincidence that the Bank of England, founded in 1694, arose before the industrial revolution got into full swing. Without it, economic busts would have destroyed finance and torn apart the embryonic industrial economy. Central banks enable our financial system to survive economic busts – devastating though they are. Ever since their founding, central banks have covertly created new money out of thin air and lent it to banks; sometimes a nominal store of gold (of far less value than the money issued) “backs it up”, other times money is simply created by legal fiat.

As time has gone by, central banks have been getting better at using newly printed money to stabilize the finance system. The 2008 recession was pretty bad, but it was nothing like the 1930’s. However, the policies which central banks currently deploy to stabilize finance are causing inequality to skyrocket.

Central banks don’t give out newly printed money. They lend it. All money was originally loaned into existence. If all loans were paid back, all money would disappear. To stop this, central and private banks constantly lend out new money so new loans can be used to repay old loans. Thus, the total amount of money loaned out exponentially increases, yet if this exponential is sufficiently gentle, it can, in principle, sustain a steady, moderate rate of inflation indefinitely.

Since the loaned out money can never be repaid without societal collapse, the exponential increase in loans, that the central bank supports, is really just a money printing operation.

Fiscal Policy and Skyrocketing Inequality

So who gets all this newly printed money?

The answer: People who can raise credit at low interest rates. The activity of continually printing new money inflates asset prices. If you can raise a loan with newly printed money at an interest rate below inflation and use it to purchase assets, then the value of your asset portfolio, purchased from money loaned to you out of thin air, will almost certainly go up – at least with inflation – leading to yearly capital gains that exceed the interest originally used to buy that capital.

Such people, using low interest loans to make capital gains, essentially receive newly printed money for free.

This effect is exponential: as the assets purchased with new loans appreciate at the inflation rate, our investor’s net worth will increase yearly roughly by the inflation rate minus any interest owed on his loans. This increase in net worth can serve as leverage for yet more loans which can purchase yet more assets whose value in turn appreciates.

The problem is that not everyone can access credit at interest rates below inflation. People who already have valuable assets can leverage up at very low interest (some brokerages charge less than 1% interest on money loaned out to buy stocks) but people with insecure jobs and no assets, cannot get 1% interest and usually pay over 10% on their loans.

This interest rate apartheid, between people whose net worth is positive and those whose net worth is negative, divides the population into 2 distinct groups: Those in the black who – if they are financially savvy – receive free newly printed money from central and private banks and those in the red (and less savvy ones in the black) who get no newly printed money.

The current policy of the world’s central banks is effectively to continually print new money and hand it out to rich people for free (through facilitating leverage to inflate financial assets). Theoretically this can put off another sudden, disastrous crash for quite some time (which is why, despite many cries of wolf, there has been no “next great recession”) – although a change in fiscal policy (such as Ending The Fed or raising interest rates) could cause a sudden catastrophic collapse. However, this strategy can only stave off collapse by continually increasing the relative share of the world that the wealthy own. So although central banks can stave off the next crash by handing free money out to rich people (assuming no revolution), since the super rich cannot own more than 100% of the world’s total wealth, this policy cannot continue forever.

Yet if we don’t continually release new money into the system – it will collapse!

Stabilizing Finance Without Increasing Inequality

The question is…if we are going to print money out of thin air, which we have to unless we intend to ban usury (and it’s a little late in the game to ban usury!)…who should we give this new money to?

The answer is simple: since no one has earned the newly printed money, everyone has an equal claim to it. Newly printed money should be divided evenly among the population.

How much money should be printed every year?

If we look at the formula for price:

MV = PT

Where

M = Money supply

V = Money Velocity

P = Price

and

T is the number of goods transacted

Then making P the subject of the formula yields:

P=(M/T)V

If we assume a real economic growth rate of 2%, a constant money velocity and an inflation target of 2%, then that would imply that the money supply should be increased by 4% per year. Taking the UK’s M2 money supply of 2.3 trillion as M would imply that, in order to achieve a target inflation rate of 2%, £92 billion pounds of new money should be distributed evenly throughout the population per year, which would give each U.K. adult £1,840 of newly printed money per year.

This is only a ballpark figure, and may be an overestimate, since the velocity of money in the hands of poorer people is faster than its velocity in the hands of the super rich, so the payment might be somewhat less. Furthermore, it would oscillate to correct for changes in the money velocity.

But the important point is that such a payment of newly printed money to everyone could simultaneously stabilize our financial system and prevent the super-rich from acquiring an ever larger share of the world’s wealth.

Growth and Inflation

You may have noticed that the amount of new money required to stabilize the system roughly equals the inflation target plus real economic growth.

Economists often say we need real economic growth to stop systemic collapse. This is not true. Nominal economic growth plus steady inflation, arising from new money, is adequate to stabilize the system. What is true is that real economic growth allows central banks to pass free money under the table to rich people without anyone else noticing. Our financial system is rigged to ensure the rich get the lion’s share of all newly created wealth but, since everyone ends up with more, no one complains too much.

Distributing an appropriate amount of newly-printed money to everyone would let capitalism exist in steady-state with modest inflation. Don’t believe anyone who says otherwise. It’s just the rich couldn’t get richer without genuine innovation that outperforms the market.

National Central Banks Should Hold All Deposits

At the moment, private banks create most (97%) new money. This must stop if central banks are to hand everyone new money. Otherwise the fractional reserve system would multiply the new money – perhaps 30 fold – and cause hyperinflation.

Stopping this is relatively straightforward. All that is needed is for central banks to hold all deposits. The national central bank would then manage all ATM machines and give everyone a central bank debit card for cash transactions. In other words, the central bank would provide personal banking services to everyone. Since the central bank can, in principle, print an infinite amount of currency out of thin air, there would be no fear of runs on the bank as it could always print enough cash to pay depositors.

The central bank would then loan money to private banks at low interest who would then loan the money out to people and firms at a higher interest rate – the spread in interest being the private banks’ source of profit.

In our current system, when private banks lend out money, they credit the money to a deposit account held in the same private bank which can then be used as collateral for yet more loans, leading to uncontrolled money creation.

In the system I propose, when private banks lend money out to customers, they credit the customers’ central bank deposits. This enables the central bank to tightly control the amount of new money and credit created. And every personal account held by the central bank would, from time to time, be credited with basic income that roughly annualizes to £1,840 – more if the economy grew faster than 2% per annum.

Financial crises happen when too many borrowers fail to pay back their loans and cause depositors to lose their money. If these depositors either have loans themselves, or pay wages to people with loans, then this loss of deposits causes more debt defaults which wipe out yet more deposits…and on…and on… and on, in a disastrous cascade.

Securely protecting deposits could make financial contagion and crises a thing of the past. And if the central bank held all deposits, they would be fully protected, as any entity that can infinitely print money can pay all depositors in cash – even simultaneously. Thus, if the central bank held all deposits, there would be no more financial crises.

If the central bank held all deposits, no private bank would be too big to fail. There would be no difference between a large bank and large car company going bust.

A central bank holding all deposits is consistent with the libertarian ideal of the nightwatchmen state that solely protects private property. After all, your deposit account is your property, so should the state not protect it from irresponsible lending institutions?

It would be fairly simple to transition to this system without an economic collapse. The central bank could offer depositors convenient personal banking services along with a central bank debit card (an perhaps a sign up bonus). Then, whenever someone transfers a deposit out of a private bank and into the central bank, the central bank would lend the private bank a sum exactly equal to the deposit that was transferred out. This way, the central bank could transition to holding all private deposits without drying up the supply of loans.

Simple!

The recent announcement by the Chinese central bank that they will launch a digital currency may be the first step to a future where individuals and businesses can access the affordability and convenience of a current account without running the risk that the private bank holding the account might go bankrupt. If China can properly implement such a system, it will make its economy completely immune to recession. If the rest of the world’s central banks fail to catch up, digitize their currencies and recession-proof their economies, then, in the wake of the next recession, we may all end up using Chinese digital Yuan.

A Land-Backed Currency

Without gold, what is the real basis of a currency’s value? A currency backed by genuine value inspires more confidence than one whose value floats on thin air and good will, yet backing up a currency with real value is a straightforward matter and can be accomplished with the stroke of a pen.

A tax on the site rent of all the nation’s land, payable only in national currency would – at the stroke of a pen – create a land-backed currency. Such a land value tax would effectively use the total asset value of the nation’s territory to back its currency.

Since:

Total global land value far exceeds total global gold value
Land cannot be covertly stolen
Land is the natural asset of every nation
Land is of far greater use than gold

It is far more sensible back up a currency’s value with land rather than gold.

By adopting all of these measures, we can end the devastation that financial instability causes once and for all and transition to a stable, secure and prosperous future!

John

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Basic Income, Self-Provision and Full Employment

September 17, 2018 by admin

Basic income is a hot topic these days.

Recognized advantages include: removing the bureaucracy; the forms; the interrogations; the mandatory courses, job applications, job interviews, penalties for non-compliance, and the accompanying fear of getting cut off. A Reliable provision of income to everyone eliminates the decision-making process over who to pay and the accompanying risk, from the point of view of recipients, that the decision-maker will cut them off.

Basic income’s main disadvantage is that it is not targeted at those in need. A given tax revenue paid evenly to everyone will give the needy less than one paid solely to them. The UK’s welfare budget can afford to pay everyone about £4,000 per year without tax hikes. That’s not much.

Here, a case in favour of basic income is built from three points:

Basic income has a higher credit value than means-tested benefits
Basic Income should not be compared to a living wage. Paid work depletes time. Basic income does not. This leaves recipients time for cash-saving activities.
Job-seekers allowance and working tax credits push people into the labour market. Increasing the supply of labour reduces its price (i.e. wages). The provision of basic income does not push people into the labour market, and so supports wage levels.

Credit Value of Basic Income

When bank managers decide whether to lend someone money, they look at their assets, their income and, finally, the reliability of that income. Applicants with unreliable incomes are either charged more interest or turned down.

Two defining features of our age are record low interest rates, set by central banks, and an increasingly precarious job market. Together, these two factors are driving wealth inequality to levels not seen since World War 2. Record low interest rates enable asset owners to access cheap credit with which to buy yet more assets. Many asset owners all using cheap loans to buy assets inflate asset prices which can then be used as collateral for yet more loans. Meanwhile those with insecure jobs must pay interest rates that are 5 to 10 times higher on any money they borrow. This interest rate apartheid between asset owners and precarious workers is the root driver of inequality today.

The provision of income through means-tested benefits is precarious. It starts and stops, it gets revised up and down based on increased hours, changes in savings, missed appointments, changes in government policy and a myriad of other factors. This means someone on means-tested benefits, applying for a loan, will either be charged very high interest or refused.

Even a relatively small uncertainty in an income source drastically affects the interest rate (especially when central banks set rates low), and correspondingly the principal which that income can service.

For example, if there is a 10% chance per year that a benefit recipient will get cut off, the bank must charge 10% interest to compensate for the default risk. A fiscally responsible person receiving a fully secure basic income, on the other hand, would probably get charged a mortgage-like interest rate of 3%.

Thus, £4,000 of precarious income could at most service a £40,000 loan at 10% interest.

While the fully secure £4,000 basic income could service a £133,000 loan at 3% interest.

Basic income provides far more credit bang per benefit buck than means-tested benefits. Pilot studies in India confirm that even a low basic income significantly helps poor people to access to credit at lower interest rates.

This point is crucial: the cheaper credit, that basic income facilitates, lets people purchase capital today to save expenses tomorrow. The front-ended purchase of cost-saving capital produces a higher quality life from less money. Basic income provides more benefit from less payment. It’s a much more efficient way to pay out benefits.

Basic Income and Self-Provision

Due to its high credit value, a relatively modest basic income (of perhaps, £4,000 a year) in a low interest rate environment could enable its recipient to raise a significant amount of capital (perhaps £100,000+).

This creates many opportunities for buying capital today to save expenses tomorrow.

A key point to remember, when comparing basic income to a living wage, is those who work 40 hours a week to earn a living wage have depleted their time. Those with an unconditional basic income, however, still have those 40 hours to add value with their labour to any capital they have purchased with their income. This surplus time enables someone on an unconditional basic income to live a far better life than someone who earns a similar wage.

For example, it is much cheaper to buy raw materials to construct a house as opposed to buying the finished house. Indeed Open Source Ecology is working on a turnkey design, combined with instruction videos that will enable anyone to build a house and a hydroponic greenhouse from starting materials costing just £25,000. This way, you can produce the same final house by expending far less money but far more time and effort – yet if you’ve got nothing better to do with your time, applying it to build a house is no loss and a big gain. Consider cooking (or otherwise preparing) a meal verses buying one in a restaurant, consider purchasing fertilizer, gardening tools and a greenhouse as opposed to buying food in a supermarket. Supermarket food may seem cheap, but, remember, land costs less in the countryside than in the city, so growing food in your back garden, not only saves the cost of buying the food, but also the cost of living near, or travelling to, a supermarket. Bicycling as opposed to driving is another example of trading time and effort for money to achieve the same result.

Many means-tested benefits are calculated on the basis of personal expenses, especially rent in the case of housing benefit. This perversely incentivizes benefit recipients to increase their expenses. A fixed income, on the other hand, encourages people to seek creative ways to reduce expenses and cash in the surplus. The most obvious way to save money is to move to a cheap area. This option is unavailable to those who work in an expensive location and indeed, as this graph shows, average after-rent wages are identical up and down the country. This implies that landlords collect most of the surplus produced in wealthy cities. Thus, by freeing people from expensive locations and freeing up time for self-provision (as oppose to filling out endless job applications, as Job Seekers Allowance requires), surprisingly little money could facilitate a decent standard of living.

Uniquely as an economic activity, self-provision doesn’t require anyone’s permission. Those who work for themselves with tools and raw materials purchased with basic income do not need employers to hire them or customers to purchase their goods, they can just get on with it – no permission, or CV, required. This means the economic activity of self-provision on a modest basic income can automatically fully absorb an arbitrarily large unemployed population. Many critics of basic income would prefer to supply everyone with guaranteed work. However, a basic income set at an affordable level is, to all intents and purposes, a guaranteed job. The provision of basic income is an indirect provision of employment. No one on £4,000 a year would sit around doing nothing – they couldn’t afford to, or at least wouldn’t want to – as their quality of life would be very low. Instead, anyone on £4,000 a year would spend their time working industriously to extract the maximum value from every penny they got.

Furthermore, unlike make-work guaranteed job schemes, those employing themselves in the activity of self-provision requires no supervision at all. Since people providing for themselves reap the benefit of their own industry, there is no way to skive off and game the system. This simultaneously raises productivity and eliminates the need for supervisors that peer over the backs of guaranteed workers to make sure they perform their make-work jobs.

Higher Wages, Wealth Creation and The Benefits of Full Employment

If we quit our jobs, we lose money and gain time. The extra available time can be devoted to working at a job that pays more, and people often quit their jobs when offered a higher paying job elsewhere. One could also use the extra time acquired from quitting a job to run a business. This would make sense if the hourly profit generated by that business exceeds your old salary.

Other than working at your own business, or a higher paying job, you could work to provide value for yourself (such as building a house, growing food, brewing beer, etc.). This is a key point: Unlike other activities, which may not be available, self-provision is always an available option for healthy people. If the benefit from a given amount of time spent providing for your own needs exceeds the benefit of your salary at work, then it makes sense to quit your job and provide for yourself instead. And because self-provision is available to everyone, then if there are enough rational people to set the price of labour…

…the benefit that someone providing for themselves can extract from a given period of time and industry will set the wage floor everywhere.

In 1879, Henry George eloquently expressed this principle in his landmark book Progress and Poverty in the chapter, Wages And The Law of Wages

“…what, in conditions of freedom, will be the terms at which one man can hire others to work for him? Evidently, they will be fixed by what the men could make if labouring for themselves. The principle which will prevent him from having to give anything above this, except what is necessary to induce the change, will also prevent them from taking anything less. Did they demand more, the competition of others would prevent them from getting employment. Did he offer less, none would accept the terms, as they could obtain greater results by working for themselves.”

However, the wealth that someone can produce working for themselves depends on available tools and raw materials. Without an initial supply of tools or raw materials, the value of our time is low indeed – and tools and raw materials cost money.

Wealth is created by applying labour to capital. If someone wishes to mow the lawn, they will be far more productive with a lawn mower than a pair of scissors, conversely a regularly used lawn mower will be more productive compared to one left idle in a garden shed. Hence:

Capital amplifies the productivity of each hour of labour, while labour amplifies the productivity of each unit of capital.

This means a basic income that enable recipients to access more capital will raise the value of the time they spend providing for themselves and hence baseline wages across the board. Since labour and capital have a multiplicative effect on each other, basic income will raise wages to many times the value of the income itself. If labour amplifies the value of capital (tools and raw materials) by a factor of 5, then a basic income of just £4,000 a year could raise wages everywhere to £16,000!!!

Henry George’s Law of Wages can also be used to infer that a basic income will create new wealth. According to this law, the aggregate benefit produced by basic income recipients applying their labour to capital exactly equals the salary forgone by not spending that time working for someone else. If a £4,000 basic income raised the wage floor to £16,000 then someone who chose to provide for themselves as opposed to getting a job for £12,000 actually produces an additional £4,000 of wealth compared to a situation without basic income where they were forced to labour for less. By more efficiently capitalizing the poorest members of society, even a modest basic income would increase the productivity of their labour.

And if we agree that labouring industriously to provide for yourself is a productive, wealth-producing use of time, then universal basic income will give rise to full employment along with all its corresponding benefits!

Basic income can buffer a flexible, non-exploitative labour market. Today we shudder at the term “flexible labour market” due to the implication that one moment you have an income, the next moment you’re left high and dry. But once people can use basic income to set up a homestead with the tools they need to provide for themselves, flexible labour markets become less ominous. For those working from a foundation of self-provision, flexible labour markets will merely be a source of pocket money.

An Integrated Strategy

For universal basic income to truly benefit society, two other things must accompany it:

A program to provide cheap credit to poorer people who wish to become self-sufficient
A government funded information resource, that informs people how to provide the best possible livelihood with their income. Including the best skills to develop and the best tools to work with.

Bank managers will effectively serve as gatekeepers to prevent wasteful people without a plan from front-loading their income as a capital loan. Conversely, it is also vital that responsible people who are poor can access cheap credit to front-load their income. Means-tested default subsidies are a possible solution. If the government refunded, say, 50% of the money that banks lost as debt defaults from low interest self-sufficiency loans issued to those on low incomes, then banks would not lend out to really dodgy customers, as they would still lose 50% of the defaulted sum, but if only low interest loans to those with low incomes qualified for the subsidy, then interest rates could be held down.

Phasing It In

In my book, The Countryside Living Allowance, I discuss how to phase in a basic income so as to minimize the costs (along with costing estimates) and maximize the positive impact. Basic income will have the biggest impact where the cost of living is lowest. Therefore, initially limiting basic income to regions with a low cost of living would reduce its budget while still raising wages everywhere, as those on lower incomes would move to where they could collect the allowance. Furthermore, the allowance could be linked to a Land value covenant, so that the government could raise more revenue as more people moved into regions that qualified for the benefit.

If this article is of interest, and you want to learn more, read The Countryside Living Allowance to get the details.

John

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