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 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.,)
If
Running Costs > ( Purchase Cost Premium ) * (Interest Rate)
Then you should buy the more expensive product with the lower running costs.
If
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
