Beyond Minimum Wage Hikes: With Universal Basic Income, “Everyone Gets a Check”

By Glen Martin

The pact to raise the minimum wage in California to $15 in six years is but the latest attempt to address the economic crisis of our times: income inequality. The facts are that the middle class is shrinking, the rich are getting ridiculously richer, and the poor are—well, staying really poor.

As data from the Pew Research Center makes clear, lower-class household income has dipped and middle-class household income has plummeted in recent decades, while the income for upper-class households has spiked sharply. Such a trend says nothing good about the future of the nation.

And there’s something else: We’re losing jobs, not just to the Chinese, but to robots. A 2013 Oxford study concluded that nearly half of U.S. jobs are at risk due to encroaching automation. In other words, it’s not that you’ll have to drive for Uber to put gruel on your table. It’s more like you won’t even have the option of joining Uber: A driverless car will ultimately eat your gruel, figuratively speaking.

But some people, people of high intelligence and good will, are putting a lot of thought into an effective response. While the minimum wage hike has a slow rollout, affects only California and doesn’t address the problem of job losses, an old idea with a broader application is garnering new attention: the Universal Basic Income. In simple terms, everyone gets a check. It would be sufficient to assure food, shelter and a modicum of dignity, with perhaps enough left over to buy an occasional smart phone, microbrew, or dirt bike. The result, advocates maintain, would greatly reduce—perhaps eliminate—abject poverty, provide paths toward more secure and productive lives, and keep our consumption-based economy humming.

The basic concept of a UBI is really nothing new. A variant known as the negative income tax was proposed by the anti-Keynesian economist Milton Friedman in the 1960s. Under Friedman’s plan, income tax would be reduced proportionately for low earners; at a certain point, people would receive money from the government rather than pay taxes. Richard Nixon championed the idea, and the House of Representatives passed negative income tax bills twice, says Stephen Menendian, the director of research at the Haas Institute for a Fair and Inclusive Society. Senator and 1972 Democratic presidential candidate George McGovern also supported the bills, says Menendian, but southern senators opposed them, and the legislation died.

It may seem strange that conservative economists and politicians would have championed a program that involves giving government money away to poor people, but they considered it a means for reducing general entitlements, according to Menendian.

“They saw it as a way to streamline government, to greatly simplify the welfare state,” he says. “The idea was you could eliminate hundreds of welfare programs and their bureaucracies and overhead by substituting one simple program.”

Though the negative income tax didn’t pass, the broad concept on which it was based remained lodged in the collective forebrain of conservatives. Last year, House Speaker Paul Ryan floated a proposal to consolidate eleven aid programs—including food stamps, housing vouchers and federal assistance for child care—into block “opportunity grants” to states; earned income tax credits are part of that plan, says Menendian. “The problem is that Ryan’s plan to ‘streamline’ the government ultimately results in far less support for the people who need it.”

But if “targeted” programs such as the negative tax credit have inherent problems, the same can be said for “universal” proposals such as the UBI, observes John A. Powell, the director of the Institute for a Fair and Inclusive Society and a Cal professor of law, African-American studies and ethnic studies.

Universal programs are those that provide everyone with benefits–Social Security is a prime example, and the UBI would fall into this category. Targeted programs, like the negative income tax, are means tested. If you make too much money, you derive no benefit.

“So it’s probably no surprise that universal programs receive more general support than targeted programs,” says Powell. “Everybody gets a bump.”

Indeed, the UBI is now a pet proposal of our technological aristocracy. “The idea of basic income has been appearing among the tech-bro elite a lot lately,” said a recent Vice report. “Mega-investor and Netscape creator Marc Andreessen recently told New York magazine that he considers it ‘a very interesting idea,’ and Sam Altman of the boutique incubator Y Combinator calls its implementation an “obvious conclusion.” Albert Wenger, a New York–based venture capitalist at Union Square Ventures, has been blogging about basic income since 2013. He’s worried about the clever apps his company is funding, which do things like teach languages and hail cars, displacing jobs with every download…”

But the UBI is no panacea, warns Powell. Indeed, because it assures benefits to all, it doesn’t address the main source of our current angst: economic inequality.

Powell notes that the International Monetary Fund considers inequality a problem when extremes are so great that they create drags on the economy.

“We’re talking about economies based on consumption, of course,” says Powell. “And in such economies, a thriving middle-class is implicit for stability; they support general consumption.”

That certainly dovetails with the sturm und drang over the declining American middle class, but Powell notes “economy” today doesn’t mean the same as it did, say, during the Great Depression. Back then, America’s economy was essentially national: We produced, sold and consumed among ourselves. Today, says Powell, the economy is global, with each national component inextricably connected to every other.

“We still need a relatively prosperous middle class for a functional economy,” he says. “But today, that middle class doesn’t have to be wholly or even largely in America. Our economy is widely distributed so the middle class can be widely distributed—to China, India, Europe. The economy in general may ‘work,’ but it doesn’t necessarily work for the American middle class. The benefits may accrue to the growing middle classes of other countries, or to the wealthy. But here at home, disparities inevitably increase.”

From that perspective, universal programs such as the UBI are not only inadequate; they don’t even address the critical issues.

“(Political theorist and philosopher) John Rawls argued that we are leaning toward a state that protects capital over people, a state where people are supported only to the degree that order can be maintained,” Powell says. “I think the evidence is confirming that view. Essentially, we now have plutocracy, not democracy. That may seem to benefit the elite, but at a certain point everyone has to worry about inequality undermining the basic social contract and stability.”

What’s really angering Americans isn’t so much dwindling income as a dwindling sense of standing, says Powell: A feeling that society has excluded them, that they no longer have a say in the way they’re governed. A UBI, in short, isn’t going to scratch them where they have the most ferocious and virulent itch.

Nor will a UBI or negative income tax mitigate job loss from automation and AI, he says.

“Maybe we’ll be usurped by robots, maybe not,” says Powell. “It’s peripheral to the real issue. The fact is that both wealth and stratification are increasing. That will continue no matter what the robots do or don’t do. We have to find ways to not only distribute wealth more equitably, but to address social and political disparities.”

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Basic income is an appealing alternative to QE, ZIRP and NIRP. a) It does not require the central bank to create money out of thin air, i.e. a frugal form of basic income[1] that resembles an unconditional, individual federal poverty-level(FPL)[2], citizen’s negative income tax[3]. For the US, it would roughly cost $540bn(45mn x $12K) plus tapering costs. The US currently spends $1tn/year on welfare[4]. b) Unlike QE, ZIRP or NIRP, Basic Income does not artificially raise stock prices, house prices, property taxes and then let them drop precipitously in price when these stimulus programs end. c) It is not a temptation for governments to deficit spend, but rather an incentive for citizens to take up skills training, university attendance and entrepreneurial risk-taking to start a business. d) It tops up liquidity on main street during recession rather than promoting carry trade, M&As, stock buy-backs and expansion of the Federal Reserve balance sheet that drains liquidity from the real domestic economy and increases annual interest payments on the national debt. e) It rewards sound business during recession by allowing over-speculative, illiquid and insolvent businesses to fail and clear the markets without losing customers to bread queues. f) It reduces payroll costs for businesses and tops up low wage workers. g) It reduces government costs and bureaucracy, bound hand and foot with red tape. h) It encourages participation in the formal sector of the economy that generates tax revenues for government rather than induce unemployed citizens into the competing informal sector[5,6] that reduces revenue for legitimate businesses and raises government costs for policing tax avoidance activities. i) Excepting medical care, it replaces the myriad of convoluted welfare benefit systems. Any thought of extending it to old age pension schemes may require aging out current and imminent recipients with some negotiated age cut-off date and buying out the remainder of current stakeholders at PV plus accrued risk-free interest income for their past contributions into a one-time government-backed individual retirement account, redeemed at age 62. j) It may have potential to be a tenet in trade deals for reducing currency manipulation, off-shoring, corporate inversions and migration of low skill workers for economic gain. k) And yes, it does happen to benefit society by abolishing poverty for citizens, as well as encourage the arts, manufactures and commerce. QE, ZIRP and NIRP does create a temporary wealth effect for some while it lasts, however Basic Income creates a permanent wealth effect for the entire business cycle of the domestic economy, promoting the idea of booms without bust from real productivity gains. - The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom., “The General Theory of Employment, Interest and Money | 1936 | chp 22, section III”. Much ado has been made of future automatons raiding and pillaging incomes from citizens. They have indeed already landed and come in all shapes and sizes from industrial robots to algorithmic trading platform agents,… so welcome them into the tax base. To further reduce red tape in favor of stimulating greater productivity in the real economy, consideration may be given to combining basic income with apt tax reform[7-9]. Replace the convoluted tax system with a tiny flat tax, merely a fraction of 1%, on all transactions[10]* and assets[11]. It would be a desirable lift of roughly 30% payroll taxes, 2% property taxes and 7% sales tax from the shoulders of most every citizen and a lift for sound, legitimate business from the weight of 35% corporate taxes that may, in time, lead to an increase of economic activity, lower cost of labor, raise employment and seed more successful entrepreneurial startups, along with other more intangible rewards. - The major interest of the state is to foster and support the spread of general prosperity, as best it can, so it should first of all attempt to lower all taxes as far as possible, particularly those of the poor., “Carl Menger’s Lectures to Crown Prince Rudolf of Austria | 1876 |pages 197,199” * In regards to the APT Tax Youtube video, cited below, the entire pie of US transactions in 2012 was roughly $3500tn ($14tn X 250 weekdays), up from $674tn in 2003. Projected Federal, State and municipal government expenditures for 2016 tallied on are $7.3tn. A 0.25% transaction tax (0.125% per counter-party) on $3500tn of yearly transactions amounts to $8.75tn of government revenue. Sensible citizens and sound business leaders would be aligned in not wanting to see their taxes rise, but rather see it reduced further with a lower debt/gdp for greater purchasing power. See also flow estimates from “Worldwide Currency Usage and Trends | SWIFT | 2015” and “The rise of money trading has made our economy all mud and no brick | Guardian | 2013” [1] Alternative Models Considered for Finland’s BI Pilot | Bien | 2016 [2] 2015 Poverty Guidelines | U.S. Department of Health & Human Services [3] Negative Income Tax Theory Explained | Youtube [4] CRS Report: Welfare Spending the Largest Item in the Federal Budget | Jeff Sessions [5] A Classical Theory of the Informal Sector | Gibson | Manchester School | 1994 [6] America’s Underground Economy | Cebula/Feige | 2011 [7] The APT Tax | Youtube [8] Taxation for the 21ST Century: the automated payment transaction (APT) tax | Edgar L. Feige | 2000 [9] ON THE CONTRARY; Dreaming Out Loud: One Tiny Little Tax | NYT| Daniel Akst |2003 [10] Intraday Liquidity Flows | FRBNY | 2012 [11] Total Assets of the U.S. Economy $188 Trillion, 13.4xGDP | Rutledge Capital | 2009
Gee, my comment doesn’t look like the preview, LOL.

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