Tag Archives: basic income

The basic income program

The basic income program we propose will be a combination of two concepts:

  • a citizen’s dividend: from revenues raised from the lease of public land, licensing of radio frequencies and natural resources;
  • a social dividend: from revenues generated by publicly-owned enterprises.

Consequently our BIP will not be funded through tax, whether an income tax or a VAT.

Automation: challenges and solutions

Automation is a bless and a curse. On one hand it liberates humans from dangerous, monotonous and boring work, while on the other hand it takes jobs from people and hence their source of income. The latter is not without consequences. Continue reading Automation: challenges and solutions

The 21-hour-work week

The New Economics Foundation has proposed to shorten the work week to 21 hours. The proponents of this plan make several arguments in favour of it, we will discuss a few of those in this post. The remaining arguments are related to terrestrial issues such as environmental problems, because these are of less importance for a space-based society we will leave them out here.

The proposers of the 21-hour work week, see their plan as a (partial) solution for the following problems:

A ‘normal’ working week of 21 hours could help to address a range of urgent, interlinked problems: overwork, unemployment, over-consumption, high carbon emissions, low well-being, entrenched inequalities, and the lack of time to live sustainably, to care for each other, and simply to enjoy life. (New Economics Foundation).

The problems most relevant of this list which are most relevant for us, are: unemployment, low well-being, entrenched inequalities, lack of time to care for each other and enjoying life.

But before we continue our discussion of the arguments in favour of a 21-hour work week, we need to address to most fundamental objection against it. One might argue that such short work week is simply too short for maintaining the economy. This objection has a simple rebuttal: because of technological progress, the productivity of workers has been increased significantly, and this development is likely to continue in the near future. If the productivity per worker increases, working hours can be decreased whilst the total productivity remains the same. Further automation might eliminate the need for human employees at some point in the (distant) future.

A different but related objection is that a 21-hour work week provides workers simply not enough income to live from. However, the people from the New Economics Foundation suggest to increase hourly wages by such amount that all workers, even with a 21-hour work week, have a living wage. Instead we propose to introduce a basic income guarantee, which ensures that every person has a sufficient income to live from, regardless of whether they are employed or not.

By reducing the work week from, say, 42 hours to 21 hours, one new job position becomes available. Some countries, such as Spain for instance, has such levels of unemployment, that a reduction of the working week might be the only way to increase job opportunities. Though in the early stages of space colonization underemployment would be a bigger concern, we have to realize that in later stages, when space population will grow, an increasing number of people will seek a job. Therefore a 21-hour work week would be an elegant method to keep unemployment levels low.

Increasing human well-being is our primary aim, by creating a new and better society. How would a reduction in working hours enhance well-being? Nowadays, many people have to make long hours, just to survive. By doing so their health is often heavily compromised. Further they have only little time for their friends and family. By reducing working hours, while ensuring a sufficient income, well-being will be promoted.

The New Economics Foundation discusses the topic of inequality mainly in terms of gender-relations. Their argument is that by reducing the work week, gender relation will become more balanced. In most modern families, it is still the woman who does most of the housework and child care. A 21-hour work week for both partners will enable them to combine their work and their family more equally: since men will work less they can spend more time in their children, whilst women have to spend less time with this and can work more hours. As a classical liberal organization, we place great importance on gender-equality and if a 21-hour work week will promote this goal, we will embrace it.

The 21-hour work week will improve the quality of family life, since parents have to work less and can spend more time with their children. A leading cause of (youth) crime is the absence of parental care, children who have no or little contact with their parents often drop out from school and turn into crime. The more time parents can invest in their offspring, the more successful their children will be in life; to the benefit of society as a whole.

Another argument in favour of shorter work weeks, is that if people have to work less, they can spend more time to community life. The central idea of classical republicanism is the civic virtue. A person has civic virtue if he or she is publicly spirited, and strongly related to civic virtue is the idea of the vita activa: the devotion of life to the common good. The Latin phrase Res Publica means the public interest, a republican government is therefore a government devoted to the promotion of the common good.

Classical republicans, such as Hannah Arendt, put great emphasize on active citizenship, i.e. the active participation of citizens in public affairs. For most people this would mean enrolment in neighbourhood activities, however people can only participate in public affairs if they have enough time to do so. Therefore republicans should support the introduction of a 21-hour work week.

A work week of 24 hours gives three 7-hour workdays (or seven 3-hour weeks). The concept of the 7-hour workday isn’t new, and has been proposed by many person, including Theodor Herzl, who also proposed the following system:

There will t fourteen hours of labor, work being done in shifts of three and a half hours. The organization of all this will be military in character; there will be commands, promotions and pensions, the means by which these pensions are provided being explained further on.

A sound man can do a great deal of concentrated work in three and a half hours. After an interval of the same length of time — which he will devote to rest, to his family and to his education under guidance — he will be quite fresh for work again. Such labor can do wonders. The seven-hour day thus implies fourteen hours of joint labor — more than that cannot be put into a day. (Herzl, 1896).

Except for the military character of Herzl’s method, this idea would be great. It would allow businesses to be open from 8.00 to 22.00 (local time), but also allows to work at the time they are most productive. Some people are more active in the evening hours, whilst others will prefer to work in the early hours.

Estate tax and Basic Income

Introduction

A short time ago we published a post on monetary reforms, one commenter raised the issue of social inequality. In this post we will address the issue of social (in)equality and equality. Before we continue, we need to define what we understand with equality.

If we talk about equality, we need to ask equality in what perspective? When it comes to social equality, then we can either refer to equality of changes or to equality of results. Basically this covers the primary difference between classical liberalism and socialism, classical liberals focus on the equality of opportunities, whilst socialists focus on the equality of results. The reader might wonder: what about equality for the law? Equality for the law is a fundamental principle common to both classic liberalism and socialism.

Since Lagrangian Republican Association endorses classical liberalism, we will limit ourselves here to equality of chances.

Asset-based egalitarianism

In 1797 Thomas Paine published his pamphlet Agrarian Justice. In this paper Pain argued for the establishment of an estate tax of ten percent for close relatives and a higher percent for heirs who aren’t close relatives of the deceased. The revenues raised this way would be used for 1. an annual pension of 10 pounds for every person 50 years of age and older, and 2. A one-time payment of 15 pounds to every person at reaching the age of 21 years. In Paine’s age the average annual income of a labourer was 23 pounds.

In order to fund the ordinary functions of government, Paine argued for the imposition of a land value tax. Modern income taxes were only introduced from the latter half of the nineteenth century.

But why an estate tax? According to the labour theory of property one can become the owner of unowned object by mixing your labour with those objects. Or in other words by performing labour one gets entitled to the fruits of one’s labour. A tax on income from labour would therefore be immoral, since it’s equivalent to stealing. However, if you inherit property from someone else, you haven’t worked for it and consequently you don’t “deserve” it.

One counter-argument could be that a person has a right to dispose his or her property as he or she see fit. This is true, only as long as you are alive. But at the moment a person dies, he or she ceases to existed and non-existent persons are not able to have property. Consequently after death one’s property automatically becomes unowned. There is no rational reason why the next of kin of the deceased would have more right to get this inheritance than any other person. The only reasons for this are cultural ones.

The proponents of “traditional” inheritance law, should consider the following moral dilemma: Do people born in wealthy families deserve to inherit this wealth any more than people born in poor families to inherit their poverty?

There is another strong argument in favour of estate taxes. This argument is derived from classical republicanism. Republicans believe that civic virtue is the foundation of freedom. However, as explained by Michael J. Sandel:

Civic virtue required the capacity for independent, disinterested judgment. But poverty bred dependence, and great wealth traditionally bred luxury and distraction from public concerns. (Sandel p. 136, 1998).

The inheritance of wealth allows the accumulation of wealth over generation, concentrated in a few families. In this manner a class of people is created who are disconnected from the public interest. Since these people do not have to work, they can devout their careers to politics. Hence a class of ambitious politicians are created.

Paine’s plans would tackle two things: by imposing a tax on inheritances the emerging of a wealthy, powerful but corrupt class would be severely hindered. And secondly, by giving every person a small capital, young people would start their adult life financially independent. Therefore this proposal would encourage a republican form of government.

The reader might ask why giving people this money at the age of maturity? If the government would give the money at birth, the parents would have to manage it until their child becomes an adult. But if the parents have to manage the money, they might be tempted to waste the money, what would cancel its very purpose. Recall that in the late 18th century, most people did not have bank accounts. Nowadays, we could deposit the money on a blocked savings account, but this would effectively the same as giving the money at the day of maturity.

The case for equality of opportunity

Classical liberals, such as David Hume and Adam Smith, believe that inequality of results creates incentives for people to take risks and to accomplish things. Business owners are motivated by the prospect of profit to provide goods and services to the public, workers are motivated by wages to offer their labour. Those who chooses to take risks, should be rewarded for it.

In an ideal world all persons would be able to do whatever they want to do. But in the real world we have to deal with social-economic inequalities. In general those born to wealthy parents have a much better start position in life, than those born to poor parents. Wealthy parents can afford better food, better education and so on for their children. Being born to affluent parents is a matter of luck, not desert (unless you believe in some kind of reincarnation and future births are the result of karma).

The question is therefore whether a society in which people’s opportunities are highly determined by luck can be a just society. In his book A Theory of Justice (1971) American philosopher John Rawls argues that this is not the case. By making use of a famous thought experiment, the original position, he shows why.

Suppose you and I with some other people are to make an agreement about the rules of a new society. We know all relevant facts regarding the physical universe, but we do not know beforehand which position in this new society we will get assigned. This latter lack of knowledge is called by Rawls the veil of ignorance, and he argues this precaution will cause people to arrange the rules of society such that whatever role they will get in that society, they will receive a fair treatment.

According to Rawls people in the original position will derive two principles: 1. all people should have the same set of basic rights, and 2. the so-called difference principle. According to the latter principle economic inequalities are allowed as long as those who are the least benefited will have their situation improved. Therefore Rawls rejects the equality of results as the primary objective of social justice, while he argues for the equality of opportunity.

Thomas Paine’s proposal for asset-based egalitarianism, is fully defended by Rawls’ theory of justice. Actually one could argue that Paine’s idea is closer to Rawls vision of a property-owning society, than the modern welfare state.

The Basic Income Guarantee

A fundamental argument against Paine’s plan is that if you give people a one-time sum of money, many, if not most, of them will waste the money by spending it in a short period of time. Only a few people are likely to manage this money wisely, by investing it in education, a house or business enterprise. A solution for this problem would be to place the money in a savings account, and give people only access to the interest, whilst the principal remains untouched. Another idea would be to give people stocks in a national mutual fund instead of giving them the equivalent money, the stock will pay dividends to their owners but they will not allowed to sell their stocks.

Both the savings account plan and the national mutual fund plan, transform the one-time capital grant to a basic income guarantee program, since people will now receive a periodic income from either interest or dividends instead of a single capital grant. The idea of a basic income guarantee has been proposed at many different times in history. Many different versions have been devised and many different methods of funding such scheme have been suggested.

Before we continue, it’s a good idea to define what a basic income guarantee is. According to Wikipedia, a basic income guarantee is an unconditional payment of a sum of money at regular intervals. Unconditional means here, that save for citizenship no specific requirements are imposed. Every person gets the same amount of money, regardless of income or wealth. In other words a basic income is not  means tested.

This is in direct contrast with most modern welfare programs, which are only available to certain groups of people. In order to prevent welfare fraud, governments of welfare states need to spend much time and money to control whether people who receive welfare are actually entitled to it. By switching from a welfare state to a basic income guarantee system, the government will save enormous amounts of money. And additionally such system would also eliminate the constant violation of privacy which is inevitably linked to the welfare state.

Another argument in favour a basic income, is a classical one and has been used since the middle ages. By giving people a regular basic income, the poor will not have to resort to (violent) crime in order to survive. Those who use this argument believe that the cost of a basic income are way less than the alternative of a society dominated by crime.

A third argument, mainly used by (prominent) economists, is that the implementation of a basic income scheme would allow the abolition of minimum wage laws. The idea is that minimum wage laws result in systematic unemployment of certain categories of people. These people can now be employed at market wages, while they have still sufficient income to live.

Several authors differ on the precise height of the regular payment, but in general proponents of a basic income guarantee believe that such income should be sufficient to live a modest life. Those who desire more luxury should work to support their lifestyle. Empirical research has shown that the introduction of a basic income, doesn’t lead to a decline of the workforce. In fact the exact opposite happens.

Our vision

The basic features of the system we want to introduce in our space-based society, are the following:

1. A basic income for every citizen or permanent resident of 16 years of age and older, to be paid every month.

2. The amount of money paid should be sufficient to live from, therefore no other welfare programs and minimum wage laws will be introduced.

3. Workers have a voluntary option to take a total permanent disability insurance.

4. Employment at will, employers are free to hire and fire employees when they see fit, save for a limited number of restrictions. Employees can resign at any time for any reason.

References

Agrarian Justice On line edition of Paine’s pamphlet.

Sandel, Michael J. 1998. Democracy’s discontent. America in search of a public philosophy. The Belknap Press of Harvard University Press. Cambridge, Massachusetts.

A review of “The Lights in the Tunnel” by Martin Ford

This post is a book review, the ideas discussed in the book reviewed here, do not represent the point of view of Republic of Lagrangia.

Science fiction is full of stories in which people design and build robots with the purpose of serving their creators, but in the end the robots revolt against humanity. Most of those take over stories picture a violent and often rapid overthrow of mankind. Actually these traditional take over stories are often nothing more than retellings of (real) slave revolts, with robots substituting for slaves. Not much people do think about a gradual and non-violent robot take over in our time.

However such a gradual and non-violent take over, is the subject Martin Ford’s The Lights in the Tunnel. Well, to be fair Ford is not writing about robots who feel being oppressed by their human masters and therefore decide to wage war on humanity, nor is his book about man being governed by machines. No, The Lights in the Tunnel addresses a rather serious subject: the economic consequences of automation.

Ford begins his narrative with a powerful analogy of how the mass market works. He ask us to imagine a tunnel, in this tunnel there are lights, each of them represent a person or a company. The intensity of these lights is measure of how much money they earn, when people or companies spend their money their lights will dim proportionally to the amount of money spent. Conversely when someone receives money, his light will become brighter. In a typical economy, consumers will buy stuff they desire, their money is transferred to the suppliers of these goods. In their turn the suppliers will pay their employees salaries, the latter become then consumers and so goes the economic cycle on. These streams of money transfers are represented in Ford’s analogy with the continuous fluctuations in brightness of the lights.

It does not matter for understanding Ford’s message, who gives money to whom. We have only to understand that employees are consumers, producers are employers. Consumers transfer money to producers, employers transfer money to their employees. This cycle, however, is not perfect. Some of the money earned by the producers, is “extracted” from the cycle as profits (some will, righteously, remark that producers has to pay their suppliers too, but this just another consumer-producer relation for the purpose of this model). Basically producers wants to maximize their profits, because this the primary reason to be in business in the first place.

One way to increase profits, is to reduce wages. But this also implies a decrease of purchasing power of the consumer. When the employee/consumer receives less income, he has also less to spend on goods and services. If employees as a class suffer from reduced wages, the producers of goods and services will suffer of a decreased sales. It is evident to everyone this becomes a vicious cycle.

But one may ask what this analysis has to do with automation and its supposed harmful effects to society. There are several ways to reduce the total amount of wages to be paid by a producer: first, one could simply decrease the salaries of the employees. This approach, however, suffer from several legal (minimum wage) and practical (trade unions) problems. Therefore a second alternative is more common, moving production to countries/areas where lower wages has to be paid. And the third manner is substitution of labor by capital (a technical term for machines).

Method 2 is known as outsourcing, method 3 as automation. It is not without reason that Ford made a clear connection between outsourcing and automation. Suppose you are an employee working and living in the USA, then it doesn’t matter whether you lose your job because your job is moved to India or that your job has become obsolete as result of automation. In both cases you are fired and left with no income to spend.

Basically this is the problem as presented by Martin Ford in chapter 1 of The Lights in the Tunnel.

In the next chapter Ford investigates the question whether automation can lead to permanent destruction of jobs. More precisely he asks whether in the year 2089 a significant portion of jobs currently performed by humans will be done by computers and machines. In order to answer this question he gives us an overview of the historical development of technology.

In particular Ford focuses himself on what is known as Moore’s Law: the fact that each 18 months the capacity of computers doubles. From this law, he argues that at some point in the future computers will be able to everything humans can do. The basic problem here, is of course that no one know for how long Moore’s law will be true. At some point computers cannot be made smaller, that’s a physical fact. This impose a theoretical limit to Moore’s law, but there might be an engineering limit to this law which might come sooner than the physical limit.

But the point Ford addresses is still an important one, computers are able to perform more and more tasks, which where until recently exclusive for humans. And when technology will continue to develop, computers will be able to do even more jobs. In general if a job can be performed by a computer or robot, it will be cheaper to buy such computer or robot than to hire a human employee. And as Ford has discussed in chapter 1, employers seek to maximize profits and hence they have an incentive to replace employees by machines.

So we can summarize Fords argument as follows: machines are increasingly capable of doing the same jobs of humans; corporations seek to reduce employment costs, therefore they replace human workers by machines; consequently more and more people will become unemployed. But if an increasing number of people lose their jobs, they will also lose purchasing power. So automation, according to Ford, will lead to less consumption, and decreasing consumption will cause an economic downturn. And if the loss of employment is permanent, a permanent economic crisis will be the result.

Then Ford pays attention to what economists call the “Luddite fallacy“. Economists generally rejects that technological progress will lead to systematic unemployment, instead, they argue that technological progress will create jobs. However, Ford argues that this faith of economists in the Luddite fallacy, is itself a fallacy. He argues that the conventional economists make two fundamental assumptions: 1. machines are just tools and 2. all human workers can become machine operators. According to Ford these assumption will fail if machines became workers. In that case (human) workers will be replaced by (robotic) workers, and human employment will decrease.

In chapter 3 Ford asks whether the transition as described in the previous two chapters will occur gradually. He beliefs the answer is no, instead he argues there will be a “tipping point”. During the first years unemployment will only grow slowly, but after a certain moment, the tipping point, unemployment will rapidly increase. According to Ford the danger is that during the period before the tipping point policy maker, economists and politicians will deny that anything bad is going on. But after the tipping point there will be a catastrophe. As an example Ford mention pay-roll taxes, if more and more people become unemployed they will be a huge reduction in revenue from pay-roll taxes.

For so far the doom thinking. What solutions does Ford offer?

In chapter 4 Martin Ford proposes a remarkably simple solution for solving the economic problems as sketched in the previous three chapters: a basic income guarantee. The idea is that, when people lose their jobs and therefore their income, whilst they cannot take just another job, they will receive a regular cash payment from the government instead. By instituting a basic income guarantee (BIG) the government will ensure that a minimal purchasing power is maintained and therefore that the economy does not collapses.

Of course Ford realizes that such BIG scheme has to be funded. In order to do so, he proposes that the government should recapture the wages which are lost due to automation. After discussing several potential ways to arrange this, he concludes to impose a consumption tax which would equal the amount which previously paid as wages. If for example wages are reduced by ten percent, the consumption tax should be raised by such percentage that the increase in tax revenue should be equal to the lost wages.

The reason why Ford opts for a consumption tax instead of other taxes, is simple: even if people do not work, they still need to consume. Further he argues that wages are currently part of the price of goods and services. Since automation will allow producers to lower the prices of their products, and still being able to increase their profits, raising the consumption tax will keep prices at the pre-automation level.

Ford states that the wage-compensating consumption taxes should be earmarked, i.e. they should be reserved for only the payment of the basic income-scheme and not general government funding.

An interesting feature of Ford’s alternative income scheme, is the concept of virtual jobs. Although every one should receive a basic income, Ford believes that strict equality is a bad thing. He argues that inequality motivates people to self-improvement, but how do we establish such incentives in a world without jobs? For Ford a job a set of incentives, a virtual job is creating an alternative set of incentives.

One of the incentives he wants to create is education. The better the citizens are educated, the better society as a whole will be. So Fords wants to stimulate people the pursue an education and to continue to learn by offering them a supplement to their basic income. Another area Ford suggest are community and civic activities, further he considers journalism as a candidate for virtual jobs (this one would be great news for bloggers). And finally he suggest to use virtual jobs for improving the environment.

The lights in the tunnel is a cleverly written book, full with interesting ideas and I would recommend this book to everyone; but there are a few critical remarks I want to make. First, though his “wage recapture” by increasing consumption taxes makes sense, it might not be the best way to fund the basic income and his virtual job program. In fact the government does not need to raise money to fund its activities, as we have argued in a previous post. As long as government created money can be used to pay taxes, people will accept this money. It would be better to replace all current taxes with, for example, a single energy tax: for every kilowatt-hour you has to pay, say, 10 cents in taxes or you will be cut off from the grid.

References

http://www.thelightsinthetunnel.com