Free Money For Everyone

Next month, swiss people will decide in a vote whether all 8 million citizens and legal residents of Switzerland should be guaranteed a generous and unconditional free monthly ‘Grundeinkommen’ or basic income. 

A ‘yes’- vote on June 5, would mandate the swiss government to guarantee each adult citizen and legal resident of Switzerland a monthly tax free income of 2’500 CHF (10’200 RON). For each child it would be a quarter of this sum, 625 CHF or 2’550 RON.

The payment would be provided to everyone, regardless of work status, income level, or wealth.

Since I am a citizen of Switzerland, I could stop working every day, instead relaxing or scratching my belly and wait for the ‘yes’-vote to cash-in over 10’000 RON a month for free the rest of my life.

Well, not so fast. As a Romanian citizen, you might assume that such a proposal of an unconditional and tax-free basic income will get an overwhelming approval by voters. As a swiss citizen, I predict a voter-outcome of maybe 30% ‘yes’ and 70% ‘no’ mainly because of costs and negative effects on people’s willingness to work. Therefore, I’ll keep on writing, whether you like my posts or not.

But there is something behind this radical proposal of an ‘Unconditional Basic Income‘ that people and governments around the globe are increasingly willing to try it. Finland and the Netherlands are developing plans to study the idea. Canada will likely see an experiment in Ontario, if not on a national level. In France, several members of Parliament have supported running an experiment, and the finance minister is open to it.

Basic income could become an essential issue in the future for any country given that more and more people in developed economies are living a life of chronic economic insecurity. And it’s not only supported by left-wing utopists. Efficiency-minded libertarians like the idea of streamlining the bureaucracy of the welfare state. Libertarian economist Milton Friedman began to advocate for a negative income tax, whereby those earning below a certain threshold would get money from the government instead of paying taxes. Silicon Valley techies hope a guaranteed income would cushion the blow as automation replaces human jobs.

Here is a compilation of an outstanding article in a british blog called “Another Angry Voice” about the ‘Pros and Cons of the Unconditional Basic Income’. The author clearly favors the issue but he still outlines very well the future economic/social discussion that many countries will have in the coming years about:

Arguments in favor

Technology and automation: As technology and automation improve, the requirement for labor in the economy falls. However, the pace of technological advancement is retarded if the public cannot afford the outputs of advanced technology and automation. If the public have their basic human needs met, then they have more wealth to invest in consumption of the outputs, further driving technological advancement.

Wealth Redistribution: Wealth redistribution is economically beneficial because poor or ordinary people spend more of their income than the wealthy. The more wealth that is spent, rather than hoarded, the faster the economy will develop.

Efficiency: Universal Basic Income is the most efficient form of wealth redistribution because there is no need for a massive and expensive bureaucracy to means-test recipients. The only checks would be whether the recipient is a citizen of the state, and whether they are classified as an adult, which would massively reduce the bureaucratic cost overheads of the welfare system.

Smaller government: The introduction of Universal Basic Income would reduce the economic burden of the welfare system through the elimination of almost all means tested benefits and associated bureaucracies. 

Reduced crime: Crime rates will be reduced because the Universal Basic Income would effectively eliminate absolute poverty, and massively reduce the economic desperation that motivates a large proportion of criminal behavior such as theft (a Basic Income trial project in Namibia recorded a remarkable 42% reduction in crime). 

Balanced Labor Market: The labor market has become ever more imbalanced ever since the rise of neoclassical pseudo-economic dogma, and the attacks on trade unions and labor rights. Workers would no longer be compelled to work in order to meet their basic human needs, so employers would have to offer high wages and good terms and conditions in order to attract workers. Exploitative employment practices would be curtailed and the worker would have greater freedom to pursue the employment that they choose, rather than doing awful jobs for crap wages in order to stave off absolute destitution.

Innovation and small businesses: If citizens are guaranteed a basic income to meet their basic human needs, the investment of time and wealth into the establishment of new businesses would be significantly more attractive and carry significantly less risk. The evidence from trials supports the conclusion that the introduction of such a system would increase the number of business start-ups.

Better capitalism: The resulting boom in small businesses would improve capitalism by increasing the diversity of the capitalist economy, and by increasing competition within existing markets. Increased diversity would lead to a more robust economy capable of withstanding extrogenous shocks, and more competitive markets would result in greater competition and efficiency.

Social justice: If the basic human needs of all citizens are met automatically, then the requirement on charity and state administered welfare is dramatically reduced, meaning that those with charitable intentions can assist the needy elsewhere in the world, rather than fighting to combat poverty in their own developed nations. 

Arguments against

Loss of work incentive: Opponents argue that the incentive to work would be destroyed, and that capitalism would grind to a halt without the fear of destitution driving workers to continue working. This objection is not supported by the experimental data, which shows that the vast majority of people continue to work, even if their basic human needs are met. Trials in North America showed that the only demographics to significantly reduce their working hours were new mothers (to spend time with their babies) and teenagers/young adults (who spent additional time in education).

Idleness: One of the most commonly wielded criticisms is that if a guarantee that the individual’s basic human needs are met is given, then the individual will be inclined towards idleness. Not only is this concern disproved by the trials that have been carried out, it is also disproved by an appeal to common sense. If having sufficient wealth that our basic human needs are met causes idleness, how is it possible to explain the fact that multi-billionaires like Warren Buffett or George Soros carry on working, when they have accumulated enough wealth to provide their basic human needs for ten thousand lifetimes or more? Why do actors like Keanu Reeves carry on working, when they have made more than enough money to live in comfort for the rest of their lives? Why do sportsmen carry on working even after they have become multi-millionaires? How is it possible to explain the fact that the current UK government is absolutely stuffed full of multi-millionaires? If having “enough to survive” was a disincentive to work, then all of these people would surely have retired to a life of idle luxury. The only way that this objection makes any kind of sense is if you accept the ludicrous right-wing stance that the rich are best motivated by more money, and the poor are best motivated by the threat of absolute destitution. 

Something for nothing: Another one of the most common objections is the “why should people get something for nothing” argument. if anyone is entitled to an income that guarantees them a basic standard of living, whether they work or not, the objection that the unemployed are getting something that the employed don’t no longer carries any weight at all.

Reciprocity: Another objection is that the guaranteed income is basically unconditional, and that means that there is no conditionality that the recipient must put anything back into the economy. This objection demonstrates a basic lack of economic literacy because the recipient will either spend it (creating economic demand) or save it (creating the capital reserves that the capitalist system requires in order to fund the credit economy). The only way that it would be possible for the individual to extract the wealth from the economy entirely would be through off-shoring it, but that is a problem of capital flight and tax-dodging, not a problem with the principle of unconditional income.

Welfare for the rich: Another objection is that the Universal Basic Income would result in payments to citizens that are already wealthy, and have no trouble meeting their basic human needs. In my view, this is a particularly short-sighted objection for two reasons. Firstly, because making the payment conditional on wealth and income would necessitate a large bureaucracy in order to means test everyone, which would undermine one of the main benefits (efficiency); and secondly, because if the wealthy and powerful (generally high-tax payers) are excluded, they are likely to oppose the scheme because they are paying for it, but getting nothing back. If guaranteeing the basic human needs of the majority in the most efficient way possible must come at the price of giving the already wealthy “a bit extra” too, then so be it. To hopelessly compromise the whole concept of a universal benefit out of a desire to make sure that the rich don’t get a share of it would be to throw the baby out with the bathwater so to speak.

Inflation: Of all of the regularly stated objections, the only one that carries any significant economic weight is the threat of inflation. It should be fairly easy to understand how this might happen. Take rent for example: If the idle rentier class is aware that their tenants are in receipt of a monthly payment designed to meet their basic human needs, it is clearly in their financial self-interest to then massively increase the rental charge so that it takes the entire amount (and probably a bit more for good measure). Another solution to the rent seeking behavior of the idle rentier class could be to ensure that the UBI payment is linked to the cost of living, so that if the cost of rent, energy rates and water bills go up 10% in a year, the UBI payment would rise proportionately. This would of course result in inflation, but the inflation wouldn’t end up driving ordinary people into poverty because they would be getting an inflation adjusted UBI payment to meet their basic needs.