Tuesday, October 2, 2012

Crazy Ideas for Crazy Times: Guaranteed Income

It's been a while since I wrote a substantive blog post, but I just ran across a post from 3 years ago which effectively predicted the crowd funding craze we've seen in the last year in indie games (I referred to it as "pre-pre-ordering", which admittedly is not the catchiest phrase). So I have newfound confidence that things I post under the "crazy ideas for crazy times" label are more feasible than they might sound.

Which brings me to the topic of today's post: guaranteed income. Some of my friends have heard me talk about the idea in person, and I'd like to outline it more thoroughly. We'll start with some background concepts.

The Nature of Money

Most people see money for its value to the individual - as a substitute for services and desirable articles. It seems natural, then, to treat money simply as a tool for facilitating bartering: instead of carrying my goat around so I can trade it on the spot for the chickens I want, I sell my cow for a small value-token which I can later exchange for those chickens. Lovely. However, as I discussed in more detail here, money serves a larger social purpose - it functions like a rapid and constant voting system, and is how the market determines the relative value of goods and services. If you don't have a planned economy, you need some way of determining what kind of goods get produced, which requires a method of measuring the value of goods. Money is a fabulously robust method of decentralized value judgment, especially because every single member of the society contributes to these value judgments whether or not they think of themselves as doing so.

There are, of course, problems with money as the primary measure of value. Most importantly, since money also determines how many goods individuals get, we are extremely covetous of the resource, and often don't spend it in a way that's representative of our perceptions of value. There are also significant categories of goods and services that we simply don't think of as being commercial, even if we find them very valuable. For instance, we may think that a stay at home mother (or father) is creating an enormous amount of value by raising children, but that doesn't lead us to think we should pay parents for their efforts, much less that we should pay particularly skilled or dedicated parents more than lackadaisical parents.

Nonetheless, money keeps a market running, at least as long as there is a constant flow of data - enough money is being spent to tell us where to dedicate our labor.

What the World Needs Now...

Is more people to buy things. That's not my typical answer to this question, but if our immediate goal is to pull the economy out of recession, all we need is for more money to be spent. That's because without spending, we don't have the value-voting data we need to determine what people should be doing with their time, and the result is unemployment. Since those who have the lowest income are most likely to spend every dollar they acquire (out of necessity), the way to increase spending is to get money into the hands of the unemployed, but since they're unemployed (or underemployed), they're not making enough money to spend. So to create jobs, the unemployed need money, and to get them money, they need jobs. That's the default state of things in a recession, and where we've been stuck for the last four years. 

So here's the weird thing that Keynes figured out a while ago: it doesn't matter why you pay these underemployed citizens; you can hire one person to dig a hole and another to fill up the hole, and net effect for the economy would be positive. If you don't believe me, consider how we got out of the Great Depression - certainly new deal policies were helping, but the final push was World War II. Why would it be that having Americans spend their time building tanks that got shipped overseas and blown up would help the domestic economy? The answer is because paying those workers to do anything would have helped the economy, because it enabled them to spend, and get the great value-voting machine running again.

This is the theory behind stimulus spending, which certainly would help the economy if it were done on a larger scale (and has helped some even though the size of stimulus so far has been small). I want to propose something else, or if you prefer, a particular, relatively radical kind of stimulus.

Guaranteed Income

The best solution to the economic crisis, on both economic and ethical grounds, is to simply stipulate that every citizen should have a certain minimum income. If employment were high, this might be accomplished by a robust minimum wage, but when there are not enough jobs to keep workers employed, you need an alternative way to pay citizens. This is the role the welfare system played in the Great Depression before the war created a sufficient mass of state-funded jobs to restart economy. There are a several important differences between a guaranteed income and welfare, which will become clear if I spell out the proposal.

Here's how I envision guaranteed income:

(1) Every qualifying adult citizen gets a grant with no strings attached. The amount should be enough to provide basic needs in the absence of other income (above the poverty line), but not so much as to totally disincentive work. I imagine the amount here to be around $15,000 a year.

(2) In order to qualify, the citizen must, if capable, contribute to society in some way, either by working for pay (meaning everyone who has a job, even a part-time job if it provides enough hours/week, qualifies), by doing community service, or by working on registered unpaid projects (meaning artists, opensource programmers, etc. qualify on the basis of their projects). 

(3) Any citizen can collect, but the grant is taxable income, meaning that those at a high marginal income rate effectively don't collect much (especially given the next point).

(4) In order to pay for the program, I would support a marginal tax rate up to 90% (or more). The marginal tax rate would only reach this level for those making massive incomes - more than, say, $500,000/yr. 

There are several things to note about this proposal. For one, guaranteed income is not a temporary replacement for income from work, like welfare payments are, but a supplement to income from working. This, together with (2), effectively eliminates the concern that welfare discourages citizens from working. The system doesn't focus on efforts of recipients to find work, but on what they can do immediately to have some positive impact on society as a whole. This means that the unemployed are still doing something useful, and that artists can choose to dedicate themselves to their craft if they don't mind living on a minimal income. If a citizen wants to live on more than a bare minimum, they will try to find paid work anyway, and the guaranteed income helps to ensure that they will be able to live off whatever income they do earn. 

Point (4) clearly makes this a kind of wealth redistribution proposal, but I want to be clear that I'm not entirely against disparate income. I don't have any problem with those who pursue more commercially viable careers, or those who are most skilled in such careers making more money than the unlucky/idealistic. I think doctors, lawyers, and CEOs should make more money than academics or video game designers. That's how we encourage people to pursue practical careers. The problem is, after a certain point (say, a half-million dollar salary), increased income simply stops to be any significant motivator for high earners, and it has no effect on the quality of their lives. The difference between a very high and absurdly high income might motivate a person to choose one particular company or specialization over another, but at that point, we should be encouraging employers to come up with better motivators than salary (such as a rewarding working environment, intellectual/creative freedom and authority, or the ability to contribute to projects the employee cares about). 

I've spent most of my life around wealthy people (and was at one point part of a reasonably wealthy family myself), and in my experience, the top few percent of income earners are primarily concerned with their relative, not absolute wealth. A person making more than a half-million dollars a year doesn't benefit from having that money around to spend on what they will, but it may be important to them to be recognized for earning as much money as they do. So even with a high marginal tax rate, if they can convince someone to pay them a $100 million salary, they get to be wealthier than (almost) everyone else around (but they still have to pay the majority of that money in taxes).

Also note that (4) might not be strictly necessary in a recession. If taxes were not raised to pay for the program, it would result in inflation, which in a healthy economy would act like an "invisible tax" - it disproportionately affects those with the more money in savings. In a recession, the stimulus effect could effectively allow the program to pay for itself. I would support (4) nonetheless to ensure the program remains sustainable.

Finally, if you're wondering about the general feasibility of this kind of idea, note that I'm not the only person to propose something along these lines. Norway provides guaranteed income and grants to artists in the interest of promoting culture generally. BIEN is an organization that advocates for basic income, which is essentially the same idea minus (2), the contribution requirement. Similar ideas have been endorsed by an assortment of Nobel laureates in economics (cue cite to wikipedia).

The solution simultaneously solves two problems: it stimulates the economy and invigorates the existing market by increasing spending, while also allowing citizens a way to be supported for working on projects that are valuable but not well suited to market economics. If it were coupled with national healthcare and free college education, we really would have an America fit for the 21st century.


spontaneous generation said...

The usual argument against this model is that this wouldn't actually improve the economy: most of the big spending and investment, the argument goes, comes from the people/companies who have millions of dollars to pour into things like new factories and venture capital, not the large quantity of relatively small purchases made by people who spend all their income. I'm not an economist, so I don't know how true this is, but: does your plan have any provisions for this eventuality?

(P.S.: My goodness, the CAPTCHA's gotten hard. Technology really has advanced these past few years. It's hard on those of us who are computers...)

Ellipsis said...

So there are two basic responses. The first is that this is basically a trickle-down economic model, and if it were as robust as claimed, the Bush-era tax cuts would have boosted the economy, and taxes would weaken it. Historically, we've seen the opposite - the economy has boomed in periods of relatively high taxation and weakened in the wake of major tax cuts to the wealthy. So the empirical evidence runs against this theory.

The second response is conceptual. When the poor spend money, it doesn't just disappear - it gets used to buy goods, many of which are provided by those same big corporations. In other words, the corporations ALSO get more money when you give it to the poor, but before they do it helps the poor get the goods they need and it has already gone through one round of value-voting, which is what we need it to do. I'm not suggesting the end of corporations (though obviously I'm advocating for a certain limit on individual wealth). In fact they have a natural role to play in this story that synergizes with the rest of it.