Free money for everyone

Everyone should be rich

“No whining, everyone should be rich, vote Opposition Party, together for ourselves.” The Opposition Party was a fictional political party in the Netherlands run by two dubious characters. The creators of the fiction, Van Kooten and De Bie, intended to mock populist politicians. An opinion poll revealed that if the Opposition Party had been for real, it would have fetched a few seats in parliament in 1981. Why can’t everyone be rich? Maybe the problem simply is that poor people don’t have enough money.

Perhaps everyone should get some money for free. This is called a universal basic income. Nowadays most people make money by doing a job. That is because without people working nothing will be done and nothing will be made. This has been true for as long as humans exist. On the other hand, there may be more people than needed for the work that needs to be done. This has also been true for as long as humans exist. Nowadays this problem is solved with pointless jobs and making things we do not need.

Pointless jobs

For most of history people only worked for a few hours per day on average. This changed with the Industrial Revolution. Idleness became frowned upon as factory owners promoted the belief that everyone has a duty to work long hours. Nowadays many of us do jobs that do not contribute to making things people need and do not benefit society either. And a pointless job can make you unhappy. And some pointless jobs can make you very rich.

Executing a job, whether it is useful or not, uses resources. Employees drive in cars to their offices which are heated or air-conditioned. If you do a pointless job that consumes materials and energy that are in short supply or pollutes the environment, there is a compelling reason to axe it. It may be better to pay you for doing nothing instead. The anthropologist David Graeber estimates that at least a third of all jobs are pointless.1 There is no good measure as to determine which jobs are pointless.

Graeber mentions the job of a receptionist at a publisher. She had nothing to do, except for taking up an occasional telephone call. Another employee could easily have done this alongside other tasks, but without a separate receptionist no-one would have taken the publisher seriously. Graeber contends that the best indication of a job being pointless is when people who do the job themselves believe it is.1

That is not how a market economy works. If someone is willing to pay you for doing something, the job has economic value. If you pay me for dressing up as a rabbit and hopping around on the street, this job makes perfect economic sense. And perhaps it brings a few smiles on a few faces too, so who is to tell which jobs are pointless? The only problem is that our planet can’t sustain all our activities any more. Choices have to be made, and the simple fact that someone is willing to pay for doing a job doesn’t suffice. For many jobs it is better that they aren’t done at all. It is better to pay people for doing nothing than to pay them for destroying the planet. The question is how this is going to be funded.

A game of Monopoly

The super rich have increased their share of global wealth in recent decades. One can think of the capitalist economy as a game of Monopoly. If you have played the game yourself, you may have observed that at first players build capital in the form of houses and hotels. You can get rich by making the right investments. There is also an element of luck involved. The game ends when most players are bankrupt but it can be extended by allowing the rest to borrow money from the winners. In this way the winners can enjoy being rich while the rest stays in the game.

monopoly1935

Of course, the losers can never repay their debts. The game can only continue when the winners hand out money to the rest, for instance by applying a negative interest rate on the debts, or taxing the houses, streets and hotels to increase the pay-out for passing the start square. The players could stop pretending and start from square one, or more precisely, remove all the houses and the hotels, and start a new game.

That might be fun for a game but in the real economy this would be a horrendous disaster. Imagine all the houses, roads, and factories gone. There would be nothing to buy and everyone would be poor. Economists figured this out long ago. John Maynard Keynes thought that the state should borrow money from the winners and spend it so that the rest would be employed and have some money to spend so that the game could continue.2

Keynes’ plan did get a lot of attention and that’s why he is so famous. His followers are called Keynesians. Other economists weren’t so pleased. Governments could now justify lavish spending by borrowing money from the rich to spend it on public works or lower taxes, leaving a debt to be paid by future generations. Keynes also advised governments to reduce spending to pay back the government debt when the economy is doing well,2 but this rarely happened.

If there is no starting from square one, the rich are getting richer while the rest isn’t getting ahead. And the state borrowing money from the winners can make things worse as interest must be paid. In this way everyone ends up paying taxes to pay interest to the rich. This could become a problem in the long run but Keynes wasn’t interested in that. “In the long run we’re all dead,” he said. Now the long run has passed and Keynes is dead.

Monopoly has a bank that is a magical source of money. Every time you finish a round, a fixed sum is given to you. That is great for a game. If it wasn’t for this everlasting fountain of money, the game would have ended after a few rounds. Monopoly has a universal basic income and it can help to keep the economy going. But adding money to the economy can make money worth less. If people have more money, prices often go up as there is more money to buy the same stuff.

In a game of Monopoly rents are fixed but if you want to buy a street from another player when there is a lot of money in the game already, you often pay far more than the initial price. The rich can end bidding up the prices of streets. In the real economy something similar happens. If everyone craves for that latest model mobile phone, producers can raise prices, unless people run out of money and can’t buy them. But if you give money to the rich, and call it ‘trickle down economics’ inflation can be low because people can’t buy more stuff while the prices of assets like real estate rise because the rich have far more money than they can spend.

Realising our full potential?

Proponents of a universal basic income tell us that everything will be fine and that we will be free to realise our dreams once we get enough money for free to do as we please. So if you always wanted to become a blogger or a vlogger, you can become one with a universal basic income. That’s because you don’t have to work for a living. The opponents paint a dismal picture of people sinking into an abyss of idleness filled with writing blogs nobody wants to read and making videos nobody wants to see.

A job can make you feel useful. And there must be a compelling reason to do unattractive jobs. Many countries already have benefits for people without a job and unattractive low paying jobs are often done by immigrants who don’t have access to those benefits. If there is an income guarantee, and there is no competition from immigrants, people will only do a job if it benefits them either emotionally or financially. In other words, the job or the pay has to be attractive. That means that unattractive jobs will only be done if they are paid well.

Income guarantee

It is better to have an income guarantee rather than a universal basic income as that would be much cheaper. Why hand out money to people that already have enough? And the scheme should provide an incentive to work, so that doing a low paying job will increase your income. Most existing welfare schemes make it unattractive to take on such jobs as it doesn’t benefit you financially. A simple example can explain how such a scheme might look like. Assume there is an income guarantee of € 800 per month and a 50% income tax. The income guarantee is settled with the income tax so that you receive income tax if your income is low.

gross incometaxnet income
€ 0+ € 800€ 800
€ 1000+ € 300€ 1300
€ 2000– € 200€ 1800
€ 3000– € 700€ 2300
€ 5000– € 1700€ 3300
simple income guarantee scheme

If your gross income is € 2000, you pay € 200 in taxes, and your net income after taxes is € 1800. There is an inventive to work as people gain financially from doing even a low-paying job. If the income guarantee is sufficient to live of, there may be no need for minimum wages or protections against lay-offs so that corporations can adapt their labour force quickly to changes in in business conditions.

The future is anyone’s guess

There is another reason why we may need an income guarantee in the future. Machines are becoming better than humans at more and more jobs. Until recently machines did only simple tasks. This already put a lot of people out of work, and a lot of horses too. The surplus of workers has often been employed in pointless jobs.

In the future self-driving cars may replace human drivers. Robots may care for the elderly and this could be an improvement as robots don’t have moods and make fewer errors if they are programmed correctly. Computers will be better at diagnosing diseases than doctors and robots will be better at operating patients than surgeons.

Few professions appear safe from the coming onslaught. Economists tell us that robots will create an ample supply of new jobs for humans, for example programming and maintaining them, but that may be wishful thinking. There is however one big problem blocking this type of progress, or our descend into the abyss of idleness, if you like. If people lose their jobs they also lose their income so don’t have money to buy the products and services these machines produce.

So if machines do most of the jobs then humans need an income guarantee otherwise we must invent more pointless jobs and destroy our planet in an even faster pace. But where does the money come from? The game of Monopoly provides us with a clue. It can only come from capital, for instance via negative interest rates or a wealth tax. There is no alternative.

The labour market

Denmark already has an income guarantee combined with a duty to look for a job if you are unemployed. The Danish labour market is flexible. It is easy for companies to adapt their workforce to market requirements. The lack of job security is offset by employment security, education schemes and generous unemployment benefits.3 Not surprisingly taxes in Denmark are high but so are incomes. And Denmark has one of the best fuctioning governments in the world. In order to successfully implement such a scheme world-wide, the quality of government should increase dramatically in most places.

By taking excess labour off the market, an income guarantee can improve the bargaining position of workers even when it isn’t sufficient to live of. For instance, if the income guarantee is € 500, and a living wage is € 800, someone doing a cleaning job might work fewer hours so the pay may have to rise to attract more workers. As long as there is poverty in other areas such a scheme can backfire as immigrants may take over these jobs so that the improvement in bargaining power may not materialise.

In order to halt migration it may be better to provide an income guarantee in the poorest areas of the world. The poorest can already benefit from a small amount of money like one euro per day. Putting more money in their hands can improve the economy of developing nations, provided that there is good government like in Denmark. If 500 million people were to receive such an allowance, it would cost less than € 200 billion euro per year, which is a pittance compared to what is currently spent on weapons and wars.

We are currently caught up in a rat-race of producing and consuming more that is killing us in the long run. For that reason it is a good idea to consider an income guarantee. It might affect employment and income as follows:

  • unattractive jobs machines can do will be done by machines;
  • unattractive jobs machines can’t do will be paid well;
  • attractive jobs machines can do will be paid poorly as there will be volunteers;
  • attractive jobs machines can’t do will be done by humans, but it is hard to predict how these jobs will be paid.

Featured image: De Tegenpartij poster. Van Kooten and De Bie (1981). [copyright info]

Other image: Monopoly game.

1. Bullshit Jobs. David Graeber (2018). Simon & Schuster.
2. General Theory of Employment, Money and Interest. John Maynard Keynes (1936). Palgrave Macmillan.
3. Danish Employment Policy. Jan Hendeliowitz. Employment Region Copenhagen & Zealand, The Danish National Labour Market Authority (2008). https://www.oecd.org/employment/leed/40575308.pdf

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