Free money for everyone

Populist promises

“No whining, everybody 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 wanted to mock easy promises made by populist politicians. If the Opposition Party had been for real, it would have fetched a few seats in parliament in 1981. And why shouldn’t everybody be rich? The real problem isn’t that a few people are rich but that so many people are poor. Perhaps, there is enough for everyone, and maybe everyone should get some money for free.

A game of Monopoly

One can think of the economy as a game of Monopoly. If you have played the game, 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. It is possible to extend the game by letting the losers borrow money from the winners. In this way the winners could enjoy being rich while the losers could stay in the game. Of course the losers would never be able repay their debts, so the players could stop pretending and make the winners give some money to the losers so that the game can go on.

monopoly1935

The alternative would be to start from square one, or more precisely, removing 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 that out long ago. The economist John Maynard Keynes thought that the state should borrow money from the winners and spend it so that the losers would be employed and have some money to spend so that the game could continue.

Mr. Keynes’ plan did get a lot of attention. Other economists weren’t so pleased. If you don’t reset the game, there is no starting from square one, and the rich are getting richer while the rest isn’t getting ahead. The state borrowing money from the winners makes things even worse as the state has to pay interest. In this way the losers end up paying taxes to pay interest to the rich. In the long run this could become a huge problem. But Mr. Keynes wasn’t interested in the long run. “In the long run we’re all dead,” he said. Now the long run has arrived and Mr. Keynes is dead. Before he died Mr. Keynes realised that Natural Money, which is money with a holding tax and negative interest rates, is a better idea to deal this with the issue than the state borrowing money from the rich. Negative interest rates are a way of making the winners employ the losers so that they have money to stay in the game.

The game of Monopoly has a bank too. The Monopoly bank is a magical source of money. Every time you finish a round, a fixed sum of is given to you. That was great for a game. If it wasn’t for this everlasting fountain of money, the game would have ended far sooner. This idea of giving free money to everyone is called a universal basic income. It can help to keep the economic game going. In the real economy printing money can make money worth less. If people have more money, and there are not more things to buy, prices go up, and money would be worth less. In a game of Monopoly this doesn’t happen because prices are fixed. Yet, the prices of investments such as streets can rise dramatically if there is more money in the game. In the real economy prices aren’t fixed, but prices may not rise much, except for investments like stocks, bonds and real estate, if the new money isn’t spent but invested by the winners like in a game of Monopoly.

There are reasons to fear the consequences of a universal basic income. Proponents tell us that it will all be fine and dandy and that we will be free to realise our ambitions. If you always wanted to become a blogger or a vlogger, you can become one because you don’t have to work for a living. The opponents of a universal basic income 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, otherwise they won’t be done. Many countries already have benefits for people without a job. In these countries the unattractive low paying jobs are often done by immigrants who don’t have access to those benefits. So how much is really going to change with a universal basic income?

Machines taking over?

In the future machines will become better than humans at most jobs. Until very recently only simple tasks have been taken over by machines. This already put a lot of people out of work. The surplus of workers could be employed in the government and the service sector. Computers in the future can do much more. Self driving cars will replace human drivers and cause fewer accidents. Robots can care for the elderly, and this could be an improvement as robots don’t have moods. Computers will be better at diagnosing diseases and operating them. Very few professions appear safe from the coming onslaught. There is one big problem blocking progress, or our descend into the abyss if you like. If people lose their jobs they also lose their incomes so that they don’t have the money to spend on the products and services these machines will produce.

Perhaps the market will be able to deal with the issue so that there will still be jobs, but we can’t know for sure. The economy can collapse because there are no jobs. Progress may halt because the economy won’t work without jobs, because without jobs people have no money to spend, so that humans will keep on doing jobs that machines can do better.  But there is a way in which progress may continue, maybe even to the benefit of humans. If there is a basic income that is sufficient to live off, there is no need for minimum wages. And so people could be cheaper than machines if they like to do the job. Humans can still care for the elderly in the future while robots do the heavy lifting. When humans do their jobs because they like to do them, and not because they need to do them, they can have better moods too.

That sounds great, and perhaps it will work out this way. A universal basic income can improve the bargaining position of workers, and might lead to the following situation:
– unattractive jobs that machines can do will be done by machines;
– unattractive jobs that machines can’t do will be paid well;
– attractive jobs that machines can do will be paid poorly as there will be volunteers;
– attractive jobs that machines can’t do will be done by humans, but the pay will vary.

Obstacles on the way

There will be obstacles on the way. Some of them may be hard to predict as they will emerge once a universal basic income has been introduced. A few questions can be raised already. If people don’t have to sell their labour on the market, how can the labour be distributed effectively and efficiently? Does a basic income make people fill their time with idleness or does it give them the possibility to realise their potential?

The question that often comes up first is how do we pay for a universal basic income? A universal basic income could become very expensive. A sales tax might pay for it, but the tax might become excessive, for example 50%. That seems unacceptable. Still, if energy becomes really cheap, for example when nuclear fusion brings us unlimited energy, and machines do all the work, everything might become very cheap, and a basic income might become affordable.

As long as there are plenty of jobs for humans, and a universal basic income remains expensive, the idea has little appeal. Natural Money and negative interest rates can help too by increasing employment. Negative interest rates can balance the buildup of capital with the demand for the products capital produces. This resembles redistributing income from the winners to the losers in a Monopoly game, in this case by generating demand for stuff so that more people will be employed. In the end it may turn out that a combination of negative interest rates and a universal basic income will help us survive the coming onslaught on our jobs.