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 it is because poor people haven’t 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.
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 people do jobs that do not contribute to making products or services people need and also do not benefit society. And a pointless job can make you unhappy, or very rich.
Executing a job, whether it is useful or not, uses resources. People drive in cars to offices which are heated or air-conditioned. If a pointless job 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 people 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 But that is not how the economy works. If someone is willing to pay for doing it, the job has economic value.
A game of Monopoly
The super rich have increased their share of global wealth in recent decades. Whether or not it was at the expense of the rest of us is a matter of political debate. To keep the economy going and to forestall a catastrophic economic collapse, there may no be no other option than to make the rich hand out money to the rest, either via negative interest rates on their debts or a redistribution of income, for instance a universal basic income. To see why, 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 letting the rest borrow money from the winners. The winners can enjoy being rich while the rest stays in the game. Of course, the losers can never repay their debts. The players could stop pretending and let the winners hand out money to the rest so that the game can continue. They might apply a negative interest rate on the debts or tax the houses, streets and hotels, to increase the pay-out for passing the start square.
The alternative would be to 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. The famous economist 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 huge problem in the long run but Keynes wasn’t interested in the long run. “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.
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 may remain subdued because people can’t buy more stuff while the price of assets like real estate may rise because the rich have more money than they can spend. In a game of Monopoly the 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 may end bidding up prices of streets. In the real economy the prices of assets like stocks and real estate are rising.
Realising our full potential?
Proponents of a universal basic income tell us that everything will be fine and dandy 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, otherwise they won’t be done.
Many countries have benefits for people without a job. Unattractive low paying jobs are often done by immigrants who don’t have access to those benefits. If there is a universal basic income, 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 and unattractive jobs will only be done if they are paid well.
It may be better to have an income guarantee rather than a universal basic income because that would be a cheaper scheme. Why hand out money to people that already have enough? A simple example can explain how that may work. Assume there is an income guarantee of € 500 per month and a 50% income tax.
|gross income||tax||net income|
|€ 0||+ € 500||€ 500|
|€ 1000||€ 0||€ 1000|
|€ 2000||– € 500||€ 1500|
|€ 5000||– € 2000||€ 3000|
If your gross income is € 2000, you pay € 500 in taxes, and your net income after taxes is € 1500.There is an inventive to work as people gain financially from doing a job. In existing welfare schemes you often gain very little by taking on a job that is paid poorly. If the income guarantee is sufficient to live off, there may be no reason to have minimum wages, and you may be able to do a job cheaper than any machine if you like to do it.
The future is anyone’s guess
Machines may become 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. The surplus of workers could be employed in the government and the service sector. In the future self-driving cars may replace human drivers. 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 robots will be better at operating patients.
Few professions appear safe from the coming onslaught. Economists tell us that robots can 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 people lose their jobs they also lose their income and don’t have money to buy the products and services these machines produce.
If machines do all the jobs then everyone may need an income guarantee. But where does the money come from? The game of Monopoly provides us with a clue. It may come from capital via negative interest rates. The market mechanism may take care of this, at least to some extent. If fewer people are needed in the workforce, there may be less demand for goods and services so interest rates may go down even further into negative territory, and there may be money for an income guarantee.
We may need an income guarantee for another reason too. If we intend to live within the limits of the planet, we may have to axe the pointless jobs that contribute little to our well-being but consume scarce resources and pay people for being idle instead. On the other hand, this may cause a shortage of energy and human labour may replace machines. In that case there may be plenty of work for humans. The income guarantee scheme must only take excess labour from the market.
The labour market
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 off. For instance, if the income guarantee is € 500, and a living wage is € 1000, a person doing a cleaning job might work fewer hours so the pay may have to rise to attract more workers. But as long as there is poverty in other areas this scheme can backfire as immigrants may take the jobs so that the improvement in bargaining power won’t materialise. Ending poverty requires good government and good education to attract investments in developing nations.
Denmark 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. A job can make you feel useful so it may be better that everyone remains employed and works fewer hours.
It may be better to start providing an income guarantee in the poorest areas of the world instead. The poorest can 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. If 500 million people were to receive this allowance, it would cost less than € 200 billion euro per year, a pittance compared to what is currently spent on weapons and wars. It might reduce migration and improve the bargaining position of workers elsewhere.
The future may need an economy that can endure idleness. We are currently caught up in a rat-race of producing and consuming more that is killing us in the long run. And if the economy had been able to deal better with idleness, the corona virus might not have killed so many people. It is therefore good to define a path towards that direction that will not cause problems if work needs to be done. In the long run an income guarantee might lead to the following situation:
- 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