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 and their promises. An opinion poll revealed that if the party had been for real, it might have fetched a few seats in parliament in 1981. So why can’t everyone be rich?

Maybe poor people simply don’t have enough money. And perhaps everyone should get some money for free. Nowadays most people get money for doing a job. Without people working nothing will be done and nothing will be produced. On the other hand, there are more people than needed for the work that needs to be done. This ‘problem’ is ‘solved’ by pointless jobs and producing things we do not need.

Pointless jobs

For most of history people only worked a few hours per day on average. This changed with the Industrial Revolution when factory owners began to promote the belief that everyone has a duty to work long hours to produce more things. And it worked well. Nowadays many of us have more than we need and do jobs that contribute little to the well-being of other people. A pointless job can make you unhappy and sometimes it can make you rich.

Executing a job, whether it is useful or not, consumes resources. Employees drive their cars to their offices that are either heated or air-conditioned and use materials. So if your job is pointless there is a compelling reason to axe it. The anthropologist David Graeber estimates that at least a third of all jobs are pointless.1 But there is no easy way to determine which jobs qualify.

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

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?

Our planet can’t sustain all our economic activities. Choices have to be made. The simple fact that someone is willing to pay me for doing the job doesn’t suffice. For many jobs it may be better that they aren’t done at all. Paying people for doing nothing is not as bad as using up scarce resources for something we do not need. Of course it is better that everyone is employed and doing something useful. But how are we going to pay for it?

A game of Monopoly

Now the rich are getting richer by making us produce and buy stuff we do not need. The game of Monopoly gives some insight as to how this works. If you have played the game, you may have noticed that it usually goes like this. At first players buy streets and build capital in the form of houses and hotels, often paid for by other players that stay in them. You can get rich by making the right investments. There is also some luck involved. It ends when most players are bankrupt while there more houses and hotels than players. In other words, there is more stuff than people need, and they can’t afford to buy it all.

monopoly1935

It is possible to continue the game when the other players can borrow money from the winners. Only, they can never repay their debts. To keep the game going, a tax on streets, houses and hotels can be introduced to finance an increased pay-out for passing the start square. And the players can agree on a negative interest rate on debts. Of course, they could also 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 disaster. Imagine all the houses, roads, and factories gone. There would be nothing to buy and everyone would be poor. This is what an economic crisis looks like. Economists looked for solutions. John Maynard Keynes thought that the state should borrow money from the winners and spend it to employ people so that they have money to spend and the game can continue.2

Keynes’ plan solved a few problems but it also brought new ones. 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 for by future generations. Keynes advised governments to reduce spending to pay back the debt when the economy is doing well,2 but this rarely happened. And the state borrowing money can make things worse as interest must be paid so taxpayers may end up paying interest to the rich.

In Monopoly, every time you finish a round a fixed sum is given to you. If it wasn’t for this regular flow of money, the game would have ended after a few rounds. A universal basic income can help to keep the economy going. But if people have more money, prices can go up if there is more money and there are not more items to spend it on. In Monopoly this doesn’t happen because rents are fixed. And it doesn’t have to happen in the real economy either. If interest rates are negative money disappears over time.

Realising our full potential?

Proponents of a universal basic income tell us that everything will be great and that we will be free to realise our dreams once we get money for free. If you always wanted to become a blogger or a vlogger, you can become one with a universal basic income, 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 while many important jobs remain undone.

Doing a job is about making yourself useful to others, not about realising your potential. And many jobs are not particularly attractive but they need to be done. In countries that have benefits for the unemployed 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 must be attractive.

Income guarantee

A universal basic income may not be feasible anytime soon because it is expensive like many other promises of populist politicians. An income guarantee however can be a lot cheaper. And why hand out money to people that already have enough? There should be an incentive to work. Many existing welfare schemes make it financially unattractive to take on a low paying job. A simple example can explain what the scheme might look like. Assume there is an income guarantee of € 800 per month and a 50% income tax.

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

The income guarantee is settled with the income tax so you receive income tax if your income is low. If your gross income is € 2000, you pay € 200 in taxes and your net income is € 1800. There is an inventive to work as people gain financially from doing a job. If the income guarantee is sufficient to live off, there may be less need for minimum wages and more people can get a job. The income guarantee may replace existing welfare schemes so the additional cost may be limited. Furthermore, if governments can borrow at negative interest rates, they can tap into the excess wealth of the rich.

The future is anyone’s guess

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. The surplus of workers has often been employed in pointless jobs. Self-driving cars may replace human drivers and robots may care for the elderly. This could be an improvement as robots don’t have moods and make fewer errors. 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 at least 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 and don’t have money to buy the products and services these machines produce. And how can humans beat machines if they really want to do a job, for instance caring for the elderly?

The labour market

Denmark already has an income guarantee combined with a duty to look for a job if you are unemployed. This makes the Danish labour market flexible. Corporations can 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. In order to successfully implement such a scheme world-wide, there must be good quality government everywhere.

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 and the pay may have to be raised to attract more workers. And so an income guarantee 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 the pay is hard to predict.

As long as there is poverty somewhere immigrants may take over unattractive jobs so that the improvement in bargaining power of labour may not materialise. An income guarantee may be needed in the poorest areas of the world first to prevent that from happening. The poorest may already benefit from a small amount of money like one euro per day. If 500 million people were to receive such an allowance, it would cost less than € 200 billion euro per year, a pittance compared to what is currently spent on weapons and wars.

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