1. Many more people would try their hand at entrepreneurship, and/or re-enter education, if they are freed from the obligation to work to survive.
2. There would be little need for minimum wage laws; unskilled labor can become primarily for earning a little more spending money, or about social roles within a group or community. The incentive for high-end labor would remain.
3. Much more non-profit activity, such as political engagement and volunteer labor, would become feasible (including the immeasurable wealth of more time spent raising children).
4. Let's face it: there are a lot of quasi-useless laborers out there, who are a drag co-efficient on productivity. The people who do the bare minimum to survive contribute more to the economy by staying home.
There are deep macroeconomic and budgetary challenges to such a policy, and the socioeconomic effects are hard to predict. It certainly wouldn't be revenue-neutral, though it could be offset by other reductions in the welfare state (not to mention the prison-industrial complex).
One way or another, the value and negotiating leverage of human labor is declining. As globalization spreads, domain-specific AI improves, and software continues to "eat the world", this trend will only progress. If we don't want to revert to a world of lords and serfs, basic income is the best way to preserve Adam Smith's humanistic vision of capitalism. And in the Western world, we are damn sure rich enough to afford it.
There would be little need for minimum wage laws
Consider turning the concept of minimum wage on its head. As Adam Smith noted: "A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more, otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation." (Wealth of Nations, Book 1, Ch. VII)
A minimum wage law addresses a number of issues, of which welfare is only one:
• It assures the future supply of labor.
• It levels the field in bargaining between employers and labor (another point Smith addresses in Ch. VII on which I've written before).
• It calls out businesses which are operating on an uneconomic basis.
• It's not an "arbitrary price control" as some assert, but an acknowledgement of a fundamental economic reality dating to Smith.
• In the case of specific firms with positive externalities, exceptions can be made, but these should be recognized as exceptions.
More on this:
Moreover, minimum wage only affects bargaining if there is solidarity and consistency across the entire workforce; as soon as it's possible to send the labor to China for 20 cents an hour, the benefit collapses (and meanwhile, we burn vast quantities of oil shipping goods around the world, mostly so that employers can end-run around the costs of Western employment standards).
Don't get me wrong, I'm not opposed to minimum wage. I just think that basic income accomplishes the same human rights goals, while also allowing the market to price labor more accurately and take more risks, thereby benefiting the whole ecosystem.
I allow for making specific provisions for this. I'm not arguing that you'd never want to subsidize labor, just that you 1) want to recognize that below-subsidence wages are a subsidy to business, and 2) that when you make exceptions, they're specific and for enterprises which provide net benefits.
A highly profitable company with high levels of negative externalities? Not so much.
The labor-export challenge is another issue which also should be addressed. I'd like to see, expecially, labor conditions (e.g., prison labor) and environmental impacts addressed through tariffs or other trade requirements, though international trade laws put (IMO harmful) limitations on this.
I don't think that minimum wage + basic income are mutually exclusive. I'm just highlighting what the actual dynamics of sub-minimum wages are.
I mostly agree. I think that the WTO - for its faults - has been great at getting rid of barriers, and I think that barriers should not be erected without justification. However I think that, potentially, tremendous good could be done sitting down and drawing up a framework allowing for certain kinds of barriers when there is a disparity between worker protections, environmental regulations, &c (including enforcement thereof), and so reducing the race to the bottom. Of course, defining such a framework that doesn't allow too much wiggleroom is non-trivial and might be impossible...
I don't think they're actually mutually exclusive, per se, but I do think that with a sufficiently high BI the MW that reflects (shall we say) human cost of production of labor is $0. I'm not sure whether a sufficiently high BI is optimal, or whether the MW remains worthwhile to keep on the books if the market clears all labor far above the ideal MW anyway.
BI answers "should people be provided with the necessary essentials to survive".
MW answers "should businesses be compelled to pay a fair market rate for labor", again, unless a specific exemption is made.
Providing BI without allowing for MW still creates an environment in which at least some businesses can game the market to obtain below-cost labor. I see this as a market inefficiency which should be corrected.
The human cost of production of labor isn't zero, which is precisely the point.
If a specific business (or industry sector) wants an MW exception, that's yet a third question (essentially: is the product of this business and/or sector sufficiently valuable to warrant a net transfer of wealth from the rest of the economy to it). My knowledge of economics and markets is such that I don't believe that the free market will allocate resources efficiently in all cases, but where you're going to allow for such a subsidy, you'd best do it consciously, for specific reasons, and as transparently as possible.
Awarding the benefit to large, politically-connected, and highly profitable companies strikes me as a gross market mis-allocation.
If the market clears labor above its minimum sustaining rate, then the MW is a non-issue, but you'd best be sure that that's the case, and if it's a non-issue, then having the MW present changes nothing materially in the market.
In the short run, a business (or an individual) will continue to operate (or work) so long as at least a portion of its fixed costs are covered (that is: you're meeting the marginal cost of operation / labor).
By putting the subsidy of BI underneath an individual, you're covering that much more of their fixed costs, and it may well be that the person is ahead by working at a below-full-cost wage. And if the BI covers enough of those fixed costs, this can be sustained indefinitely.
Again: this represents a net subsidy of the business which is receiving this labor. There's a reason I'm saying BI and MW are complimentary. They address different market failures.
I'm not entirely convinced that MW is the way to fly (though I'm mostly convinced of it). And as I said: exceptions can be made, but they should be deliberate. It's one thing for a small mom'n'pop corner or small-town grocery to get a subsidy for providing a local level of services, another for some of the largest and most profitable companies in the world (Walmart, McDonalds) to be subsidized for subverting local economies.
The discussion of GMI / basic income or other non-means-tested aid recognizes inherent market failures in numerous directions. That's a longer conversation, and one that I plan to explore. I'm not dismissing it at all.
• Labor has a natural disadvantage to employers in wage negotiations (see Smith), exacerbated often by additional illegal disadvantages (see current wage price cap collusion by Silicon Valley firms),
• That below-subsistence wages are not sustainable, that is, they don't cover the full costs of providing labor, and
• That a business which cannot cover the costs of its inputs is, ipso facto, uneconomic, then
• Failing to require businesses meet the full costs of their inputs, and offshifting that cost onto labor, corresponds to a net subsidy of an uneconomic business by labor.
This presumes that the minimum wage is set to cover the subsistence rate, which is to say, the rate at which a laborer can support both themselves and their immediate family: nonworking spouse if required for maintenance of household and raising of children, and of children, their upkeep, and education.
So if that's the relevant piece, you are asserting that it's welfare for an employer to pay a man less than a few dollars/day (i.e., subsistence) in wages? That still doesn't explain what you mean by "welfare".
The official Federal poverty rate is based largely on the cost of food (housing was a much smaller component of expenses when it was first calculated, and for political reasons, the formula hasn't been adjusted mostly because it would make whatever administration did so look bad). It's presently $11,490/year for an individual ($5.75/hr), or $23,550 for a family of four ($11.78/hr). Good luck living on that in New York or San Francisco. In recognition of this, many aid programs are available at some multiple (e.g., 4x) of the poverty level.
In which case, I'd argue that the present Federal minimum wage of $7.75/hr is well below subsistence for a family throughout the US, and is below that of individual subsistence in many larger cities. Since providing for continued labor means supporting at least one child, if not two plus at least a partial share of a spouse's support, it's low by several times.
My reading is "subsidy, because they can get labor at below what it's actually worth", which is not necessarily a claim I would make but it doesn't seem incoherent.
"Worth" is a sticky word in that it presumes the market sets value above provision cost. In the short term, this isn't necessarily the case, and given distortions, e.g., provisioning of an encumbered labor class such as undocumented aliens (who would tend to be averse to seeking legal remedies or unionization), or young and naive labor (as is typical in startups), or of a labor class with significant barriers to desirable employment (persons with conviction or drugs records, with poor credit scores, discriminated minorities, etc.), the "short term" can exist for a quite considerable period, possibly decades or centuries.
http://familiesusa.org/product/federal-poverty-guidelines (the numbers cited previously are apparently pre-2014 and are slightly lower).
There are criticisms of the calculation of this (it's weighted for food, housing and transport costs are a much large component now than when the index was first created), but it would correspond to $5.84 for an individual, $11.93 for a family of four. In the latter case, I'd assume one parent is working less than full time.
By either measure, and with the requirement that subsistence cover both the worker's and their childrens' living costs, the present federal minimum wage is below subsistence.
How do you figure a few dollars per day for someone within the US?
Granted, I'm not living a place where 75% of the poor own a car, 45% of the poor own their own home, and 67% have at least 2 rooms per person . I'm not in a place where even the middle or upper class have all those luxuries. Yet somehow, in spite of living below what you would call subsistence, there is no mass die-off over here.
In any case, I now understand that by "subsistence", you actually mean "subsistence plus an expanding basket of luxuries." (As I'm sure you know, the federal poverty line measures a fraction of average consumption which has gone up over time, not a fixed basket of goods.) And apparently, some of those luxuries include living in highly desirable areas like NY or SF, which even the federal government doesn't include.
When you use common terms in such non-standard ways, it helps the reader to clearly define what you mean.
In any case, your factual claim regarding "obtaining an input at less than the cost of production" is clearly wrong, as a simple look at other countries will prove that labor can be produced at far lower cost (adjusting for PPP) than the US minimum wage.
The cost of living -- food, shelter, clothing, services -- is simply higher in the US. You're arguing against US Federal standards for poverty, quite standard definitions, by the way, and which, contrary to your assertion, are not normalized for high-cost coastal cities (as I indicated: the costs would be higher there, and living at the poverty line would be distinctly challenging). Living expenses vary across the US pretty markedly. I'm not finding a direct link to lists, but city-data.com has some good lists of various demographics by city:
As for San Francisco: supposing you do happen to live there, the cheapest available housing will run around $200/week or $800/month per room. Few properties will let you have an unlimited number of tenants, so figure on 2-3 people per room maximum, the higher values only if you've got young children. Cost of living also tends to correspond to earning potential. And while housing might be slightly less expensive further out, you'll need transportation: BART will run $15 /day or so, for much of the US car ownership is all but necessary, carrying with it gasoline, registration, insurance, parking, and other costs.
I don't doubt you could establish a lower prevailing subsistence wage in India, but it's not directly comparable to what the same lower bound would be in the US.
"...100 rupees/day. Adjusting that for purchasing power yields about 6-8 USD."
"...labor can be produced at far lower cost (adjusting for PPP)..."
Straw man #2: You're arguing against US Federal standards for poverty, quite standard definitions, by the way, and which, contrary to your assertion, are not normalized for high-cost coastal cities...
"some of those luxuries [which you seem to think are part of subsistence] include living in highly desirable areas like NY or SF, which even the federal government doesn't include."
Billions of people worldwide produce labor at a PPP ADJUSTED wage vastly lower than the US minimum wage. About 95% of India lives on less than the bottom 5% of the US, PPP ADJUSTED , yet still manages to be productive. So clearly your claims that people paying below the US minimum wage are obtaining an input at less than the cost of production is incorrect.
The definition of the federal poverty line is irrelevant. The cost of producing labor is far less than what US employers pay for it, and far less than what they would pay absent a minimum wage.
 http://economix.blogs.nytimes.com/2011/01/31/the-haves-and-t... (Just in case you missed it: these numbers are adjusted for ppp.)
No, it's not. I've already addressed that the poverty level varies across different parts of the US. It's established by local costs and prevailing wages.
You clearly can't or won't grasp this, and you're presenting arguments irrelevant to this point. I'm not arguing that cheaper Indian labor cannot substitute for more expensive American labor, in some cases, though you may well want to study why it doesn't do so in all cases (hint: labor productivity per worker is much higher in the US, for various reasons, and by various metrics).
Your comparison of US vs. Indian costs of living is in fact a strawman. You might as well compare living expenses in Park Circus vs. Malabar Hill.
I'm done here.
The question isn't "absolute standard of living", but "what is a necessary income to provide for a supply of labor".
Again: I don't like where that line of reasoning takes us either, but I obviously find the logic harder to dismiss than you do. Why is that?
If I'm looking for ordinary gainful employment, or plan on raising a family, there are minimum standards which are imposed, whether through social expectation, law, regulatory requirements (e.g., immunizations for children attending schools, water, power, and/or septic connections for residences, etc.). Not meeting those requirements will put handicaps on your ability to find and/or keep gainful employment independent of your qualifications otherwise.
Arguably a similar state exists within India, but prejudices are far more baked in to the system and are generally acceptable (I turned up numerous articles discussing discrimination by caste, religious affiliation, sex, etc., while doing some associated research for this thread, they make for ... interesting reading).
I'm not addressing the morality of the differences in living standards between the US and India, or even between Park Circus vs. Malabar Hill (both of which are within India, and, arguably, represent a larger divide than that between the median incomes of the US and India (roughly: $42,693 and $1,219/$3,608 nominal/PPP). That's a separate issue and independent of this discussion.
The question at hand is: what is the minimum wage necessary to provide for a sustainable supply of labor, meeting present standards, within the US. And the answer to that question is, of necessity, relative to prevailing conditions, including expectations, within the US.
There are reasons why people aren't paid $100 for flipping burgers. If a higher min. wage caused no harm, then we could just set it to $3000 per hour and then.. POOF, no one would be poor! Of course, if that were to happen, the economy would collapse immediately.
People are paid according to the value they produce to their employers, and the minimum wage simply does not affect those calculations.
1: Strawman. The issue isn't "make a mint doing unskilled labor", it's "be paid enough to survive".
2: There are circumstances in which pay for mundane tasks (or goods) can be quite high. The all-in cost of a gallon of gasoline delivered to an FOB in Afghanistan is about $400 (among the reasons the military are so interested in alternative energy and efficiency measures). A chef in an extreme environment might similarly make considerably more than market wages elsewhere, though that's not on the basis of cooking skills alone (thin market, risk premium, etc.).
3: Direct wealth transfers to the poor have been tried, and, in at least some cases, the results have been encouraging:
Try to imagine a town where the government paid each of the residents a living income, regardless of who they were and what they did, and a Soviet hamlet in the early 1980s may come to mind.
But this experiment happened much closer to home. For a four-year period in the ’70s, the poorest families in Dauphin, Manitoba, were granted a guaranteed minimum income by the federal and provincial governments. Thirty-five years later all that remains of the experiment are 2,000 boxes of documents that have gathered dust in the Canadian archives building in Winnipeg.
Cash transfers to the poor in India, Indonesia, and Ghana, Africa:
No: People are paid the SUBSET of they value they produce for their employers they can claim under prevailing market conditions. Which, again as my citations from Smith note, favor employers and almost always will.
I never said anything about "making a mint" flipping burgers, so .. "strawman" right back at you, I guess.
But you need to understand that no one else is obligated to pay you "enough to survive", regardless of what you're capable of. Have you ever run a business? If you did, you'd find yourself paying your employees roughly market salaries, because that's what their productivity is "worth" (to you and your business).
You could be greedy (and/or a scumbag), and pay them below market, or you might be smart and long-term oriented and pay them above market rates (because it's in your personal interest to keep good employees around - they're not easily replaceable after all).
But the bottom line is that business are not charities, and they can't just pay people whatever people want - especially when people's desires are infinite - they have to live within their financial constraints, placed on them primarily by their customers.
McDonald's doesn't pay minimum wage just because they're mean. They do it because anyone off the street can flip burgers and cook fries. The productivity of an entry level employee flipping burgers is just not that valuable.
> 2: There are circumstances in which pay for mundane tasks (or goods) can be quite high
Sure, but that doesn't mean that all mundane tasks are valued as highly.
Value is subjective, by the way. Which means, among other things, that you can't tell someone what they should be willing to pay for Person X's labour - that's up to the potential employer to determine for himself, based on his subjective preferences, valuations and prioritizations of his means and ends.
Based on the exact same principle, no one can "correctly" tell you what you should be willing to pay for a fruit smoothie tomorrow at noon.
> People are paid the SUBSET of they value they produce for their employers they can claim under prevailing market conditions
Again, businesses are not charities. They need profits, and their owners want profits - that's why they're in business to begin with. What they deem an acceptable level of profit for their own businesses is subjective, and up to them.
The same works both ways. Employees decide under what conditions they're willing to accept Job X.
ORLY? "There are reasons why people aren't paid $100 for flipping burgers."
But you need to understand that no one else is obligated to pay you "enough to survive"
Re-read Smith's argument. The obligation is from the economy itself, in order to sustain itself. If it's not able to do so, it's on the way to inevitable decline. Though couched in moral terms, the argument's really an empirical one as I see it.
And of course: you can argue causality either way. Is sub-sustinence wage a cause or effect of decline? Most likely, either, depending on circumstances.
businesses are not charities.
And economies and labor supplies aren't bottomless extraction wells. There's a reason it's called enlightened self-interest. Which counters your "What they deem an acceptable level of profit for their own businesses is subjective, and up to them".
OK. I didn't know what you were referring to. Either way, my claim was that there are (good) reasons why people aren't paid $100/h to flip burgers, and your claim is that people must be paid "enough to survive". I'm not sure there's a strawman there to begin with.
> Re-read Smith's argument. The obligation is from the economy itself, in order to sustain itself. If it's not able to do so, it's on the way to inevitable decline. Though couched in moral terms, the argument's really an empirical one as I see it.
Care to make a clear claim about this? Something like "People must be paid 'enough to survive' because otherwise the economy will inevitably decline".. ? Or something? :P
That does sound like something "couched in moral terms", and I don't see how it's an "empirical" argument. Has intentionally not paying people "enough to survive" been tried somewhere, and has it then demonstrably lead to an economy's decline? :P
> And economies and labor supplies aren't bottomless extraction wells. There's a reason it's called enlightened self-interest. Which counters your "What they deem an acceptable level of profit for their own businesses is subjective, and up to them".
Nope, it doesn't. That's like saying I'm not allowed to decide what business I want to run, for how long, and under what conditions. The alternative, of course, is forcing me to keep running a business I don't want to run. Can you see a problem with that?
Not only that, but your demand for everyone being paid at least "enough to survive" amounts to demanding that people be forced to pay others salaries that someone other than the employer deems acceptable. Can you see a problem with that?
We haven't even discussed what "enough to survive" means. That sounds awfully subjective. What if I like to spend $2500 a month on hookers and cocaine, and don't have enough left over to survive? I guess I need to be paid $2500 + "enough to survive" per month, then? Does that make sense? Or perhaps you think there should be some limits to how much people are paid, regardless of how much they claim they need to survive? Who would determine what's enough though? How would he know? Why would he be in a position to decide things for other people?
Can you see a problem with that?
My claim is not that every human would be immediately elevated to self-actualization. Obviously, a great many would stay home, drink beer and watch TV. My claim is that civilization as a whole would profit; paying people who contribute nothing is merely a "cost of doing business". (And don't forget: there's still an incentive to work for those who want better beer and bigger TVs.)
Having users be free riders is not the same as having employees be free riders. I doubt Dropbox has any of the latter.
(And don't forget: there's still an incentive to work for those who want better beer and bigger TVs.)
No, there's an incentive for voters to elect politicians who will continue raising the bar for how much beer and what size TV the basic income should buy you.
> No, there's an incentive for voters to elect politicians who will continue raising the bar for how much beer and what size TV the basic income should buy you.
Actually, there's both. The incentive to work exists because if you want a better TV, etc., now (and if you want a better one that the next guy has) you have to get income outside the BI for it.
But, sure, there is something of an incentive for those deriving much of their income from BI to seek politicians that will raise the BI. But if you raise the bar too high -- if you exceed what the economy can support given the current level of automation and demand for labor to support production -- you reach the point where inflation from BI prevents raising the nominal BI amount from increasing raising the purchasing power of the BI.
And, of course, even though BI might mitigate income and wealth disparity, the people who have an incentive to seek to politically resist BI increases (and to send messages to the rest of the population to sell that idea) are going to be wealthier.
I agree that there is a severe moral hazard here. However, the fact that some citizens currently vote reflexively for lower taxes, while others do not, suggests that a semi-stable equilibrium could be achieved. (This holds even if you look only at middle-class voters with significant tax burdens, rather than just "makers" vs. "takers".)
If the moral hazard for BI was as strong as its opponents argue, it wouldn't take so long after the idea first started being advocated for it to be near universally adopted. Since, the argument that with a UBI of $N/mo, the voting masses will always strongly prefer a UBI of $N+1/mo. applies just as much at a N = 0 as at N = 1000.
You haven't really done a stellar job yourself. "My experience tells me" can hardly be used to back something up objectively.
Do you know what that reason is? Do they know how to change whatever it is?
What do you do? How do you help?
Do you think you're suffering from an anti-'survior' bias where you can only see the ones who continue to fail?
This latter claim is frequently made in discussions of basic income, but rarely backed up by objective reasoning.
Money symbolizes value. Other than lubricating trade, which has real value, in itself, it doesn't really "do" anything. You can't eat it. You can't build a house out of it. If burning it to keep warm makes some kind of economic sense, then the economy is seriously fubarred.
This kind of financial manipulation does not fix any of the underlying issues that lead to financial problems. Financial problems grow out of real problems. I can testify to that first hand: I am deeply in debt and homeless due to medical problems, in essence. I am fixing my medical problems. As my medical problems resolve, my expenses come down and my productivity goes up. My debts are slowly being paid down.
We need to fix real problems, underlying root cause problems. This kind of superficial manipulation is not a fix.
Oh, god, no. I can't believe I am seeing this stupidity being taken seriously.
If most of our needs are covered by capital and robots, we will evolve to ensure a minimum level of services provided by the society to every human person alive (or else people will starve to death). Even their potential transition into niche areas with low skills and poor robot automation (e.g. arts and entertainment businesses) would require assets to sustain their education and living facilities.
While I can see how the idea of minimal income might be controversial, I doubt you could fairly label it "incredibly stupid".
I understand your point about the purpose of money, but don't see how the idea of bypassing tax credits or tax breaks and directly giving money to people is stupid.
In countries with low birth rates, you see that government retirement programs are killing the economy. Government retirement programs are based on the idea of older people having earned this. But someone has to do the work to provide the goods and services being purchased. If no one is required to work, a lot of people won't work. People who win the lottery are typically bankrupt within 5 years (about 2/3s of them, IIRC, go bankrupt). A lot of people, if given money, 1) promptly quit their jobs and 2) promptly fill their empty hours with consumptive activities, not productive ones.
I do not see this fixing anything. In the long term, it is likely to bankrupt the system because of disencentivizing productive activity and turning people into consumers with an entitled attitude.
In particular, a lump some of ~$1000 given to 13 long-term homeless individuals in London (http://www.economist.com/node/17420321) saw 11 of them off the streets a year later, and the Mincome experiment in Manitoba only saw modest decrease in hours worked (most dramatically among new parents, which strikes me as a positive outcome).
For me, I have to remind myself that money is just a social construct. The real economy consists of people working and deploying physical plant and equipment to create things other people want.
Today we find that the real economy has a lot of idle resources. People who want to work don't have jobs. Factories and equipment are idle or under-utilized.
If spreading some green pieces of paper around will get the real economy moving again, the standard of living for most people will rise.
It seems wrong at first glance, but it's even more wrong to allow all these resources to waste away, unused, when so much could be done.
But many of those resources are idle because they were misallocated--for example, they were allocated to building more and more McMansions because of the housing bubble, rather than, for example, on fixing roads and bridges and other deteriorating infrastructure. Or they were allocated to building 18 million cars and light trucks a year in North America, when the market now demands only 11 million.
To some extent "helicopter money" as described in the article might help; perhaps if everyone got a $2000 check the demand for vehicles would go up to, say, 14 million a year. But would it go all the way back up to 18 million a year? I doubt it; a significant piece of that demand was people assuming that they needed a new car every 2-3 years; now many of them have had their cars for 5 or 6 years and are realizing that hey, they can save money by not buying a new car as often, without any real reduction in quality of life. That lost demand won't come back.
Nor should it. If the economy was set up to make stuff that people don't really need, that's a waste of resources that could be better allocated elsewhere. That's why I'm skeptical of the "aggregate demand" idea; it basically implies that all that's needed is for people to buy more stuff, without any analysis of the actual comparative value of the stuff.
If you forget about money for a second, it seems like there are a lot of jobs that need doing, and a lot of resources that are idle.
Bridges need to be built, highways need to be paved, kids need teachers and tutors, and we're firing cops and firefighters like never before.
Why can't we match up some of those jobs that need doing with the people, trucks, and factories that are idle?
Why isn't the free market doing a better job re-allocating those resources to more productive uses?
No argument here.
Because most bridges, highways, schools, police and fire departments, etc. are owned by governments, not by private industry, and governments suck at doing what you suggest.
Because governments effectively have a monopoly on many of the productive uses that currently need resources (since they own the infrastructure that needs to be fixed).
Interestingly, the startup ecosystem is a little replica of this in which the best investors understand that capital in fact must be misallocated if we're going to find The Next Big Thing (tm) .
Anyway the point I want to make is that just because resources are misallocated doesn't mean we can't smooth the transitions to reallocation. In fact, I would argue that because some misallocation is healthy (otherwise we aren't taking enough risks), we should have in place a system which does smooth the transitions.
Basic income is a proposal for smoothing labor transitions, comparable to how bankruptcy smooths capital transitions.
There will always be some misallocation due to this, yes. But the amount of misallocation due to, for example, the housing bubble was much more than can be explained just by our inability to perfectly predict the future.
Did you mean to include the "not"? If so, why would established companies and/or entrepreneurs try to meet people's needs if it's not very profitable?
What will it be tied to in order to ensure that it doesn't just wreck the economy? That piece seems to go unaddressed. My understanding is that in Alaska, everyone gets a check instead of paying taxes but it is because of the Alaska oil pipeline. When that pipeline runs dry. so will the "free money." It comes from somewhere. It doesn't just get printed out of thin air. Oil gets sold, the state redistributes the money to its citizens. It isn't just some magical manipulation on paper because money is relatively abstract, so people seem to think manipulating it really works. No, it really doesn't.
But the evidence of the last six years proves how wrong my thinking was. Dollars are not like shares of stock, that get diluted when you create more of them. When there's a lot of slack in the real economy, when people aren't working, and factories are idle, printing money doesn't cause inflation.
Today, I think about the real economy of workers and trucks and factories instead of money.
If we print $1000 per month per person and give it away for free, it's very possible to get the real economy moving, raise standards of living substantially, and incur very little cost in the real economy of work, goods and services.
For what it's worth, here's a radio show that turned my understanding of money upside down. Skip ahead to the 10th minute for the story on how Brazil created a totally fictitious virtual currency, named it the "real", and ended decades of debilitating inflation.
I'm a staunch support of a moderate basic income, and I'm open to printing some of that, but this seems absurd. In the first year, you'd be printing more dollars than we have in circulation. I can't imagine demand for dollars would keep up.
Only because you say so.
Now imagine the money doesn't stop flowing when the pipe runs dry.
You'll realize the connection we make between the pipeline and the checks Alaskans receive is completely imaginary.
When Europe sent people to "The New World" and tons of silver was shipped back to Europe, the result was ridiculous inflation. Historically, when you inject more money into an economy but not more goods and services, not more intelligence, not more real value, the result is inflation. Prices go up because there is more money but not more stuff to buy with it.
I don't know how help you understand how ridiculous this idea is if you think dismissing my personal experience somehow proves my point wrong. It doesn't. The point can be made other ways. I just happen frequently speak from firsthand personal experience in part because it was part of the culture of a very respected list I once belonged to where the standard was 1) speak from firsthand experience or 2) cite your sources.
Put another way, it used to be a mystery: "Why do hotdogs come in packages of 10 and buns in packages of 8?" now you should be asking "Why do hotdogs come in packages of 8 and I still pay the same amount as 10?"
Your claims do not reflect my personal experience, and do not seem to be very well substantiated.
Look at the price of BMW's U.S. entry level 3 series. In 2004 it was $28k MSRP. BLS estimate for 2014 using official inflation is $35k MSRP. Actual is $38k MSRP (under 2.5 percent) for what is for various reasons a lot more car (50 more horsepower, bigger, safer, more fuel efficient). If it weren't for tighter emissions requirements since 2004, inflation in the price of cars would probably be below the general inflation rate.
However, this does not mean that any increase in the money supply will have negative consequences. For instance, if you do not increase the money supply at all and the output and population increase, then you have major problems as well.
In this case we are talking about levels that are easily absorbed by the economy, which is not equivalent to an economy that uses silver for coinage finding more silver than they have in circulation.
If you do not see the vast difference between the kind of careful investment made by Ycombinator and simply handing everyone money who happens to be a U.S. citizen, I don't know how to go forward with this discussion.
This style of reasoning by anecdote is the problem with public debate, it's an appeal to emotion rather than reason. It's really not useful. Statistics are useful, anecdotes are not.
Yes, one of those problems is that the labor based distribution of resources is going to fail long term because we simply won't need all that human labor. Jobs are not simply being replaced with different jobs; they're being eliminated entirely.
Nothing you've said addresses that problem and that problem is what a basic income is trying to address.
We have done a lot in the U.S. to undermine families. Reversing that position would do the economy a lot of good and help address the issue of a world where not everyone "needs" to work but everyone needs resources to sustain themselves.
Creating more pro-family laws does nothing to help with post scarcity. We have not had this problem in the past, so looking to the past for solutions does nothing, there are no past solutions to a world that doesn't need labor. This is not an issue that in any way relates to families or the undermining of families.
Honestly, it's like you just make random responses that don't address anything said to you.
Homemakers and dependent children (who can be young adults -- like college students) are technically "unemployed" but are not simply cut off from societal resources. I am sorry you do not see that but it is at least a partial answer to the issue of distributing resources to non-working members of society in a way that does not destroy the social fabric or economy.
Clearly you are because yet again not a single word of anything in your response has a single thing to do with with post scarcity. So yet again you're completely off topic.
I'll say it one more time, this isn't an issue of family or women not working; Google post scarcity for fuck's sake; the topic is about when the vast majority of society, men, women, all of them, aren't working because labor itself has been eliminated by automation. We're talking 95% unemployment here, this has nothing at all to do with families or healthcare.
The time is coming when virtually everyone will be unemployed. This is the problem basic income is trying to address. You don't seem to get that and it's why everything you've said utterly misses the point entirely.
I don't currently have a solution. But I am clear that just paying everyone money that you manufacture essentially out of thin air is a disincentive to actually work. It may inject short term liquidity into the system but it won't solve the real problem.
I think some kind of basic income might be useful to level out the haves and have nots and redress some things but $2000/mo is more than a full time minimum wage job pays currently. I think it would cause a lot of people to see no reason to work. If people quit jobs to live on the government dole, this could actively harm the current system rather than improving things.
What it certainly would do is free people from wage prison - people who would rather not participate in the work force but are forced to for reasons like obtaining employer's healthcare. Obamacare will free many people from this trap in exactly this way - and one of the most pronounced effects these types of things have is allowing older workers to retire who were forced to stay employed, making room for the younger generation.
And people leaving jobs who don't want them but are forced to take them is a good thing. Right now we have 3 people looking for work for every 1 job opening, which drastically skews labor markets in favor of employers. It would be good for everyone if this balance shifted in favor of workers.
The people who want to work will still want to work even if you hand them cash for free. The people who don't want to work shouldn't have to in order to avoid calamity.
Its even more preposterous when compared to the status quo. Consider the following alternatives:
1. You get some amount regardless of whether you get additional money from work.
2. You get some amount (which may vary from reason to reason) if you don't get any income from work and manage to convince one of several bureaucracies (all paid out of tax funds on top of the cost of actually providing the benefits) that you meet some qualifications, but in almost all cases this amount is also reduced if you actually make any money from work (sometimes, proportionately, sometimes, if you make any money, you lose the whole benefit.)
Clearly, the latter provides the greater disincentive to work (and, at the same time, the greatest incentive to fraud and corruption, and the greatest public expense compared to the benefits delivered.)
you keep saying this. what, in your mind, is the real problem? the article lays out a very clear real problem in its view: lack of aggregate demand. they then offer a solution to fix said problem.
if you disagree with the article, please at least point out what you think the problem is. proposing a solution would also be nice...
I don't know what all the solutions are but I am confident that one of the problems is Peak Oil. Some of the solutions for that include passive solar design, living closer to work, shopping closer to home, improving pedestrian-friendliness of built environments and improving public transit.
The health issue: I don't like Obama Care. Making people pay for insurance just shifts who pays. It doesn't make people healthier. Some of the solutions for making people healthier include: Pedestrian friendly built environments which promote more walking, better education, less pollution.
I don't have all the answers. I am applying the answers that I know work to my own life. I gave up my car several years ago. Most of the time, I walk everywhere. I moved a location with good public transit and I use public transit when I don't walk. I am getting myself healthier. I know these are things that work because I am applying them to my own life, though I was just told that my personal example is irrelevant and doesn't generalize. That sort of dismissiveness is something I am commonly met with. If people don't want to believe me, they don't have to. I will continue to do what works for myself because I know it works, regardless of how many nay-sayers I run into. It is getting results.
BI still takes money I need now (and will use to improve my life later) and gives it to people who don't need it ($0 net change after theirs was confiscated too) or have disturbingly high odds of squandering it. I'm all for helping the few who actually need it, which I could do better if that money weren't taken from me in the first place.
This wouldn't really address the concerns about poverty that make many people interested in a basic income, because it wouldn't happen regularly and there's no guarantee that the money would be enough to make a difference in peoples' lives. But it could still have a good effect on the economy as a whole, which seems to be what he is aiming for.
Without regularity, it's just random windfalls, nothing you can bank against.
Rather than injecting new money into the financial and government sectors and hoping for a trickle down effect, it seems much more fair to just cut checks to all citizens.
Suppose I'm rich. The Fed creates a dollar. The Fed offers me a dollar for my treasury bill worth $1. I accept. As a result, I am now a dollar richer but a $1 treasury bill poorer. Have I gained? I have $1 more in money, but $1 less in assets. So I'd say no, I haven't gained. The only way I gain is if the Fed pays me more than the treasury bill is worth. And since the Fed pays market price, this is difficult to do.
Every right-wing commenter in the world would immediately see that this is wealth redistributing socialism and needs to be stopped instantly.
It's the same if you decide to pay rich people for their bonds. Only, you know, it helps rich people instead. You bought a million dollars of bonds last year, this year you can sell them for $1.1 million. The profit goes straight into the pockets of... people who can afford to buy a million dollars of bonds.
I.e. if the bid/ask is $100/$100.5, the fed will have to buy at $100.5, even if the next market trade might have happened at $100.25. So the rich owners of treasuries do reap a small reward, something on the order of the size of the spread.
That said, your point is generally correct. Buying treasuries results in $100 of money injected into the economy, while redistributing only $0.25 of wealth.
That's not to say there aren't massive gains to society from a policy mechanism that both provides a relatively efficient and reversible means to manage inflation and helps stabilise the banking system, but the fact is it favours the wealthy much more than the alternatives.
Meanwhile raising the market price of bonds makes debt servicing less expensive, saving taxpayers' money. Unless the market expects inflation, lowering bond prices again.
The newly created money is worth more when it's new. When the average person finally receives the money, the value is worth less through inflation.
Secondly, the rich can borrow money from the fed at 0%. Then they can buy bonds from the government and receive interest on that. How does the average person do that?
I guess you are vastly more likely to own a treasury bill if you are rich.
If you are poor Fed buying treasury bills does nothing for you.
The Fed is a large enough new buyer that it will move the market price.
* Foreign - $5.724 trillion (national breakdown: http://www.treasury.gov/resource-center/data-chart-center/ti... or http://www.gao.gov/special.pubs/longterm/images/countries_la...)
* Social Security (Social Security Trust Fund and Federal Disability Insurance Trust Fund) - $2.764 trillion
* Federal Reserve - $1.794 trillion
* Other (individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors) - $1.497 trillion.
* Mutual Funds - $946.4 billion
* Office of Personnel Management (Federal Employees Retirement, Life Insurance, Hospital Insurance Trust Funds, Postal Service Retiree Contributions) - $826.8 billion
* State and Local Government, including their pension funds - $703.5 billion
* Private Pension Funds - $457.7 billion
* Military Retirement Fund - $419.5 billion
* Banks - $341.4 billion
* Insurance Companies - $263.3 billion
* Dept. of Health and Human Services (Federal Hospital Insurance Trust Fund, Federal Supplementary Medical Insurance Trust Fund) - $260 billion
* Other Federal Programs and Funds - $260 billion
* Uniformed Services Retiree Health Care Fund - $189 billion
* U.S. Savings Bonds - $181.7 billion
* Department of Energy - $54.8 billion.
* Federal Deposit Insurance Corporation - $33 billion
* Department of Labor (Unemployment Trust Fund) - $30 billion
* Department of the Treasury (Exchange Stabilization Fund) - $26 billion
Note that this is quite distinct from my supporting "buying treasuries disproportionately benefits the wealthy" - I am not convinced enough to hold a real opinion on that either way. Reading back further, I see the original claim was in fact "Only the wealthiest Americans (and foreigners for that matter) own the assets the Fed is bidding on", which claim the data certainly contradicts.
!A = 52% of the debt
q = not owned by the wealthy or foreigners
!q = owned by wealthy or foreigners
I believe the data shows A && q, but !A && !q is much less clear and A && q is larger than many people might expect, that's all. A && q does not mean !(!A && !q) as you point out.
Around half of !q is owned by foreigners, mostly foreign central banks, so there's that. The distribution of the remainder of !q is unclear.
Also, note the difference between "benefits" vs. "own" which are not the same. Buying bonds has a variety of effects. Buying a bond from someone benefits the former owner immediately but raising the price of bonds lowers bond yields making buying all new bonds less profitable. It also lowers the cost of financing all government debt, benefiting all taxpayers. But reducing bond yields tends to increase the demand for other assets, such as stocks, increasing the paper value of stocks. Similar story for pushing dollars abroad to foreign bond holders, sending dollars abroad makes the dollar cheaper, boosting exports and hurting imports but reducing market bond yields should do the opposite. But if the market expects inflation from quantitative easing it should reduce the future value of money, increasing bond yields again, but tends to depress stocks but not value stocks as much...
Simply put, the claim that buying bonds helps the wealthy is an idea that needs a lot more support than thoughtless one-liners that twang the emotional strings of power and betrayal.
!q = owned by wealthy or foreigners"
None of those is really logical negation (it's set complement), hence my confusion.
"I believe the data shows A && q, but !A && !q is much less clear."
I agree. I don't believe the data shows the claim you label "!A && !q" - I do believe it admits it.
Your later point - that effects outside bonds probably dominate effects confined to bond prices - I think is correct.
"Simply put, the claim that buying bonds helps the wealthy is an idea that needs a lot more support than thoughtless one-liners that twang the emotional strings of power and betrayal."
Certainly the case.
One thing I'd like to point out from your list above is that Social Security is the largest owner of treasury bonds. If the Fed buys treasury bonds from Social Security, that is essentially distributing money to lots of people directly - exactly the suggestion of this thread's article! :)
(Though it's not really the same, since they buy treasury bonds in an open market, not directly from Social Security. The amount of bond-buying has nothing to do with the amount of Social Security checks going out, which is a good thing, in my opinion.)
I think it's fine for $100 million to go wealthy people if the wealthy people lose $100 million of treasuries at the same time. It only becomes a problem if the Fed overpays for the assets. Which is why it's so important to pick giant liquid asset markets like US treasuries. Giant liquid markets are the least likely to be distorted by Fed action.
Which is precisely what happened. Many of the toxic assets that are now on the fed balance sheet would have been close to worthless (if not completely worthless)
The answer was: they don't. They're bidding at auction, so to that extent, the value is market-based (banks with assets they think are valued over what the Fed is paying will withhold those assets), but to the extent that it's pretty much the Fed creating this market of and by itself, there's not much competition.
The interest of the Fed isn't in buying valuable assets. It's in injecting liquidity, that is, cash, dollars, into the financial system.
I've kicked myself for not having asked another question (how is the banking system supposed to work and lend when real returns on financial capital are negative), but the one I did ask and the answer I got were informative and illuminating to me.
The question I didn't ask, it turns out, has been asked by others (though I need to track down specific instances). The declining real returns of investment is something that's been specifically noted, see Deloitte's Shift Index:
So far your worry has not borne out. The Fed has been earning about $80 billion per year, and its MBS portfolio is worth about $1 trillion.
They have $100 million more in money, but $100 million less in assets. Their net worth is unchanged. They are not richer, even when considered as a class.
(I think your comments could be improved if you made some of your thinking more explicit. I have difficulty following your lines of reasoning. Brevity has value, but also cost.)
(1) I announce that my general policy will be to buy treasuries when I want to spur inflation
(2) I announce that next week I am going to buy $100 million of treasuries.
(3) I actually buy the treasuries.
A very interesting question is: At which point (1, 2, or 3) was demand increased?
(I would argue that if Fed purchases are expected, they do not change the price and treasury owners do not benefit.)
The only way for the $100 million not to enter the money supply is for the wealthy to hold $100 million more in cash. If they invest it in bonds and stocks, then now the previous holders of those bonds and stocks hold the cash.
The point of distributing the money is so that money is worth less and prices become effectively lower, causing people to buy more stuff and businesses to make more stuff (i.e., monetary stimulus of aggregate demand).
Here is a blog post on the hot potato effect: http://www.themoneyillusion.com/?p=23314
edit: replied without reading the HPE post. My point, I guess, is that this helicopter drop of cash, if evenly distributed (e.g., every US citizen received 3.19488818e-9 of it), would disproportionally be distributed to those who would spend it immediately, increasing aggregate demand - compared to those few percent who would just add it to their investment portfolio.
Also, things like land and real estate tend to be bought at steep discounts and then sold for huge profits.
Finally, having a $3m house is not the same as having $3m in cash.
What is the value of a land value tax? (ELI5)
I don't know what that effects it would have. I assume the first and most direct effect would be budget shortfalls in local governments which would probably try to create more fines and sin taxes (assuming they are still legal).
 LA has an almost $200 fine for jaywalking. I'd argue that fines and confiscated money from drugs should never go into general treasury much less directly used to fund the department collecting such fines and confiscations. Our government should run on taxes alone and not on fines and fees. http://www.nytimes.com/2013/12/26/us/in-a-car-culture-clash-...
There's no a priori reason to assume that land value taxes would either fully replace other tax systems or not be revenue neutral. If collected locally, they might even favour well-managed local governments who should see their investment in better services reflected in higher land prices.
In principle you could have a revenue neutral transition to a land-value tax. In practice, it might very well lead to crazy numbers.
I think this paragraph is really important to think about until you get it. It's easy to get wrapped up in thinking of money as a thing of value when at the end of the day it's just a proxy for goods and services in the real economy. If you don't get that... you'll go off and buy Bitcoin, I guess.
A significant chunk of stimulus money was also devoted to raising wages for govt workers during the recession, which is also an anti-Keynesian policy.
Economically there is a free lunch. But politically, we don't seem very good at eating it.
It's also strange to see this topic brought up in the article, and then the effects of BI (increasing slack in the economy) completely ignored. In the pilot projects, BI reduced people's willingness to work by about 10%. That's the opposite of a free lunch.
In other words, shouldn't a slice of the money pie be worth a slice of the economy pie, even when the size of the economy pie, and therefore the slice, changes? How do we determine when 10% of the money supply equals 10% of the economy? It seems like what you, and the article, are saying is that a certain number of dollars always equals the same amount of, say, gold, or labor, and we just don't have enough dollars to represent all the gold and labor that's floating around. That just doesn't seem right at all; that's exactly the system we moved /away/ from according to the advice of these same economists (or their predecessors).
There is plenty of debate over how much this matters, under what conditions it is true, and how the mechanism works. Nonetheless, there is consensus that human bias against lowering prices prevents price deflation and helps cause recessions.
This is one reason why some economists think that steady inflation or NGDP growth is good. If prices always rise, then instead of lowering them (which is psychologically hard), you can just hold them flat for the same effect.
goods and services = value <-> money
Money is not a good or service or something of value. It is merely exchangeable for those things.
If there's a gap between production and demand, you can look at it two ways: either people don't have enough money to meet the demand, or we're making the wrong things.
Supply side economics said we should always stimulate supply -- demand would follow. Give breaks and incentives to keep making things, dammit! Of course, the problem here is that simply "making things" doesn't take the economy anywhere. It doesn't trickle down.
Demand siders are similarly stuck in one spot, claiming that if only people had enough money, the economy would be fine. Give the people money and the rest will work itself out. It'll trickle up.
I think that both supply and demand are moving targets, and by focusing on them we're missing the larger point: is the money doing anything new? Because economies exist to grow and adapt, not stagnate. If you're dumping money on factories to produce things nobody wants, it's not growing. Likewise, if you're giving money to people to do the same thing they've always done with it, it's also not growing.
We're going to need a more sophisticated way at looking at this. I welcome the idea of giving money away. Anything that will move the conversation forward from these two simplistic and entrenched positions is most welcome.
Let's test it.
>Starting in the ’80s, productivity gains were no longer shared with workers. Therefore, the wage share of the economy began to decrease. As a percentage of total output, wages have fallen from a high of almost 52 percent around 1970 to less than 43 percent today (see Graph 1). Meanwhile, inequality within wages also increased. The upshot? The rich began capturing nearly all the results of economic growth—the top 1 percent’s share of national income increased from about 8 percent in the mid-’70s to about 23 percent today....they “save” by buying financial assets—which means that most of the fruits of economic growth have been channeled into asset price increases, rather than consumer price inflation.
If you just give everyone more money to increase AD via QE, tax cuts, free income or whatever else... it all gets spent and where do the increased sales and profits go? You just stay in the same cycle and have to continue sending more fed checks.
It's the same reason minimum wages don't work. Setting a lower bound does nothing when an upper bound doesn't exist.
Has anyone really looked into why this is? It's easy to say 'lol greed' and be done with it, but it seems silly to presume that people were any less greedy in the 60's and 70's.
'Globalization' might make a little bit of sense as to why individual companies might pay relatively less taxes to the US government, but I'd need more context than that before I'd be willing to accept globalization as the answer to why production gains aren't really being shared with workers anymore.
If the answer is that collective bargaining has been getting less and less effective over time, why is that?
So the answer is "greed," but not more greed, as you say. Just stronger, more sophisticated, and more effective greed. Which is a distinction that might be lost on both sides for different reasons.
I know virtually nothing about this area, but I'd guess that the country transitioning from a manufacturing economy with a strong union presence to a service economy where unions are not strong has something to do with it.
Increases job mobility probably doesn't help either. My impression is that my parent's generation felt they would work at the same company for decades. When you have that mindset, your coworkers are an important community for you and things like unions are worth the effort.
When everyone switches jobs every couple of years, if you aren't happy, instead of collectively organizing and fixing the problem, you just leave for greener pastures. Of course, it's an illusion because the end result is that those pastures are usually the same, but I think that's part of how we got here.
TLDR; As computers replace manual labor the boss pays less out less of his profits for labor and we have an economy where the rich get richer. Once upon a time profit growth equated to wage growth but modern computer technology has changed this.
Basic income can be a cost neutral, effective form of social security.
What if the Fed directly purchased income producing assets (utilities, securities of companies on the S&P 500, etc) and used the proceeds to fund a basic income?
Auroracoin's goals are not quite as relevant for the US, since we don't have a public national ID database and our dollar is incredibly strong. But the distribution of a pre-mined cryptocoin could be one type of universal income. It's also a way to experiment with relatively few consequences to the existing economy.
And it only took 51 years until we got Bitcoin...
Step 1) Take away all money from everyone make big pile 'o cash.
Step 2) Give everyone an equal distribution of the big pile 'o cash.
Step 3) Wait one year.
Step 4) Scratch head over how some are now poor and other are super wealthy even after the great leveling.
Hmm no, maybe not such a great idea.
There is a finite amount of tangible goods that can be produced, money chases goods, markets react, prices rise. If everyone has a million dollars do you think someone will sell you his Ferrari for $200k ? No, because the value of the Ferrari does not reside within the dollar, it's only a medium of exchange used for easily trading goods and services.
If this scheme were implemented, I'm guessing the number would be picked by economists at the Fed who target a particular money supply. And then that number would be criticized by people who think that the Fed is choosing to stiff the poor. For that reason, I think it would be a huge mistake to tie together monetary policy and income redistribution. :)
BI won't work as good as it should without simultaneously shifting balance between renting and owning, for example, with progressive real estate tax to discourage investing in large amount of real estate (selling 10th house below market rate would be more cost-effective than keeping it) and to make it easier to purchase one house for yourself (because of increased supply and reduced prices).
So I doubt any rents would go up substantially just because once in awhile (like every couple of years) a $2000 check came in the mail.
What you're failing to consider is that property values more or less range from priceless to free. If landlords collude to drive up prices, there is some piece of crap land somewhere that a developer can buy up, throw some condos on it, pay a municipality to put in a bus line, and undercut the market.
And as long as that is true, rental prices will be governed by two things: the amortized cost of construction at the bottom, and sexy supply constrained neighborhoods at the top .
Giving people more money might have small local effects but to say rents will just universally go up by thousands of dollars makes no sense.
Who gets the prefernce shares!?
Also, they may be issuing a profit warning rather than any dividends ...
The free money for everyone proposal is NOT neutral. It would transfer wealth to the poor. That is not a bad thing, but it seems odd to couple monetary policy with redistributive policy.
Just because the poor spend the money in 2 seconds does not mean that the wealth evaporates after 2 seconds. They now have whatever goods they purchased with the money. And even if those goods are consumables, it's offset the spending/debt they would have otherwise needed.
I find it rather offensive to accuse the poor of wasting all the money they receive (which is how I interpret your comment). If that's not what you meant, could you please re-explain? Thank you.
If you have $5 Million in the bank and I give you $2K. The money I've given you won't change your spending habits. There is no purchase you have put off due to lack of money.
If you have $100K in the bank it's more likely you'll spend it, but not a guarantee.
If you are living paycheck to paycheck like roughly 3/4 of the country (http://money.cnn.com/2013/06/24/pf/emergency-savings/) then that $2k will most likely get spent. Just because it's spent doesn't mean it's wasteful.
That spending will reflect things they are living without because they can't afford it. A more reliable car. A second car so their SO has a better opportunity to work. A computer. In the case of some low end works it could mean equipment and/or space to open their own business. Better/More food. An evening at the movies. Painting the house. These are all things they can't/won't take on debt for, but could do with a windfall.
Yes. But they would have to give poor something back for that money. And that's what they currently are not doing because they are waiting for the poor to produce the money they have no means of producing.
In order to manufacture the thing the rich can give poor in exchange for their helicopter money they have to increase production and probably hire some poor people which benefits poor even more.
Further, "free money" also in large (albeit not complete) part becomes a point of dependency from which more is demanded as a right (not appreciated as a gift).
Insofar as a debatable percentage of such "free money" gets squandered, that money has arguably been taken from those who, having earned it, take greater care in spending it wisely.
I'm all for giving people a hand up, just with the qualification that it be given voluntarily, and reasonably results in upward mobility. This "free money" aka Guaranteed Basic Income (same idea, different degree) notion is certainly better than the welfare morass currently in place, but still doesn't address the core flaw leaving so many to receive so much yet get nowhere with it.
I'm not saying we shouldn't work towards a better society, but cash is one thing that poor people desperately lack. Giving it to them directly might improve their situation. And if we're going to distribute money anyway, the real question is whether this proposed method is better or worse than the current one, not if it's completely perfect.
If you really believe in social mobility, would you support a 100% estate tax?
Risk free interest offered to select financial institutions and flat payments to citizens are both distortionary transfers of real wealth. The argument for the former is that under most economic circumstances it's pretty efficient and open market operations are also effective at moving excess cash out of the system. The argument for the latter in some circumstances, especially as a one off stimulus, is that it's potentially much more efficient at stimulating demand than QE and potentially rectifies other structural imbalances.
"The helicopter money policy ... distributes resources directly to citizens, with no limits on how they can spend it"
If the purpose is to jump-start spending, then perhaps there should be one modest restriction on how you spend a stimulus check: an expiration date.
Instead of issuing checks, the government could issue prepaid debit cards with a relatively short expiration date. (I believe some of the 2008 stimulus money was distributed via debit card, but the bulk was direct-deposited.)
For the vast majority of people, a debit card with a short expiration date would lead to their spending the money within that span; a small minority might go through the trouble of converting the debit card amount to cash and saving it, but probably not nearly as high a percentage as if it came as a check or a direct deposit.
The UK government has purchased £375 billion of assets as part of its Quantative Easing (sometimes known as 'printing') scheme, which is around 14k per household.
I have a lot of confidence that QE would have been much more effective in the UK if it had started by allowing every adult the ability to claim say 5k against existing debts (e.g. credit card, bank loan, mortgage). If the claiming individual had no debt or less debt than the amount offered, the remainder could be claimed as income. This would make a massive difference to indebted people, and by allowing people who weren't in debt to claim it as income, it avoids the moral hazard of people saying 'well I should have borrowed money'.
This is of course a separate matter to basic income, but I just find it interesting how comparable those numbers are - the personal debt and the amount created by quantitative easing and poured into assets mainly held by wealthy people.
The point is: if you spend the money, whether on retiring debt, on recurring expenses, or on new purchases, what you've received is a net increase in income. For people who are living hand to mouth (they have no surplus income, or worse, negative surplus), the money will be spent.
If you're able to squirrel some away, that's a consideration, but it's 1) built into the model and 2) it's a relatively small fraction of the total distribution (likely less than 20%).
Sure, but that's added complication with limited additional benefits. If you distribute it as a reverse capitation, its going to be spent with a ratio roughly equal to the average marginal propensity to consume across the whole population, which is a lot better than you'd get with most other stimulus measures, and with a lot lower organizational overhead (and incentive for potential beneficiaries to attempt to game the system) than for any system targetted to try to beat that ratio.
> For the vast majority of people, a debit card with a short expiration date would lead to their spending the money within that span
Sure, but in many case it would in part displace other spending which would instead be saved. If people were rational, it would have little difference in effect to just giving out cash. In reality, it might have some small difference in how much net increase in spending it led to, but probably not a big benefit that would make this worth the additional complication.
Why not just print and hand out 100 trillion dollars to everyone? -Somehow that sounds like a bad idea, huh? But there's nothing wrong with sprinkling say, 3000 times 330 000 000 dollars into the masses' hands?
Of course hyperinflation would be a concern at the $100 trillion level.
The idea behind this policy would not be to inject additional money into the world. Rather, the idea is to switch channels from open-market operations to money giveaways. Because the amount of newly created money would be the same, inflation should be about the same too.
If it wasn't harmful to hand out "free money" to everyone, then they could actually do it at the $100 trillion level. The difference is in the degree/expediency of harm caused. Hyperinflation would be a concern at the $3000 level too.
The point is that there is no "free money". Money being "free" equates to money being worthless, and that's exactly where the suggested operation would lead.
> Rather, the idea is to switch channels from open-market operations to money giveaways.
I see you've adopted the Fed's jargon. The massive difference between what the Fed is doing now (handing out $85B/month to banksters) and handing out money to the masses is that in the latter case, all of that money could potentially enter the real-world economy right away, thus potentially causing all the inflation it could possibly cause.
That's way different from the same amount of "nominal wealth" sitting in some bank's balance sheet, having replaced some worthless-in-reality asset's nominal valuation with the equivalent amount of money. In this case, the money is not going anywhere, and thus, not causing the inflation it could.
But the original article is thoroughly full of shit. No wonder, because the article was meant to mislead the public.
The Fed, ???