Sunday, November 3, 2013

What's the BIG idea?

Why then, does ... Chancellor {George Osbourne] continue to claim that reducing government spending is vital to economic recovery?

I suggest there are two reasons.  The first is that austerity does serve the interests of what used to be called the hard money crowd.  Back in 1896, William Jennings Bryant, speaking on behalf of debt-burdened farmers, demanded that we not  “crucify mankind on a cross of gold”.  He lost his campaign for the US presidency to McKinley, who represented the big business Wall Street interests.  Debtors wanted easy money, so that their debts would be less burdensome but creditors, who then and today are politically more powerful, feared being repaid in cheap money.

Creditors hate inflation above all else.  Even economic growth is anathema to them, if it might spark inflation. The nightmare of the creditor class is being repaid in depreciated currency. They are quite happy to let the economy stagnate and unemployment rise just as long as their bond coupons are paid in hard money.  The financial system as a whole is a net creditor so it makes sense that bankers (and the politicians they own) fulminate against increased government spending, even though today deflation is a bigger threat than inflation.

But most of us are not bankers. Most of us are net debtors, not net creditors.  Why then do the rest of us fear government spending and feel that austerity is the prudent and sober minded policy? If you know nothing about economics, austerity makes all the sense in the world.

In difficult times, when the economy is shrinking and most of us are trying to pay down our debts, it seems intuitively obvious that government not spend more than it can afford. Being profligate is dangerous.  Austerity seems the safe, sensible option...It strikes me that our affection for austerity is an atavistic throwback, in much the same way our passion for sugar and processed foods is a remnant of our history on the savannahs of East Africa, when hominoids who enjoyed the sweetness of fruit had a better chance of survival than those that didn’t. Back then, a taste for sugar brought us vital nutrients. Today it just makes us fat. Likewise austerity. For most of our time on the planet, scarcity was the bane of our existence. Lent comes in February because by that point in winter, our peasant ancestors had run out of anything tasty to eat. Religions that required lavish feasts in January probably had parishioners starve to death before spring. In hard times, we are hardwired to tighten our belts. Splashing out and spending seems wrong. Once upon a time, the wolf at the door wasn’t just a metaphor.

No longer. Today, obesity, not hunger, is the sign of poverty. Thomas Malthus had the bad luck to proclaim his theory just at the moment it ceased to be true. From the time Homo sapiens learned language until the early 19th century, we did indeed live on the knife-edge of starvation. We live in a very different world today but our instincts remain the same.   The fairy tales we learned as children tell us the spendthrift grasshopper dies while the penurious ant prospers.  Austerity touches on this atavistic fear.  The notion, both here and in America, that we are threatened by rising government deficits is a reflection of that fear.
Basic Income and the Atavistic Appeal of Austerity (Pieria) As David Graeber points out, the paying of debt is seen as a moral principle - surely one must pay one's debts. We neglect to realize that the way the structure is set up now, taking care of vital government services for some reason puts "us" all in debt (to who?) and "we" are all responsible for paying off the debt (your share is fifty thousand dollars! Fifty thousand dollars!!! or whatever).

Debt has always been the oldest and most powerful weapon of the elites. Many early slaves were not captured war prisoners but farmers who had fallen in debt to a creditor who subsequently "owned" their labor. I suspect it hijacks a deeply-rooted built-in primate brain wiring for reciprocity and perverts it to negative ends. People will voluntarily enslave themselves and feel it is justified.
If it were just a safety net for the poor or even a way of lessening inequality, I doubt a guaranteed basic income policy would ever come to pass. Worthy programmes that help the poor aren’t an easy sell these days.  Indeed, advocating them is generally seen as a sign of naïveté. Nonetheless I am convinced that in the not too distant future, all the major advanced capitalist economies will adopt some form of basic income guarantee.  Thought utopian today, soon it will be called merely impractical, and ultimately, inevitable.  My confidence in this happy outcome is not because providing a basic income is moral, equitable and affordable but because basic income cleanly and neatly solves the bête noire of our modern capitalist economies: lack of demand.

After all, supply isn’t the issue. Today, despite our never-ending economic travails, the world economy has more capacity, is more productive than it was during the halcyon days of the boom.  We can make more goods and services with fewer inputs than we could in 2006.  And yet, British and World GDP remain lower today than they were 6 years ago. George Osborne, with his odd fetish for austerity, doesn’t get it but I’m sure readers of Pieria understand what is going on.

Our problem is one of demand.  We can make more goods and services than we can afford to buy.  The solution, which Keynes figured out 80 years ago, and undergraduate economics students have been taught for generations, is the stimulation of demand by government fiscal policy. That policymakers have forgotten what they learned in their first economics class one of the mysteries of the age. Basic income solves the problem of demand.
Imagine a widget factory. In 1900 100 men working all day made one widget.  By 1950 100 men could produce 10.  Today, 20 men can make 100. Obviously society is better off when we can produce more with less.  The problem is for the 80 men who lost their jobs.  Wages have stagnated since 1973 in large part because we need fewer workers and that is the result of inexorable productivity increases.  With the rise of robots, even fewer workers will be needed. 

Karl Marx got one thing right.  Capitalism is the most productive economic system the world has ever seen.  By rewarding microinovations, we are each year able to produce more goods and services with less labour and capital. Scarcity, the bane of our species since time immemorial, has largely been banished.  For some time now the problems of supply have been behind us.  We have stimulated demand with war, with advertising and unionization, with asset price inflation that has created a new gilded age.  We can do better.

A basic income guarantee, a policy advocated by such socialist radicals as Richard Nixon will create a kinder gentler society while allowing our economy to grow. 
How Basic Income Will Save Capitalism (Pieria) But this will probably be a non-starter for the same reason above - atavistic appeal. Getting money for doing nothing! Beyond the pale! No one will ever work again! If a man shall not work neither shall he eat! By the sweat of your brow you will eat your food until you return to the ground, since from it you were taken; for dust you are and to dust you will return! Just as scarcity shaped human consciousness, so did unremitting toil. We are not equipped to understand a world of abundance, and we are constantly on alert for "free-riders," once again as a result of our primate hard-wiring.

Cyprus was considering such a scheme, and now Switzerland is as well: Rather than savage cuts, Switzerland considers “Star Trek” economics (Salon)
So what are the merits of universal basic income?

We have a system that has high unemployment, high underemployment. This would allow people to survive and to live, with dignity, assuming that other systems stay in place. It puts a floor under wages — people could say, “I don’t have to do that job if you’re not going to pay well.” People could pursue a lot of activities that are not particularly well paid but that have a lot of social use or personal satisfaction: art, creative work, volunteer work, working with people who have disabilities.

So if we were a very rich world, which I think we are to a certain degree, it would be a remarkable way to make sure that people could maximize their ability to express themselves but also maximize their ability to participate in the communities that they live in in a full way. Stay home and take care of kids if that’s what you want to do. Take care of your parents when they’re old and sick.

People sometimes refer to this as a kind of “Star Trek” economy — you just said, “Replicator, make me a ham sandwich.” There wasn’t any social conflict around production and consumption. And that, I think, is that kind of ideal in which this kind of a thing could play out. We are probably there in terms of the economics. We are very, very wealthy — we could afford to do this. But we are not there in terms of the politics.

How directly do you think this kind of policy challenges the politics we see here in the U.S. around the work ethic — this focus on designing policies, or opposing them, for the sake of making sure everybody seeks out a job, even if it’s a low-paying one?

I don’t think that the politics in the United States are remotely open to this. You can make a sophisticated argument that it actually takes away the tax that often falls on people when they have conditional benefits [in that such benefits are taken away when you cross an income threshold] — there is a possibility that the incentives could work in a positive way toward people working more.

But just think for a minute: I mean, what are the politics in the United States on the right that would allow somebody to vote for a program that literally pays people if they do nothing? And that would very quickly become “it pays people to do nothing.” And similarly, I think it’s hard to imagine centrist Democrats or center-left Democrats supporting something like that, because they would be called out. Especially in a context where race is going to play for sure.

Social scientists have argued that American hatred for “welfare” is racially coded, and that historic support for stronger social programs in Europe has been tied in part to ethnic homogeneity and lower immigration.

I think that’s an important part of the dynamic.

At the end of World War II, many European countries had strong social democratic traditions and strong unions, and they shaped welfare systems that had their problems — they were very oriented toward a male breadwinner — but their initial tendencies were toward universal programs that covered a lot of aspects of people’s lives. In the U.S., we built a kind of social welfare system that had a built-in sunset: the GI Bill. So we provided education and housing to GIs, and as those men who had fought got older, the system kind of faded out.

You have to add on top of that [that] at that time most European countries were fairly homogenous. They had much less by way of immigration. They did not have a civil war based around slavery.

A guaranteed basic income would be something that would be, in the current [U.S.] context, immediately politicized and seen through a lens of race. It’s not a reason not to do it, but it’s hard to imagine that it could not be front and center in the discussion.
I find this answer particularly interesting:
What strikes you about the contrast between the current U.S. budget shutdown and the conflicts over austerity in Europe since the crash?

The debate is so different in the United States. We are basically in the midst of a government shutdown because one party wants to give people insurance, and change for the better the terms people have in negotiating with their insurance companies. We’ve shut down the government for something that is taken for granted [elsewhere]. There’s almost no political parties in Europe that would argue actively for dismantling their healthcare system. In fact one of the reasons why the far right has grown in many countries in Europe is precisely because social democrats have participated in cutbacks to the social welfare system, and the nationalist right has said things like, “The reason why the government is cutting back is the rise in immigrants, who are making it impossible to afford our social welfare system.”

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.