Saturday, January 17, 2015

Against Basic Income

Since I’ve been writing here over the years, one consistent issue has been the removal of jobs through automation, or to be more accurate, the prevention of creating a sufficient number of jobs to employ the number of people who need to work by various digital measures including automation, self-service, online ordering, offshoring, etc. Put more simply, if a society develops a system where most people need to sell their labor power in order to survive, and then you do not give them sufficient opportunities to do that, then there is a problem.

One of the proposed solutions is an unconditional guaranteed income to all people. Often this is proposed as something distinct from employment. This goes by various names such as UBI (Universal Basic Income); GMI (Guaranteed Minimum Income; BIG (Basic Income Guarantee); or sometimes a Negative Income Tax (you are taxed over a certain income, and given money under a certain income).

Naked Capitalism has recently published a couple of provocative essays arguing that this is a very bad idea. Their concerns are worth noting. On December, they published this article by the Huffington Post:

This City Eliminated Poverty, And Nearly Everyone Forgot About It (Huffington Post) WHich told the story of Dauphin Manatoba, a town in Canada where everyone was given a minimum income with good results. I've mentioned this before. NC added this coda, however: "As we will discuss next week, a much larger scale, 40 year experiment produced the opposite result, allowing employers to keep wages low and producing pauperization of the poor and greater wage disparity. Note that is the conclusion of a prominent socialist."

On January 7th they published: Tech Titans Promoting Basic Income Guarantee as a Way to Shrink Government, Kill Social Programs.

They refer to this article by Vice, in which Silicon Valley thinkers promote such schemes. Why would ultra-wealthy, ultra-libertarians promote such an idea? NC argues it's a way to shrink government, since all means-tested programs would be eliminated. They also think that it provides a way to subsidize programmers coming up with new ideas. They point out that it doesn't necessarily have to involve government:
 One might not expect such enthusiasm for no-strings-attached money in a room full of libertarian-leaning investors. But for entrepreneurial sorts like these, welfare doesn't necessarily require a welfare state. One of the attendees at the Singularity meeting was founder Marshall Brain, who had outlined his vision for basic income in a novella published on his website called Manna. The book tells the story of a man who loses his fast-food job to software, only to find salvation in a basic-income utopia carved out of the Australian Outback by a visionary startup CEO. There, basic income means people have the free time to tinker with the kinds of projects that might be worthy of venture capital, creating the society of rogue entrepreneurs that tech culture has in mind. Waldman refers to basic income as "VC for the people."
Why the Tech Elite Is Getting Behind Universal Basic Income (Vice)

And, they say it will lead to lower wages:
... its main results were to drive wages lower, since employers treated the income guarantee as a reason to pay workers less. Instead of having just WalMart and other employers who rely on government programs to bring inadequate wage rates up to a survival level, that type of corporate welfare would be extended and institutionalized. And another result was a widening of the gulf between the rich and poor, with the lower orders pauperized and deskilled and the rich and merchant classes regarding them with contempt. When this system was dismantled, the new laws put in place were draconian and turned large swathes of the public that had depended on support into beggars.

As Lambert points out, a basic income guarantee simply subsidizes consumption. It does not allow for democratic influence over the labor market. If you think any income guarantee level, even if it starts out as adequate, will remain so for any length of time, I have a bridge I’d like to sell you. Just look at how Social Security, which can easily have any long-term funding issues fixed with relatively minor tweaks like raising the cap on income subject to tax, is instead being stealthily gutted with ruses like chained CPI.

Ironically, the feature we often decry about indirect subsidies or housing programs, like food stamps or Medicare or subsidies for housing for the poor, that they too often do more for the corporate beneficiaries than their intended recipients, provides them with political support outside the sections of society that believe in social safety nets. Straight up transfers are much more vulnerable to being slashed quickly, as opposed to being reformulated over time to increase the looting-to-service-content ratio.
The following week they published another article about the Speenhamland system which Karl Polanyi discusses at great length in his magnum opus, The Great Transformation:
The idea of a basic income guarantee is very popular with readers, more so that the notion of a job guarantee. Yet as we have mentioned in passing, this very sort of program was put in place on a large-scale basis in the past. Initially, it was very popular. However, in the long run it proved to be destructive to the recipients while tremendously beneficial to employers, who used the income support to further lower wages, thus increasing costs to the state and further reducing incentives to work. And when the system was dismantled, it was arguably the working poor, as opposed to the ones who had quit working altogether, who were hurt the most.

It is also intriguing that this historical precedent is likely to resemble a a contemporary version of a basic income guarantee. Even though some readers call for a stipend to everyone, that simply is not going to happen, at least in terms of net results. It is massively inflationary, since most of it would fuel consumption. More consumption means more environmental damage: more strip mining of the planet, more chemicals, more greenhouse gas emissions, more plastic containers and other waste. Increased consumption also means more profit for the CEO class without necessarily improving the wage share of national income, hence no better and likely worse income inequality.

Taxes would therefore need to be increased to offset those effects. The best tax outcome you could expect would be a progressive tax on income. Thus the end result in a best-case scenario would be tantamount to a means-tested BIG, graduated so as to avoid any sudden cutoff for someone who wanted to work. Thus the result (whether achieved directly or indirectly) is likely to resemble Milton Friedman’s negative income tax, with the zero tax rate set at a living wage level.

The experiment was the Speenhamland system, which was implemented in England 1795 and dismantled in 1834, was intended to make sure that country laborers had enough income to live. It was intended as an emergency measure to help the poor when grain prices had risen sharply due to meager harvests. The justices of Berkshire decided to offer income support to supplement wages, with the amount set in relation to the price of bread and the number of children in the household, so that the destitute would have a minimum income no matter what they earned.

Even though it was never codified as law, the Speenhamland approach was adopted in country towns all across England and in a weaker form in some factory towns. It was widely seen as a “right to live.” It was neither universal nor consistently implemented, but it nevertheless appears to have been fairly widespread. It reached its peak during the Napoleonic Wars, and was wound down in many small towns before it was effectively abolished by the new Poor Law of 1834. Not surprisingly, the Speenhamland system existed in its strongest and most durable embodiment in areas where the threat of violence by the impoverished was real. But another reason it lasted as long as it did despite the costs it imposed on local landlords was it kept the poor in place with their wages fixed at a bare subsistence level. Rural property owners wanted to keep workers from decamping to towns and cities in search of better paid employment. A smaller pool of local laborers would lead to higher wage levels.

Karl Polanyi explains how a well-[intentioned] program over time proved damaging to the very group it was intended to help....
The Failure of a Past Basic Income Guarantee, the Speenhamland System (Naked capitalism)

Richard Wolff, in his Economic Update show, was recently asked whether welfare and charity actually do more harm then good by underwriting and allowing capitalism to continue. His answer was "yes," and his comments raised some good related points:
1.) "You prevent revolution this way. It's been well understood ever since the German chancellor Otto Von Bismarck started modern welfare system and even further back in terms of private charity. If you don't help people with nothing, then they have nothing to lose, and at that point their desperation, their resentment, their anger at the injustices they've suffered and the poverty they have to endure and the health and death it threatens in them [sic] can make them very bitter, very angry, and very socially disruptive. One of the functions of charity and one of the functions of welfare has always been to keep the poor from becoming revolutionaries and rebels. Give them something to lose. Make them dependent."

2.) "No sooner is a welfare system set up, then a struggle begins between the people in the middle, and the people at the top, about who's going to pay the costs of providing food, clothing, shelter, welfare, to poor people. And given the power wielded by the richest, given the power wielded by the corporations, you can be quite sure that, sooner or later, they will shift more and more of the cost of welfare and of charity onto the middle and lower classes. That creates, then, a burden for the middle and lower classes and a resentment on their part against the poor because they have to pay for it."

"And this divides middle and lower income people on the one hand from the poor. And that creates tensions between them, and they fight and are bitter against each other; then they could be as allies to change the system so that they wouldn't be in this situation in the first place. So it's kind of a social control mechanism that sets one part of the working class that has a job and has an income, against the other part that doesn't have a job or doesn't have a decent income."

3.) "To keep those who get it in a very dependent and unattractive state. You go to where welfare recipients mostly live, you'll see. You look at the clothes they wear, the food they eat, the opportunities they don't have, the neighborhoods they live in, and so forth and so on. And it's kind of a lesson, isn't it? It's a way of terrorizing, of scaring working people, by saying, 'you all know where in your town to go to see what it's like if you don't keep your job, if you don't keep your income. So behave properly, do what the boss tells you, because if you don't have a job, you will live like them.'"
"And so there's a function of disciplining the workforce, that part that's actually working and has a decent income, by constantly showing them how unattractive life would be if they had to live like those on welfare."

4.) "By having the welfare folks isolated, living in poor conditions, it becomes easier to depict their problems as their own fault, not the problems of a society that hasn't got jobs for the people who live in it. That doesn't pay decent income for work done. No, no, no, you're not supposed to think that the problem lies in a system, you're supposed to blame the victims of a system that doesn't provide work."
"That's why the answer to charity and welfare is not to give more or less of it, which is the debate we have so often. The real answer, if you don't deny the problem, in  the economics of denial, is to recognize what the solution obviously is. Which is: give everybody a job, and give them a job at a decent income. That's what the people on welfare want, that's what they've always wanted. They don't want to be looked down on. They don't want to live apart. they don't want to live in those conditions. The notion that they wouldn't give that up because they don't want to work is a fantasy of denial on the part of the people who don't want to face the fact that they live in an economic system that is so irrational that it keeps people from working and then gives them the food, clothing and shelter to survive without working."

"You know, there's a simple law in economics. If the people on welfare who are able or are not ill, or incapacitated somehow, obviously we're not talking about them, but if the able-bodied people on welfare, without work, who number in the millions in the United States and in many other countries, if they were given work, then the money they got - the pay, the decent pay - would be more than compensated by the fruits of their labor. We would be better off because we, those who are working, give to those who have no jobs, if we employ them, what we give them as a wage is then repaid by the goods and services they produce. When they're on welfare we give them food, clothing, shelter, but we don't get much back, do we? It's irrational not to put folks to work."

"And do we have the raw materials, tool and equipment? the Federal Reserve says twenty percent of our tools, equipment, and raw materials are sitting idle. So if you're wondering, is there the machinery, are there the raw materials for them to work with, the answer is an unqualified 'yes.' Are there good things to do in our society? Another unqualified yes. Rebuild our cities. Provide real day care, take care of the old people; we have a list as long as your arm. But this is a system that can't work this out. That doesn't provide work to the people who want it. That doesn't provide a decent income to the people who need it. And then turns around and to keep them docile gives them welfare which they don't need, makes them a community apart, undermines their self esteem, this is a system that doesn't work, and nothing shows it so much as this crazy idea of not giving people work who want it, work that would give us the fruits of their labor, which by the way in this country would be in the trillions of dollars, and instead condemns a part of the population to live the life of welfare recipient pauper. Nothing indicts capitalism as starkly as that irrationality."
Economic Update, 1-1-2015 38:00

So the preferred solution for Naked Capitalism and Richard Wolff is a job guarantee for all people:
I’m at a loss to understand reader objection to the idea of a job guarantee. It would either price many McJobs out of existence or convert them back to their old form, of being part-time positions for young people still in school. It would similarly increase compensation for important jobs like home health care workers that now pay rock-bottom wages. It would make it harder for retailers to continue their abusive practice of requiring workers to be on call. And there is no dearth of meaningful work that needs to done: providing universal day care, better elder and hospice care; replanting forests; building wildlife tunnels; maintaining and improving parks; repairing and upgrading infrastructure with an eye to energy efficiency. These are all ways of increasing national output in a manner which can also improve the environment. If we had more enlightened leadership, a Marshall Plan to retool the economy to reduce energy consumption and convert more sources to cleaner ones would be a high-priority target for Job Guarantee workers.

People need a sense of purpose and social engagement. Employment provides that. History is rife with examples of the rich who fail to find a productive outlet and and whose lives were consumed by addictions or other self-destructive behavior. Ironically, we have the veneer of having less of that due to the prevalence of the new rich (CEOs, elite [financiers], tech titans) tend to be a workaholic lot* (that serves as the rationalization as to why they deserve their lucre).

Too many of the fantasies about a basic income guarantee seem to revolve around a tiny minority, like the individual who will write a great novel on his stipend. Let’s be real: the overwhelming majority of people who think they might like to write a book don’t have the [self-discipline] to do so in the absence of external pressure. And that’s before you get to the question of whether it will turn out to be good enough for anyone but the author to want to read it.

When unions provided an wage anchor for factory labor, the US had less income disparity and more class mobility. Under Speenhamland, income disparity widened and real wages fell. Low end service jobs are the modern analogy to former blue collar work. Even with greater automation, many of those jobs will remain. The alternative of job choice with a job guarantee will force wages higher and improve working conditions. It would provide pressure on employers as labor unions once did. And it will add a bit more to individual freedom by giving them more employment options.

A jobs guarantee and a basic income guarantee are not either/or propositions, contrary to the claims of many readers. Job guarantee proponents see it as an addition to, not a substitute for, other social safety nets, such as unemployment insurance and Social Security. For instance, Joe Firestone has argued for a basic income guarantee in addition to a job guarantee, with the income level for the basic income guarantee set at 2/3 the rate of a full time job under the job guarantee. 
I think Wolff's #2 point is the biggest issue. We've already seen how the wealthy push the costs of social programs off of the investor class and onto the shrinking portion of the working classes that still have jobs. Since working class incomes are being squeezed ever harder, the wealthy turn around and say the problem is all the taxes paid to support the "parasites" and "freeloaders" who are getting free money, despite the United States' threadbare safety net. Then the rich decry the "dependency" on the government, despite the fact that workers would be just as "dependent" on any private sector employer as the are on the government (never mind the fact that the rich are just as dependent upon government through corporate welfare, subsidies, etc.). In the United States, the racial element is there as well ("Chedda gets cheddar").

But the problem with Wolff's rant is when he says "we" give people a job. Who exactly is the "we" he is talking about? I'm certainly not able to give anyone a job. I think he means the government, even though he does not say so explicitly.

But we've been told for years ad nauseum by the Republican party that "the government can't create jobs!" This is self-evidently ridiculous, as government is the largest employer in the country (Federal, State & local). We're also constantly told that government jobs are "wasteful" and the work that government employees do is somehow illegitimate, and a "burden" on the private sector. Government jobs and government employees are constantly excoriated, belittled and berated in the media. Why is this?

It's simple, and it also has to do with dependency. By being dependent on the private sector, and the private sector alone, to provide employment to people, they have all the power. We are under their control. That's how this new meme that the rich are "the job creators" can be perpetrated. But as Nick Hanauer has pointed out, the wealthy don't "create" jobs like some of sort of charity, they hire people to increase their profits if the demand is there, and only then. As we've seen, the "job creators" do everything in their power to not create jobs; to give work to cheaper foreign employees, to import cheaper workers (H1-B visas), to demand unpaid overtime and internships, to force customers to use self-service (kiosks, online ordering), or to automate with robots and software. Why are we delegating job creation to an element in society whose every incentive is to destroy as many jobs as possible, and thus increase corporate profits (as well as lower job quality)? When companies conduct mass layoffs, their stock price always goes up (although if the overall employment rate goes up, the stock market goes down - ponder that for a minute!)

By casting themselves as the "job creators," the  wealthy can constantly blackmail the rest of society to give them a never-ending series of tax breaks, cuts, and subsidies so that they will take pity on us and toss us some jobs from their imaginary bottomless pile of jobs. And this view is constantly promoted by Neoliberal economics (market=good, government=bad) and their spokespeople (right-wing politicians, Fox news, economists, etc.). If the government can create good jobs at good pay, then we are no longer dependent on them, and thus helpless. And that's exactly where the wealthy and powerful elites want us - under their control, helpless and dependent upon them to provide society the "charity" of the jobs that we need to survive and with no other recourse.

So when you hear about how "we" can put people to work, keep in mind who "we" really is, and what the difficulties with that are. The wealthy know that if we take control of putting people to work to do what we deem socially necessary, we will no longer be dependent upon them and they will lose some of their power. That is why they will do everything possible to make sure we don't realize this by pushing the "government can't create jobs" line via the "big lie" technique - if you repeat a lie often enough, it becomes the truth.

The other concern I have is the fact that so many of the jobs we have now are what David Graeber calls "bullshit jobs" - jobs that are not at all beneficial to society and are actually socially harmful. How many people have jobs today only because of these industries (e.g. prison guards, telemarketing, medical billing and coding, ambulance-chasing lawyers, etc.) As Graeber points out, we are essentially creating jobs just for people to have a way to earn money to live, rather than to fulfill any socially, or even economically, necessary purpose. My fear is that the jobs programs promoted by Wolff and Naked Capitalism will lead to even more of this nonsense. That is, it plays into the idea that we have to justify our existence on this planet by doing a "job" no matter how demeaning, useless, unnecessary or ridiculous. Do we really need more of that? Graeber:
Obviously it's not like people are sitting around in a room saying, you know, "Let's think up pointless jobs!" but it is true that people who talk about economic policy talk about creating employment but never talk about whether that employment is meaningful or not.

This completely contradicts what should happen in a capitalist system. You know, we're used to thinking of the Soviet Union as an economy where they had an ideology of full employment and they had to make up jobs for people that were completely unnecessary and pointless; you'd go to a cashier and one gives you a ticket and another does something else and another something else – they were constantly making up these pointless jobs. It's understandable that this would happen in an economy that is based on the principle of work as a value unto itself and full employment and so forth and so on. But in a capitalist society, paying somebody to do nothing is the very last thing you'd expect a firm to do, but in fact they do and often you can observe it.

I remember being very struck by Dostoyevsky, who was in a Russian prison camp, and he said if you really want to destroy someone psychologically, much worse than through physical torture, just make up a completely meaningless form of work. You know, have them take water from some giant vat and then move it back to the first vat again. Have them do that all day and before long even the most hardened criminal will be utterly despairing of life, because there's nothing more horrible than devoting one's life to something completely meaningless. I mean, you know, sure, there will be some freeloaders, but we've got more freeloaders right now.


  1. Well, I think I've exposed the libertarian! Let em starve, eh?

  2. An ideal solution would be to pay people to not have children under a certain income threshold,

    Also if a couple is married or divorced with covenant (desertion, severe cruelty, homosexuality, failure to provide, abuse) they get a stipend up to a point as well.

    I can't see anyone endorsing that though, the net effect would be population shrinkage and while such shrinkage would generally be good in the mid term to long term though not indefinitely the establishment hates the idea with a passion.

  3. I think I've accidentally stepped into a meeting of the Ayn rand fan club, sorry. No, don't get up, I'll see myself out...

    1. This post was about the potential pitfalls of Universal Basic Income compared to a Job Guarantee program. Not sure how that fit's in with Ayn Rand's philosophy. Yves Smith (Naked Capitalism) is the author of Econned and Richard Wolff is a Marxist economist.

  4. When companies conduct mass layoffs, their stock price always goes up (although if the overall employment rate goes up, the stock market goes down - ponder that for a minute!)

    I did, and concluded it's a basic "tragedy of the commons" type problem. I wrote these two blog posts about the subject.

  5. I work in an academic environment and most of my coworkers are left of center. Almost uniformly support a BIG and I guess I'm not overly worried about that becoming a reality any time soon and I would certainly accept one if the ruling elite deign to hand one to me. On the other hand all the problems that are mentioned above remind me of why I am a communist and an unrepentant one at that. Although I truly love my colleagues I think underneath a lot of there ideas is the unspoken perhaps unconscious notion that things are relatively good we just need to make a few changes so the system will work for more of us or all of us. Beneath this reformist vision is a sense of perceived safety. Academics with tenure can dream of BIGs and so forth because, although they might deny it consciously, the system seems to be working for them. It is a matter of perception. For me the system doesn't seem to be working at all and that's a matter of class perception because it really doesn't work as well for me as it does for the intellectual class left or not and it works even less well further down on the social ladder. So I say revolution not reform. Which doesn't mean that you don't do constructive things in the here and now but it does mean that the conceptual framework within which you work calls for deep and systemic change rather than repair. Cheers!

    1. It's also worth noting that BIG is proposed first and foremost as a fix for technological unemployment, or the devaluation of labor relative to capital. If we were a socialist or communist society, labor would have control over capital and the returns on investment in automation would accrue to labor, and we would not be having a discussion about BIG.

    2. You know, I always wondered since conservative economists always bang on about incentives and getting incentives right, why they ignore the central problem with capitalist incentives. In capitalism you have a division between a minority of wealthy owners, and a majority of non-wealthy workers. By the way the system is set up, every incentive of the ownership class is to immiserate to the greatest extent possible the vast majority of people in the economy who are workers, because that increases profits. This seems beyond dispute. The only way to resolve this is to ignore it completely, which is what economists tend to do (since everyone is the same under Neolcassical economics)

      Of course, if the owners and workers were the same people, they would not choose to immiserate themselves. Incentives.

  6. I think Lorraine has it the issue is control over capital and labor.

  7. Workers run cooperatives might be an answer to the incentive problem since no worker owner would logically seek to reduce their own wealth but somehow I doubt that this is the panacea I'm looking for although as with BIGs it might be much better than the status quo. Even with worker coops you still make competition between coops and in society at large a central motif and a virtue and with ecology as a guide and model I'd say competition is a necessary reality but it shouldn't be the central guiding principle of our economy.

  8. Industrialisation and capitalism has stripped most people of their personal economic sovereignty. The whole point of work is to provide for your own material needs. For most of human existence, people built their own houses, grew their own food, and made their own clothes. But nowadays, this has been taken away from most of us. One now has to go and get a job with some corporation, while someone else provides our housing, someone else provides our food, and someone else provides our clothing. All of the evils of modern economies follow on from this: unemployment, the welfare state, having to compete with people in India and China for your own job, and so on. All of these things are built into the system.

    There needs to be a different economic system, with more emphasis on personal economic sovereignty, that would allow more people to work directly to meet their material needs. For many this would be an improvement over the present state of affairs, where you have to jump through hoops and justify yourself to some corporation, just so you can get some crap job that will allow you to participate in the economy.

    Rob - Melbourne, Australia


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