Tag Archives: UBI

Universal Basic Income Is Inevitable, Unavoidable, and Incoming”

The last time I saw universal basic income discussed on television, it was laughed away by a Conservative MP as an absurd idea. The government giving away wads of cash responsibility-free to the entire population sounds entirely fantastical in this austerity-bound age, where “we just don’t have the money” is repeated endlessly as a mantra. […]

In this world, universal basic income seems like a rather distant prospect. Yes, there are some proposals, like Switzerland and Finland, both of which are holding a referendum on universal basic income. But I expect neither of them to pass. The current political climate is just too patriarchal. We live in a world where free choice is unfashionable. The mass media demonizes the poor as feckless and too lazy and ignorant to make good choices about how to spend their income. Better that the government spend huge chunks of GDP employing bureaucrats to administer tests, to moralize on the virtues of work, and sanction the profligate.

But this world is fast changing, and the more I study the basic facts of economic life in the early 21st century, the more inevitable universal basic income begins to seem.

And no, it’s not because of the robots that are coming to take our jobs, as Erik Brynjolfsson suggests in his excellent The Second Machine Age. While automation is a major economic disruptor that will transform our economy, assuming that robots will dissolve jobs entirely is just buying into the same Lump of Labour fallacy that the Luddites fell for. Automation frees humans from drudgery and opens up the economy to new opportunities. Where once vast swathes of the population toiled in the fields as subsistence farmers, mechanization allowed these people to become industrial workers, and their descendants to become information and creative workers. As today’s industries are decimated, and as the market price of media falls closer and closer toward zero, new avenues will be opened up. New industries will be born in a neverending cycle of creative destruction. Yes, perhaps universal basic income will help ease the current transition that we are going through, but the transition is not the reason why universal basic income is inevitable.

So why is it inevitable? Take a look at Japan, and now the eurozone: economies where consumer price deflation has become an ongoing and entrenched reality. This occurrence has been married to economic stagnation and continued dips into recession. In Japan — which has been in the trap for over two decades — debt levels in the economy have remained high. The debt isn’t being inflated away as it would under a more “normal” rate of growth and inflation. And even in the countries that have avoided outright deflationary spirals, like the UK and the United States, inflation has been very low.

The most major reason, I am coming to believe, is rising efficiency and the growing superabundance of stuff. Cars are becoming more fuel efficient. Homes are becoming more fuel efficient. Vast quantities of solar energy and fracked oil are coming online. China’s growing economy continues to pump out vast quantities of consumer goods. And it’s not just this: people are better educated than ever before, and equipped with incredibly powerful productivity resources like laptops, iPads and smartphones. Information and media has fallen to an essentially free price. If price inflation is a function of the growth of the money supply against growth in the total amount of goods and services produced, then it is very clear why deflation and lowflation have become a problem in the developed world, even with central banks struggling to push out money to reinflate the credit bubble that burst in 2008.


Much, much more is coming down the pipeline. At the core of this As the cost of superabundant and super-accessible solar continues to fall, and as battery efficiencies continue to increase the price of energy for heating, lighting, cooking and transportation (e.g. self-driving electric cars, delivery trucks, and ultimately planes) is being slowly but powerfully pushed toward zero. Heck, if the cost of renewables continue to fall, and advances in AI and automation continue, in thirty or forty years most housework and yardwork will be renewables-powered, and done by robot. Water crises can be alleviated by solar-powered desalination, and resource pressures by solar-powered robot miners.

And just as computers and the internet have made huge quantities of media (such as this blog) free for users, 3-D printers and disassemblers will push the production of stuff much closer to free. People will simply be able to download blueprints from the internet, put their trash into a disassembler and print out new items. Obviously, this won’t work anytime soon for complex objects like smartphones, but every technology company in the world is hustling and grinding for more efficiency in their manufacturing processes. Not to mention that as more and more stuff is manufactured, and as we become more environmentally conscious and efficient at recycling, this huge global stockpile of stuff acts as another deflationary pressure.

These deflationary pressures will gradually seep into services as more and more processes become automated and powered by efficiency increasing machines, drones and robots. This will gradually come to encompass the old inflationary bugbears of medical care, educational costs and construction and maintenance costs. Of course, I don’t expect this dislocation to result in permanent incurable unemployment. People will find stuff to do, and new fields will open up, many of which we are yet to imagine. But the price trend is clear to me: lots and lots of lowflation and deflation. This, ultimately, is at the heart of capitalism. The race for efficiency. The race to do more with less (including less productivity). The race for the lowest costs.

I’ve written about this before. I jokingly called it “hyperdeflation.”

And the obvious outcome, at the very least, is global Japan. This, of course, is not a complete disaster. Japan remains a relatively rich and stable country, even after twenty years of deflation. But Japan’s high level of debt — and particularly government debt — does pose a major concern.  Yes, as a sovereign currency issuer borrowing in its own currency the Japanese government runs no risk of actual default. But slow growth and deflation are stagnationary. And without growth and inflation, the government will have to raise taxes to cover the deficit, spiking the punchbowl and continuing the cycle of debt deflation. And of course, all of the Bank of Japan’s attempts at reigniting inflation and inflating away that debt through complicated monetary operations in financial markets have up until now proven pretty ineffectual.

This is where some form of universal basic income comes in: ultimately, the most direct stimulus for lifting inflation and triggering productive economic activity is putting cash in the people’s hands. What I am suggesting is that printing money and giving it away to people — as opposed to trying to push it out through the complicated and convoluted transmission mechanism of financial sector lending — will ultimately become governments’ major backstop against debt deflation, as well as the temporary joblessness and economic inequality created by technological acceleration. Everything else, thus far, has been pushing on a string. And the deflationary pressure is only going to become stronger as efficiency rises and rises.

Throw enough newly-created money into the economy, inject inflation, and nominal tax revenues can rise to cover the debt load. Similarly, if inflation gets too high, cut back on the money-creation or take money out of circulation and bring inflation into check, just as central banks have done for the last century.

The biggest obstacle to this, in my view, is the interests of those with lots of money, who like deflation because it increases their purchasing power. But in the end, rich people aren’t just sitting on hoards of cash. Most of them do have businesses that would benefit from their clients having higher incomes so as to increase spending, and thus their incomes. Indeed, in a debt-deflationary spiral with default cascades, many of these rentiers would face the same ruin as their clients, as their clients default on their obligations.

And yes, I know that there are legal obstacles to fully-blown helicopter money, chiefly the notion of central bank independence. But I am an advocate of central bank independence, for a variety of reasons. Indeed, I don’t think that universal basic income should be a function of fiscal spending at all, not least because I think that dispassionate and economically literate central bankers tend to be better managers of monetary expansion and contraction than politically motivated — and generally less economically literate — politicians. So everything I am describing can and should be envisioned as a function of monetary policy. Indeed, what I am advocating for is a new set of core monetary policy tools for the 21st century.

via Universal Basic Income Is Inevitable, Unavoidable, and Incoming — azizonomics




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Universal Basic Income

The idea for providing a basic income to all citizens is being discussed actively in various parts of the world.

So what is this all about and why is this much talk on this Universal Basic Income.. Better we understand the concept first.

“A basic income (also called unconditional basic incomeCitizen’s Incomebasic income guaranteeuniversal basic income or universal demogrant) is a form of social security in which all citizens or residents of a country regularly receive an unconditional sum of money, either from a government or some other public institution, in addition to any income received from elsewhere.

Basic income systems are financed by the profits of publicly owned enterprises (often called social dividend or citizen’s dividend) are major components in many proposed models of market socialism. Basic income schemes have also been promoted within the context of capitalist systems, where they would be financed through various forms of taxation.


That is, a basic income has the five following characteristics:
  1. Periodic: it is paid at regular intervals (for example every month), not as a one-off grant.
  2. Cash payment: it is paid in an appropriate medium of exchange, allowing those who receive it to decide what they spend it on. It is not, therefore, paid either in kind (such as food or services) or in vouchers dedicated to a specific use.
  3. Individual: it is paid on an individual basis—and not, for instance, to households.
  4. Universal: it is paid to all, without means test.
  5. Unconditional: it is paid without a requirement to work or to demonstrate willingness-to-work

A wide variety of Basic Income proposals are circulating today. They differ along many other dimensions, including in the amounts of the Basic Income, the source of funding, the nature and size of reductions in other transfers that might accompany it, and so on.

One of the reasons why the idea is gaining more attention in the developed world these days is the increasing use of robots in the industrial sector. As automation increases, the fear is that more people will find it difficult to get jobs. Moreover, the thought is to give all citizens a basic income that will allow them to live with dignity, irrespective of their earning capability. However, opinion remains divided and voters in a rich country like Switzerland rejected the idea by an overwhelming majority in 2016.

A number of economists have argued that universal basic income (UBI) can be implemented in India as a significant proportion of the population is still in poverty and anti-poverty spending is marred by leakages. It is likely that the government is mulling the possibility of implementing it in some form and chief economic adviser Arvind Subramanian has hinted that UBI will be a key theme in this year’s Economic Survey.

The concept of basic income is not new in fact it dates back to date to Thomas Paine’s Agrarian Justice of 1795, And discussed many a time in third world countries, Also in India, The Perspective Planning Division of the erstwhile Planning Commission worked on the idea of providing minimum income in the early 1960s.

It again become the hot talk in India. More recently, indian economist Pranab Bardhan suggested this in an article published in the Economic and Political Weekly in 2011. In another article published in these pages last year, Bardhan said: “…the main pragmatic justification for UBI is that in many current programmes targeting the poor, through a process of political and administrative collusion and connivance, benefits continue to leak to non-targeted, better-off people, while many of the intended beneficiaries are left out.” Bardhan showed that if a UBI of Rs.10,000—indexed to 2014-15 prices (three-fourths of the poverty line that year)—is given to all citizens, it will cost about 10% of the gross domestic product (GDP), which can be funded by ending regressive subsidies and revenue forgone.


Economist Vijay Joshi, in his book India’s Long Road: The Search For Prosperity, has discussed the subject in detail. With the Suresh Tendulkar committee poverty line and using the poverty gap index, at 2014-15 prices, Joshi arrived at a figure of Rs17,505 per household per year. This will cost about 3.5% of the GDP for the entire population. Economist Debraj Ray has proposed an interesting variant where instead of a fixed sum a fraction of the GDP is committed as universal income.

So, is there a case for implementing UBI in India? To be sure, the political economy of the country is far more complicated and there are a number of reasons why UBI is not feasible for India.

The main reason why Swiss voters rejected the idea was fiscal implication. Most of the suggestions in favour of UBI in India are made fiscally feasible with a number of assumptions. The first implicit assumption is that the amount of money being spent on various kinds of subsidies is justified, and the only issue is of targeting, which can be addressed by the transfer of basic income to every citizen. This is not correct. The widely quoted 2003 National Institute of Public Finance and Policy study showed that both Centre and state government subsidies amount to about 14% of GDP. The idea should be to reduce expenditure on non-merit subsidies and use the savings to boost capital spending that India badly needs.

Differently put, just because the government has been misallocating resources over the years is no reason why it should continue to do so—this time more efficiently.

The second assumption is that the non-merit subsidies can be rolled back easily. It will not be easy for the government to roll back subsidies such as food, fertilizer, fuel, electricity and water. In fact, politically, it will become even more difficult to arrive at the amount that will need to be transferred under UBI if subsidies are rolled back. In this context, it is important to recall the political backlash when the Tendulkar committee showed a poverty ratio of 21.9% for the year 2011-12. The government had to constitute another committee under C. Rangarajan which gave a higher poverty ratio.

The third assumption is that reduction in revenue forgone can augment resources for UBI. Again, this may not happen. The revenue forgone is basically a reflection of problems in our tax administration which need urgent reforms. For instance, India has one of the highest rates for corporate tax among its peers.

Apart from fiscal feasibility, there are other issues that go against UBI. At this stage of development, there is no reason why the government should be transferring cash to the rich and the middle class. It needs to invest resources in building productive capacity in the economy rather than doling out cash to the entire population.

Further, the government needs to be careful about unintended consequences. For instance, what will be the impact of UBI combined with programmes like the Mahatma Gandhi National Rural Employment Guarantee Act on the labour market? It is unlikely to help India’s case as a low-cost manufacturing destination.

Rajesh Kumar the deputy editor (views) at Mint suggested that, the government should focus on increasing the use of conditional cash transfers with better targeting, which will not only help the poor but will also plug leakages. Progressively, the state would do well to rebalance its spending in favour of augmenting productivity and economic growth which will lift people out of poverty more decisively.

But, A prominent think tank founder argues that a Universal Basic Income is more likely to increase poverty than decrease it. Robert Greenstein, president of the Center on Budget and Policy Priorities, estimates just in the U.S. the cost would reach $3 trillion a year, “close to 100 percent of all tax revenue the federal government collects… A UBI that’s financed primarily by tax increases would require the general people to accept a level of taxation that vastly exceeds anything in the history.

He suggests instead focussing on the neediest people first, possibly by subsidizing jobs programs and making housing more affordable.

But no doubts it is one of the big, very expensive, and therefore highly politically unrealistic proposal.. But who knows.. when it comes to politics. . . .







Along with thanks and compliments to the sources for the shared data

Creative Commons Copyright © Arrested Developments 2015