EconoMonitor

Great Leap Forward

HOW BIG IS BIG ENOUGH: WOULD THE BASIC INCOME GUARANTEE SATISFY THE UNEMPLOYED?

(This is a prequel, Part 1 on BIG; I already did Part 2. Sorry it is longish, but not technical.)

Last week I criticized an article by Allan Sheahen who argued that “Jobs Are Not the Answer” to America’s unemployment problem. The thesis was based on two propositions. First, labor productivity has grown so we’d never be able to find sufficient work for all. Second, we don’t need jobs anyway because:

“Job creation is a completely wrong approach because the world doesn’t need everyone to have a job in order to produce what is needed for us to live a decent, comfortable life. We need to re-think the whole concept of having a job. When we say we need more jobs, what we really mean is we need is more money to live on. One answer is to establish a basic income guarantee (BIG), enough at least to get by on — just above the poverty level — for everyone. Each of us could then try to find work to earn more.”

I devoted most of the space in my response to the first point. Labor productivity has been rising since caveman first grabbed a club. Productivity’s importance as a cause of unemployment is at best of second order importance and certainly not new. The real cause is money. To be more specific, it is because we choose to organize a huge part of our social provisioning process through the monetary system, with much of our production controlled by capitalists. It is a monetary production economy—capitalists will not employ labor if they do not believe it will be profitable. (Note that is a statement of fact, not a criticism.)

The problem is NOT that we cannot find useful things for people to do. Any one of the readers of this blog could come up with a list of hundreds of useful things to do that are not being done because no one can think of a way to make profits at them. So we can use the JG/ELR to put people to work doing useful things without worrying about profiting off their labor.

And if all else fails, we can share the work that we can imagine by cutting the work day and the work week, and providing vacations to Americans. Why not the 30 day type of vacation that other rich nations provide? Four day work weeks? A legal right to six months paid paternal and maternal care? Paid sabbaticals for all, one year off out of every seven? (Why should tenured faculty have all the fun?)

Ok, ‘nuff said on that one. I think many readers agreed with me. All we need is the Job Guarantee/Employer of Last Resort and we will get everyone employed. And we can simultaneously work toward more paid time off—if the JG/ELR program offers it, private employers will, too.

So what we need to do is to look at the second argument in more detail. Many readers apparently do not know what a BIG is. And just how BIG a BIG is supposed to be. In other words, what it is supposed to accomplish.

BIG is not meant to be a little hand-out. That is why I criticize BIG-gers for the bait and switch of pointing to Alaska as evidence that “BIG works”. Alaska gives a tiny little hand-out. Not even enough to support a panhandler living out of a shopping cart. $878 is not BIG enough. It is a nice Christmas gift from Alaska Claus.

Nor is BIG meant to be welfare, or a negative income tax. BIG is universal—everyone gets it. That eliminates any stigma because everyone gets it. It will enjoy universal support—who would be against a Big BIG check from Uncle Sam? Giving a middle income household a Big BIG check, and then taxing it all back would not generate universal support. It would stigmatize the program immediately. Everyone must benefit from the program to garner the support. Otherwise it is just another type of bait and switch: promise everyone a Big BIG check but then impose a Big BIG tax to take it away. No. Everyone gets to keep the check.

Note that JG/ELR supporters agree with the argument that programs that target only the poor stigmatize them. That is why the JG is universal. There is no means testing. All can work in the program. Bill Gates can send his kids to the JG if they want to do something useful with their lives. And we won’t tax Bill Gates to “pay for” the wages his kids get in the program. Heck, if Bill gets tired of running Microsoft and wants to take a couple of years off, doing some Meals on Wheels in the JG, he could take a real job, too, actually helping people rather than trying to monopolize the software universe.

And the JG undertakes projects that have widely shared benefits—essential to build wide support for the program, so that even those who never work in a JG job still see benefits.

While BIG is universal, it does not necessarily benefit society. I can take my BIG check and blow it all on booze, burgers, coke, and guns. So to garner universal (or nearly so) support, everyone must get a BIG check and it cannot be taxed away. Otherwise it is bait and switch. If you get your Big BIG check taxed away, and watch me lounging about guzzling booze and shooting the local wildlife, whilst supported by my Big BIG check and paying no taxes, you are not going to be a happy camper.

BIG proponents insist that one must be able to live a dignified life on BIG alone. Not a life of dumpster diving and sleeping under cardboard. Not the kind of life that 878 bucks a year provides in Alaska. Note, JG/ELR supporters agree on that too. The JG/ELR wage must be high enough to provide a decent living standard. Exactly how high? We should aim for the “living wage”. We might need to start lower, and gradually work up to that.

Alaska’s $878 is a BIG bait and switch. Add some zeros if you are serious about dignity. Yes, we can start smaller than—say–$8780—but eventually we’ve got to put up or shut up about dignity. $8780 is not dignified, let alone is $878.

Before I get all the comments, let me show that this is precisely what the BIG-gers propose. Start with something lower and then gradually raise the pay. But their goal is to disconnect income from work, to “free” people from the need to work. They see JG supporters as holding on to a “work fetish”. The BIG program is universal and seeks to provide a decent living standard—just like the JG/ELR—but without any work. So the difference is that BIG checks go out to everyone. And no one needs to work to get them. And everyone gets a dignified, American, living standard no matter whether they want to work or not. That is BIG.

I’d roughly put an “American” living standard somewhere around $35,000 per year per person. (Note: in 2012, US per capita income was $43K; in Alaska it was $47k, or about 54 times greater than the BIG Permanent Fund payment that the BIG-gers get all breathless about. In other words, if the Permanent fund paid out $878 PER WEEK instead of per year, I’d go starry-eyed, too. If you live in D.C per capita income is $75K—over double my $35k guestimate. Go figure. I guess it helps to have lobbyists greasing the wheels of commerce.)

We could quibble a bit about the $35K. If you watch TV, you do not see lifestyles that could be supported on much less than that, at least since the days when Sanford&Son dominated the airwaves (indeed, the contrast between their lifestyle and the American lifestyle was the gag). I don’t see how one could make the argument that one really is “free to choose” not to work if the BIG payment is less than that. How could one live the life of “dignity” BIG proponents talk about on less?

Yes, you can survive on less, but most people would feel the economic pressure to search for jobs.

BIG proponents seek to guarantee a BIG sufficient to gain access to no less than “full membership and participation in social life to all members of society”. That has got to be more than food, clothing and shelter. It almost sounds like membership in golf and yacht clubs to me. (Full quote and citation below). The BIG should thus be sufficient for “all play, no work”, full membership in society, and active participation in all aspects of social life without any compulsion to work.

Remember, Sheahen’s argument is that we do not need any more jobs—the unemployed will get BIG, but no more jobs. So if BIG pays anything less than an American living standard, then BIG is a Big bait and switch—the unemployed would rather have a job than the life of leisure BIG proponents offer up instead of work. I do realize that some advocates have admitted that it will be necessary to start somewhat smaller, then scale up the BIG payments. That is fine—the JG/ELR proponents suggest the same thing with regard to the program wage. Maybe start at the minimum wage then scale it up to a living wage. But no one should get all hot and bothered about $878 a year. BIG has got to start at $15k, or so, and work toward $35k in order to deliver on promises.

So, we’ve got several potential bait and switch problems with BIG:

1. BIG is a Universal program, which guarantees universal support, but if you work for a living we’re going to tax away your BIG. To avoid a bait and switch, everyone needs to get a Big BIG. And they get to keep it. Otherwise we’ve just got welfare.

2. BIG payments allow individuals the freedom to choose to live a life of dignity—whether they work or not. But if the BIG payment is too low, then if you choose not to work, you will need to dumpster dive. That isn’t dignified. To avoid a bait and switch, BIG needs to be Big.

3. BIG proponents argue we don’t need JG/ELR because BIG payments allow all to choose not to work. If the BIG payments are too low then most will choose to work anyway—in jobs that do not exist. BIG must be Big to replace the JG/ELR so that the unemployed are happy not to work. Otherwise, it is a bait and switch.

4. BIG is said to provide an alternative to the “work fetish”, allowing all to explore their full potential, living a life of freedom (….on $878 a year? Freedom to do exactly what?) so people can abandon the work ethic in favor of something more elevating. If this isn’t just bait and switch, BIG must be Big. And since working is oh-so-20th century, we need for lots of people to choose NOT to work (since BIG is replacing work, not encouraging more of it). If after implementation of BIG, most continue to work (as some BIG proponents have predicted), then BIG was a Big bait and switch after all. We could have just raised wages and didn’t need the BIG at all since it turns out that work is not a “fetish” but rather something people actually want to do. That would mean, of course that Sheahen is wrong: we do need more jobs, not a BIG.

Last week some questioned my interpretation of what BIG wants. I’ve been involved with BIG for a very long time. One of its main proponents worked with me at the Levy Institute in the 1990s; I’ve been invited to present on BIG panels; and I’ve published comparisons of BIG and ELR, including one for the BIG website. Go here for a list of BIG publications, including articles by me and Pavlina Tcherneva as well as Phillip Harvey (all ELR supporters): http://www.usbig.net/papers.php.  So in the rest of this piece, I’ll show that I have not misrepresented what BIG advocates.

Finally, before delving into the details let me stress the position that the JG/ELR supporters hold: BIG IS COMPATIBLE WITH THE JG/ELR. We can have both. What we object to is the BIG claim that “we don’t need no stinking jobs” or that BIG makes work somehow obsolete. Our position is this: once the JG/ELR program is in place, we can add a form of BIG.

However, as I said last week, I do not support sending a BIG check to everyone. It is a devaluation of the currency, as prices rise so that the BIG payment essentially becomes the entry price to the marketplace. So we will need to target the BIG to those who do not (or cannot) work. Yes there’s some stigma. But, first we implement ELR so that anyone who is ready and willing to work has a job in the JG/ELR. Then we provide BIG (or whatever you want to call it) to those who cannot, should not, or will not work. Even Americans do not mind so much that old people and kids mostly don’t work. Most Americans with disabilities want to work but cannot find jobs. The JG/ELR option eliminates that problem. Yes we will still have some who are stigmatized by accepting a BIG over taking a job. But at least all who want to work can get a job. The number on BIG will be very much smaller once we’ve got the JG/ELR option available.

Sorry, folks, but we need an anchor to the currency. It is only worth what you need to do to obtain it. As your wise mom told you long ago. If money grew on trees, it would be worthless. A BIG payment to everyone is essentially the same thing as letting people rake a pile of leaves off the lawn to go buy Beemers. Will the price of a BMW rise? You betcha.

Let me turn to my paper with Pavlina, Common Goals—Different Solutions: Can Basic Income and Job Guarantees Deliver Their Own Promises, which analyzes BIG and contrasts it with ELR. I will only draw on selections from our argument. You can read our paper (#112) as well as many others at the BIG net: http://www.usbig.net/papers.php. Note that following the recommendation of Bill Black, we provide quotes and citations for our explication of the BIG position. We rely on BIG’s founders and most active and respected leaders. All of the quotes come from academic literature (references provided below), not from comments on blogs.

1. What is the shared goal of BIG and ELR? Proponents of income and job guarantee schemes agree on two things. The first is that both the market economy and the modern welfare state have failed many members of society by increasing the precariousness of the labor market, reducing safety nets, and leaving many without the basic resources for a decent living.  Poverty, income inequality and unemployment are pervasive features of capitalism and modern welfare often takes the form of punitive measures aiming to discipline the “undeserving” poor or the unemployed.  The second is that to begin addressing these problems, public policy needs to provide some form of universal guarantees to all citizens. It is the nature of these guarantees that represents the sharp division in policy recommendations.

Income guarantee supporters champion the provision of an adequate standard of living by affording sufficient resources to all member of society. They argue that this objective can be achieved by guaranteeing a minimum income to all (a basic income guarantee, or BIG hereafter). Job creation proponents want to guarantee access to a job that could provide a decent income to the economically active population (and their dependents). They believe that adequate resources can be provided by guaranteeing a job to all, usually through programs as the Employer of Last Resort (ELR). The key distinction between the two is that basic income advocates want to decouple the income-work relationship observed in modern economies on the basis that economic justice and freedom require that resources are provided to individuals without the compulsion to work. Job guarantee supporters, on the other hand, want to directly address the unemployment problem, arguing that there are many people who want to work but cannot find employment. Once that problem is resolved, then we provide income support to those who cannot or do not want to work.

2. Rights to Income and Work

a. The Right to Income

In the modern literature, among the most ardent supporters of the BIG idea is Philippe Van Parijs, who champions a profound reform in policy based on the ethical imperative of securing freedom, equality, and justice for all.   The basic idea rests on Van Parijs’s concept of real freedom, which ensures full membership and participation in social life to all members of society (1995).   The libertarian concept of real freedom rests on two pillars.  The first is that individuals are formally free within a well-enforced structure of property rights and personal liberties. The second is the concern with the worth of that individual liberty.   This second pillar is in fact the crux of the pro-basic income argument.  According to Van Parijs “the worth or real value of a person’s liberty depends on the resources the person has at her command to make use of her liberty (Parijs, 2001, 14).”  Thus our object of concern, Parijs continues, must be: “the distribution of opportunity—understood as access to the means that people need for doing what they might want to do—[which is] designed to offer the greatest possible real opportunity to those with fewest opportunities, subject to everyone else’s formal freedom.” (ibid)

Real freedom then is not only a matter of rights but also of means (Parijs, 1995, 30). Thus the provision of a basic income to all which offers equal access to resources and opportunity is seen as an unalienable human right.

b. The Right to a Job

Job guarantee supporters see employment not only as an economic condition but also as an inalienable right. Wray and Forstater (2004) provide a concise statement of the justifications for the right to work as a fundamental prerequisite for social justice.  They first trace the philosophical origins of the argument to John Dewey, who maintained that: “The first great demand of a better social order…is the guarantee of the right, to every individual who is capable of it, to work—not the mere legal right, but a right which is enforceable so that the individual will always have the opportunity to engage in some form of useful activity and if the ordinary economic machinery breaks down through a crisis of some sort, then it is the duty of the state to come to the rescue and see that individuals have something to do that is worthwhile—not breaking stone in a stoneyard, or something else to get a soup ticket with, but some kind of productive work which a self-respecting person may engage in with interest and with more than mere pecuniary profit.” (Dewey 1939, 420-21, quoted in Wray and Forstater 2004)

Some job guarantee supporters such as Harvey (1989) and Burgess and Mitchell (1998) argue for the right to work on the basis that it is a fundamental human (or natural) right.  Such treatments find supports in modern legal proclamations such as the United Nations Universal Declaration of Human Rights or the Employment Act of 1946 and the Full Employment Act of 1978. As these authors recognize, social justice arguments rest on more than the official recognition of the right to work as a fundamental human right. Amartya Sen, for example, supports the right to work on the basis that the economic and social costs of unemployment are staggering with far-reaching consequences beyond the single dimension of a loss of income (Sen 1999, p. 94). Another Nobel Prize Winner William S. Vickrey (2004) identified unemployment with “cruel vandalism” and spent the latter years of his life outlining the social and economic inequities of unemployment and devising strategies for its solution.

In sum we believe that the justifications for the right to income and the right to work on the grounds that they are inalienable human rights, consistent with the goals of social justice and freedom, are not incompatible.

3. The Basic Income Guarantee and Its Objectives

There are multiple variants of the guaranteed income idea—it generally goes under the names of “territorial dividend”, “state bonus”, “demogrant”, “citizen’s wage” “universal benefit” and “basic income” (Parijs, 2004, 7). Generally these refer to a universal payment to each citizen, irrespective of gender, marital or employment status. There is another type of basic income called the negative income tax (NIT), which guarantees a basic income to those who cannot earn adequate or any private sector income. In other words, those individuals whose income falls below a certain tax threshold, receive a negative tax to bring them up to the minimum that is promised. Most modern income guarantee advocates support a basic income scheme that is not conditional on labor market participation the way the negative income tax is, and therefore, NIT will not be the object of our attention here.

Van Parijs offers perhaps the broadest and most widely accepted definition of basic income: “By universal income I mean an income paid by a government, at a uniform level at regular intervals, to each adult member of society. The grant is paid, and its level is fixed, irrespective of whether the person is rich or poor, lives alone or with others, is willing to work or not.” (Parijs, 2001, 5)

The essential feature of BIG for our purposes is that basic income is not conditional on labor market participation nor on income level—everyone gets it.

4. BIG and Justice

Basic income proposals are motivated by a plurality of goals.  Justice is a core justification, but basic income is considered just also because it liberates individuals from submitting to demeaning wage-labor employment and allows them to pursue the “realization of one’s conception of the good life” (Parijs 2004, 18).  In essence, BIG offers the freedom to say “no” to undignified forms of employment and to choose the form of activity an individual wishes to pursue (Widerquist, 2004). The underlying assumption is that the labor market can no longer ensure adequate wages for all to cover their basic needs. Global transformation, high inflation, and protracted periods of unemployment have marginalized those individuals whom the market mechanism has found to be redundant (Standing 1992, Offe 1992).

As conventional policies are considered to be lacking, BIG meets the dual challenge of poverty and unemployment without the general welfare traps of forced inactivity or low-paid inactivity (Parijs 1995, Clark 2002).  Thus basic income provides a social safety net, which arguably eliminates the poverty and unemployment traps, while at the same time enhances individual’s autonomy and worker’s bargaining power.

Another major goal of BIG is the advancement of socially inclusive society and the improvement of the socio-economic situation (Clark 2002, Fitzpatrick, 2003).  In addition BIG increases efficiency. Clark (2002) argues that solely monetary measures of efficiency are inadequate and proposes the following definition: “Efficiency is concerned with the improvement of the socio-economic situation of the whole country, with an emphasis on maximizing social participation in all its forms.” (Clark, 2002, 17)

By enhancing social inclusion and civic attachment, then income guarantees also enhance efficiency.

5. How big should BIG be?

According to Parijs maximization of individual life-chances and opportunities and, therefore, real freedom, requires that a basic income be set at the highest sustainable level (Parijs 1992, 1995, 2004). However, the basic income proposals vary in size. Among the relatively modest proposals is Atkinson’s revenue neutral participation income for the UK for 1992, which ranges from £17.75 to £39/per week (or approximately £925 to £2034 annually) (Atkinson, 1996, 69-70).   Among the boldest schemes is Schutz’s $30,000 per year (Schutz, 1996, 14-15). Generally, however, proposals hover around the official poverty line (see Herbert Simon’s pitch for $8,000 (2001) and Clark’s proposed $9,359 minimum (2004)). Brian Barry defends a subsistence level basic income (Van Parijs, 2001, 64), while Ronald Dore (ibid, 80) and Parijs see subsistence-level incomes as the first step toward the highest sustainable income guarantee.

The size of the basic income is crucial for its ability to accomplish its goals. It seems to us that even the relatively generous $10,000 a year advocated by many (1999 dollars) would not be consistent with the lofty goals of “maximizing” life’s chances and opportunities. Alaska’s $1000 a year is laughably small. It seems to us that Schutz’s $30,000 is closer to the high mark set by Parijs.

A decent BIG is going to be expensive because everyone gets the BIG check. For that reason, it is very much bigger than the JG. Perhaps a big JG would on average employ 5% or 8% of the working age population; the BIG pays 100% of the working age population as well as the retired population (and maybe it pays children, too). It will cost at least ten times more—and maybe much more—to give the same living standard to the lowest income levels (ie: to those most likely to be in the JG). The JG is in a sense targeted—to those who take a JG job. It puts wage income directly into the hands of those who did not find higher-paying jobs outside the program (or, at least, who did not want those higher paying jobs if they did find them). Estimates of total spending on a JG program run between 1% and 3% of GDP. The main reason that total spending is low is because it is a relatively small program.

Note from Philip Harvey’s paper (#57 on the BIG site): “Thus, paying for Professor Clark’s hypothetical BIG program would have approximately doubled actual federal expenditures in 1999 from $1.7 trillion to $3.4 trillion.  To support this increase in spending, he proposes that the current federal income tax be replaced with a flat tax on all income, without any deductions except for the BIG payments themselves.  He estimates that a flat rate of 35.8% would have been sufficient to produce the required revenue in 1999.”

You read that right. $1.7 trillion cost of a BIG for the USA in 1999—doubling Federal spending. Keep that in mind. Clearly we are not talking about Alaska’s Permanent Fund, $878 each. Clark’s program is relatively frugal. At Schutz’s $30k, a BIG would pay out $6.9 trillion to today’s 230 million adults. That’s a Big BIG.

6. BIG’s Achilles’ Heel : BIG can be highly inflationary

The value of the dollar is determined on the margin by what must be done to obtain it.   If money “grew on trees”, its value would be determined by the amount of labor required to harvest money from trees. In an ELR program, the value of the dollar is determined on the margin by the number of minutes required to earn a dollar working in the ELR job. Assuming that BIG provides a payment of $20,000 per year to all citizens (equivalent to a JG job paying $10 per hour for a maximum 2000 hour working year), the value of the dollar on the margin would be the amount of labor involved in retrieving and opening the envelope containing the annual check from the treasury, divided by 20,000. For a couple of minutes of labor effort, you get $20,000. Obviously, the purchasing power of the dollar in terms of labor units required on the margin would be infinitesimally small. Remember that everyone gets this check. It might not happen overnight, but this would be your mom’s equivalent to money growing on trees, and would raise the price of labor (or devalue the currency—depending on how you want to look at it).

As BIG sets off inflation, it erodes the purchasing power of the BIG check. In order to maintain its policy goals (i.e. pull people out of poverty or maintaining a decent standard of living), the basic income payment must necessarily increase to compensate for the inflationary pressures. If the payment is not increased, we will have a “one-off” inflation when the recipients receive their check; but this check will not be able to buy the (now) more expensive goods necessary to maintain the desirable standard of living. If policy keeps the basic income at the original level, the benefit will be deficient—so it would have to grow over time.

Since the objective is that people are in fact capable of buying the minimum desirable basket of goods and services, the basic income payment must be redefined upward. This, however, further increases prices and erodes the BIG purchasing power. We are caught in a vicious cycle, which creates (what we can term here) “an inflationary trap”. As the value of the currency deteriorates, the purchasing power drops, necessitating an increase in the benefit. As the level of the minimum guaranteed income is redefined upward to compensate for the drop in purchasing power, the value of the currency drops further, commanding another increase in BIG payment. What must be recognized here is that in a modern monetary economy, unconditional provision of monetary income does not offer the means to a good standard of living, rather it erodes these means; i.e., it redefines that standard of living (or the poverty line, if that is the desired benchmark) in monetary terms.

Note that if people do what BIG supposes they should do—choose not to work so that they might enjoy a life full of adventure, self-actualization, contemplation, and freedom—then the supply of output goes down. That means your BIG check will be competing with everyone else’s BIG checks for a declining amount of things to buy. Inflationary pressures are made worse—unless the BIG presumptions are wrong and everyone actually prefers work over paid leisure. Also note that the BIG is not countercyclical—as the ELR is. You get the $6.9 Trillion in Big BIG checks in recession and even in run-away economic booms.

6.            How ELR addresses some of BIG’s goals without introducing its disadvantages.

While the primary objective of an ELR is somewhat narrower than that of BIG—it only aims to eliminate unemployment while maintaining stable prices—it accomplishes a number of goals that are important to BIG advocates as well.

Most importantly, ELR does not introduce inflationary pressures. The ELR wage unit maintains a relatively constant purchasing power of the dollar—the dollar will be worth the amount of labor it can hire out of the ELR labor pool. This is a major advantage over basic income. ELR does not introduce inflationary pressures for several reasons. The most important one is that it fixes the value of the currency to the labor bufferstock wage.

ELR does not suffer from the inflation trap characteristic to BIG and if the wage is set at the living wage level (something which most job guarantee supporters favor), neither does it have the unemployment or poverty trap that BIG proponents fear. Note that ELR is strongly countercyclical, rising when the private sector downsizes. BIG does not—everyone gets her check no matter what is happening to the economy. ELR helps to stabilize the economy; BIG does not.

Like BIG, ELR is universal and purely voluntary. We strongly object to punitive conditionality criteria or demeaning means-tests—as do BIG proponents.  Furthermore ELR jobs provide not only an income but also socially valuable goods and services.

Among BIG advocates Van Parijs, for example recognizes that even a colossal BIG program may not resolve issues such as inadequate housing, education, healthcare—all key components of a decent standard of living. Parijs acknowledges that a BIG must be part of a more comprehensive social policy that includes other programs, but very little discussion is devoted to how we can ensure these other necessities are provided.

What ELR offers is a vehicle for achieving many of the goals that society democratically determines are worth pursuing. If the goal is the adequate provision of care for the young, sick, and elderly, then ELR can explicitly incorporate these services in its institutional structure.  If it is deemed that communities require environmental cleanup, then ELR jobs can be targeted specifically to solving these problems. In other words ELR can be designed as an open and flexible program that can serve many societal needs. ELR can also broaden the meaning of work by recognizing certain activities as socially useful and by compensating for them. By extension then, through the many forms of community involvement which are now recognized as legitimate ELR jobs, we foster advanced citizenship, reciprocity and social cohesion.

Finally ELR increases efficiency.   By training and educating workers and maintaining them as gainfully employed, ELR also enhances human capital, thus the detrimental effects of idleness and unemployment are avoided.  ELR also increases efficiency because it increases production, maintains human capital and protects the environment.

In conclusion, BIG and ELR share many of the same goals and objectives. BIG proponents oppose ELR because they believe it promotes the fetish of work. ELR proponents advocate providing jobs to those who want to work. In their view, ELR is compatible with BIG, and so they do not oppose it. ELR proponents would prefer NOT to send a Big BIG payment to all as this would devalue the currency. However, if we are going to have a BIG for all, it is still necessary to offer ELR so that those who want to work have the opportunity to get a job.

ELR supporters do agree that we need decent incomes for all. Most people can achieve decent income through work so long as their wage is high enough. Others will need income not related to work—some form of BIG. Hence, ELR supporters are not opposed on principle to BIG. They just want to get the horse (jobs) before the cart (decent incomes for all).

References

Atkinson, A. B. 1996. “The Case for Participation Income” The Political Quarterly.  Vol. 67. No. 3. 67-70.

Barry, B. 1996. “Survey Article: Real Freedom and Basic Income”, The Journal of Political Philosophy, vol. 4, no. 3, pp. 242-276.

Burgess, John and William F. Mitchell. 1998. “Unemployment Human Rights and Full Employment Policy in Australia.” In Globalization, Human Rights and Civil Society, eds. Melinda Jones and Peter Kriesler.Sydney,Australia: Prospect Press.

Clark, Charles M.A. 2004. “Ending Poverty in America: The First Step (draft)”. USBIG Discussion Paper No. 80.

Clark, Charles M.A. 2003. “Promoting Economic Equity: The Basic Income Approach”. In Institutional Analysis and Economic Policy. Mark R Tool and Paul Dale Bush. (Eds.).Boston,MA: Kluwer Academic Publishers.

Clark, Charles M.A. 2002. The Basic Income Guarantee: ensuring progress and prosperity in the 21st century.Dublin:Ireland: The Liffey Press.

Dewey, John. 1939. Intelligence in the Modern World, ed. Joseph Ratner.New York: Modern Library.

Friedman, Milton. 1962. Capitalism and Freedom.Chicago,IL:University ofChicago Press.

Forstater, Mathew. 1999. “Public Employment and Economic Flexibility.” Public Policy Brief No. 50. Jerome Levy Economics Institute.)

Harvey, Philip. 2003. “The Right to Work and Basic Income Guarantees: A Comparative Assessment” USBIG Discussion Paper No. 57.

Harvey, Philip. 1989. Securing the Right to Employment: Social Welfare Policy and the Unemployed in the United States.Princeton,NJ:PrincetonUniversity Press.

Fitzpatrick, Tony. 2003. After the New Social Democracy.Manchester,UK:ManchesterUniversity Press.

Keynes, J. M. 1936. The General Theory.

Minsky, Hyman. 1986. Stabilizing and Unstable Economy.

Mitchell, W. and Wray, L.R. 2005. “In Defense of Employer of Last Resort: a response to Malcolm Sawyer.” Journal of Economic Issues. forthcoming.

Offe, Claus. 1992. “A Non-Productivist Design for Social Policies.” Arguing for Basic Income. Ed. Van Parijs, Philippe.New York,NY: Verso.

Paine, Thomas. 1796 Agrarian Justice.

Pigeon, Marc-André and L. Randall Wray. December 2000. “Can a Rising Tide Raise All Boats? Evidence from the Clinton-era expansion.” Journal of Economic Issues, 34.

Rawls, John. 1971. Theory of Justice.HarvardUniversity Press.

Sawyer, M. December 2003. “Employer of last resort: could it deliver full employment and price stability?” Journal of Economic Issues. 881-908.

Schutz, Robert R. 1996. The $30,000 Solution.Santa Barbara,CA: Fithian Press.

Standing, Guy. 1992. “The Need for a New Social Consensus.” Arguing for Basic Income. Ed. Van Parijs, Philippe.New York,NY: Verso.

Tcherneva, Pavlina R. 2003 “Job or Income Guarantee?” C-FEPS Working paper 29.

Van Parijs, Philippe (ed.). 1992. Arguing for Basic Income.New   York,NY: Verso.

Van Parijs, Philippe. 1995. Real Freedom for All. Oxford,UK:OxfordUniversity Press.

Van Parijs, Philippe. 2001. What’s wrong with a free lunch. Boston: Beacon Press.

Van Parijs, Philippe. March 2004. “Basic Income: A Simple and Powerful Idea for the Twenty-first Century”. Politics and Society. Vol. 32. No. 1. 7-39.

Vickrey, William S. 2004. Full Employment and Price Stability. Eds. Mathew Forstater and Pavlina Tcherneva.Cheltenham,UK: Edward Elgar

White, Stuart. 2003. The Civic Minimum.Oxford,UK:OxfordUniversity Press.

Widerquist, Karl. 2004. “Freedom as the Power to Say No”.  USBIG Discussion Paper No. 88.

Widerquist and Lewis. Levy paper #212

Wray, L Randall and Mathew Forstater. 2004. “Full Employment and Economic Justice” in The Institutionalist Tradition in labor Economics. eds. Champlin, Dell and  Janet Knoedler. Armonk: NY: M.E.Sharpe.

Wray, L. Randall. 1998. Understanding Modern Money.

 

 

37 Responses to “HOW BIG IS BIG ENOUGH: WOULD THE BASIC INCOME GUARANTEE SATISFY THE UNEMPLOYED?”

RobertJuly 9th, 2013 at 11:46 pm

The only BIG that may be politically feasible is a revenue neutral one. The incentive to work would remain as the amounts would not be greater than what is offered through conventional welfare programs. The generous plans you describe are a pipe dream.
Instead of focusing your analysis on BIG proposals that have a realistic chance of being implemented, you decided to spend time criticizing fantasies.

Calgacus1July 10th, 2013 at 3:00 am

Tried to post the below at the last BIG post. May work this time.
Additional resources on BIG vs JG:
There have been at least 3 symposia in journals on the BIG vs the JG:
*Rutgers Journal of Law & Public Policy Volume 2, Issue 1: Basic Income with many papers pro & con the BIG vs the JG. All freely available. (Note: 2 Tcherneva-Wray papers + 1 update, one by Mitchell & collaborators)

*International Journal of Environment, Workplace and Employment 2006 Vol. 2 No. 1 – Special Issue on Job and Income Guarantees is another symposium. Not all free. Sally Cowling, William Mitchell and Martin Watts The right to work versus the right to income is a free link for one paper there.
*Basic Income Studies see Basic Income Earth Network papers, esp Cape Town 2006 for some free versions.

Pavlina Tcherneva & Philip Harvey have confronted the BIG the most from a JG/MMT (friendly) stance. (Not to speak of JMK himself) The "(left) reciprocity theorists" that BIGgers debate should also be worth reading. See for instance:

*The Job Guarantee: Delivering the benefits that Basic Income only promises – A Response to Guy Standing
*Job or Income Guarantee?
*Evaluating the economic and environmental viability of basic income and job guarantees
*The Right to Work and Basic Income Guarantees: A Comparative Assessment

*also Fadhel Kaboub Employment Guarantee Theories: A Survey of Theories and Policy Experience

See also many papers at The U.S. Basic Income Guarantee Network Discussion Papers
Supporting a Basic Income Guarantee implies support of a Job Guarantee. Because a BIG without a JG could not possibly work, and a BIG that worked in the real world would have to be a small, more targetted one.

Bertrand Russell, slightly misquoted at http://www.usbig.net/whatisbig.php is interesting: It is from Proposed Roads to Freedom p.74.
Where he also says "But it would be easy to decree that, though necessaries should be free to all, whatever went beyond necessaries should only be given to those who were willing to work—not, as is usual at present, only to those in work at any moment, but also to all those who, when they happened not to be working, were idle through no fault of their own." Supporting something like a JG, and throughout, it seems to me, supporting a realistic BIG, not an inflationary universal payment as Wray criticizes.

NeilWJuly 10th, 2013 at 6:21 am

"To avoid a bait and switch, everyone needs to get a Big BIG. And they get to keep it. Otherwise we’ve just got welfare"

I'm sure some of the more excitable BIG proponents do go to the extreme, and I have no doubt that you are correct on that point.

But that is an edge case and an edge belief IMV – much like the extreme Marxists and their reconstruction of capitalist societies. It's a totally different (and I agree misguided) distribution model. The proposals for 'citizens incomes' coming from think tanks and within the current capitalist distribution model are less extreme and perhaps more comparable with the aims of the JG.

Citizens income propose a living income, but coupled with a readjustment of the tax system to make it more 'progressive'. And that means that the 'break even' point is well above the median income – so the majority of people are better off in net terms.

So I'm working with something like http://classonline.org.uk/pubs/item/financing-the…

"That eliminates any stigma because everyone gets it."

I'm not sure it does that. Resentment is a funny thing and the concept of whether somebody is seen as 'playing fair' is a fascinating area of sociology and psychology. I suspect it would get undermined even if everybody got it – because obviously I'm doing useful things and deserve it whereas clearly *they're* not. Even the most cursory surveys find that attitude rampant across council estates – which then means that income support of any kind is undermined politically at the very least.

NeilWJuly 10th, 2013 at 6:57 am

"Heck, if Bill gets tired of running Microsoft and wants to take a couple of years off, doing some Meals on Wheels in the JG, he could take a real job, too, actually helping people rather than trying to monopolize the software universe."

To be fair to Bill he has given up day to day work at Microsoft to work mostly for the Bill and Melinda Gates Foundation.

So he is trying to do some good in the world now and I wish them well – particularly with their attempts to eradicate Malaria in Africa.

NeilWJuly 10th, 2013 at 7:10 am

"In an ELR program, the value of the dollar is determined on the margin by the number of minutes required to earn a dollar working in the ELR job"

Why do you use a marginal argument for ELR when marginal utility appears to be rejected across the rest of MMT (and Post Keynesianism in general)?

Are they two different senses of 'marginal'?

Tyler HealeyJuly 10th, 2013 at 12:38 pm

"However, as I said last week, I do not support sending a BIG check to everyone. It is a devaluation of the currency, as prices rise so that the BIG payment essentially becomes the entry price to the marketplace. So we will need to target the BIG to those who do not (or cannot) work." – Dr. Wray

I absolutely agree. I think it should be called the "Living Wage Guarantee."

L. Randall WrayJuly 10th, 2013 at 1:18 pm

I quoted the “fathers” of BIG. They formulated it, not me or you. Maybe it is pie in the sky but that is what they advocate.

L. Randall WrayJuly 10th, 2013 at 1:23 pm

Neil this is not marginal utility (i reject use of utility analysis, marginal or not). We have always argued that “on the margin” the ELR wage and benefit package determines the value of labor. BIG sets a different margin. Zero effort. It is the whole idea of a bufferstock.

John R. WoodwardJuly 10th, 2013 at 2:31 pm

On the inflationary effects of BIG…well, I'm just not convinced.

The way I see it (open to amendment), prices are set in relation to costs, all of which can be traced back to labor performed in the chain of production. If BIG payments increase the cost of labor, then it makes sense that the price level will adjust upward. But what evidence is there that this is what must happen? If we assume that BIG recipients, freed from the necessity of work, will only be willing to enter the labor market at much higher wage levels (than without BIG), then I can see the logic of the inflationary spiral argument. And it seems like textbook supply and demand reasoning. Give everyone enough money to get by and the supply of labor goes down (becomes voluntary really). Hypothetically, this necessitates a rise in wages offered by employers to entice people into paid work, which of course ends up raising prices. It seems the BIG-is-inflationary argument assumes that price signals will continue to determine people's choices to enter the labor market, even with BIG in place. The BIG advocates assume that with BIG in place price signals will no longer determine people's choices to enter the labor market. Do I have this right?

It does seem that the merits of BIG–as far as inflation is concerned–depend at least on society's ability to produce the same or greater levels of output while working less. I could not tell if you dispute that this is itself possible, ascribing as you did "second order importance" to the role of productivity in the causes of unemployment.

windrivenJuly 10th, 2013 at 3:55 pm

"Everyone must benefit from the program to garner the support. Otherwise it is just another type of bait and switch: promise everyone a Big BIG check but then impose a Big BIG tax to take it away. No. Everyone gets to keep the check.

From whence comes the money to pay for this?

Dr. Wray spends considerable time talking about dignity and not stigmatizing but it seems to me there is still the problem of contribution and reward. Let's do a thought experiment: what has more value to you, a nice new automobile that is given to you simply for having a respiration rate greater than zero or a nice new automobile that you have purchased with the proceeds of an exchange of effort for reward?

In a larger and perhaps more important vein, what is the value of life devoid of contribution? I am not suggesting that everyone would immediately cease any meaningful activity. I am however suggesting that many would. As proof, consider the amount of time that people spend watching mindless TV or cruising porn on the internet.

NeilWJuly 10th, 2013 at 4:35 pm

In that case why doesn't a state pension – which is an income guarantee to everybody over the age of 65 – or disability pension – which is an income guarantee to everybody who is disabled, cause problems for the value of the currency?

Doesn't an income guarantee just create a load of people whose current 'job' is cracking open the next can of beer and they've just been paid up front for that 'service'?

benleetJuly 10th, 2013 at 5:52 pm

I was reading another article (at CPEG.org) about the June jobs report. I commented:
I just checked private sector employment since Dec. 2000, a peak month. Since then, 12.5 years later, only 2,275,000 additional private sector jobs have been created, as of June 2013. That is a rate of 182,000 per year, or 15,160 per month. So strangely this report says that in the past year 182,000 jobs per month have been added, and that is also equal to the private jobs per YEAR since Dec. 2000.
Since Dec. 2000 the civilian non-institutional population has increase by about 33 million. This is an increase of 15.5%. The number employed in private sector employment has increased by 2.275 million. Normal participation in the labor force is about 2/3rds of the civilian non-institutional population, or in this case about 22 million. In 2000, for instance, the ratio was 67.1%, a peak in the participation ratio. Of that 22 million, some would be employed in government and some would be unemployed, about 16% and 5%, or 21% total, leaving 79% of 22 million, or 17 million private sector employees. So instead of creating 17 million jobs, only 2.275 million were created. Only 13% of normal private sector jobs materialized, the other 87% did not materialize. This is why this article and discussion is so important. Here's the BLS source: http://www.bls.gov/web/empsit/cpseea01.htm
I think this is relevant to the discussion, though it does not deal with JG/ELR and BIG, and so forth.

L. Randall WrayJuly 10th, 2013 at 6:09 pm

In many cases it is postponed pay for work; in all others that I know of it has tests that must be met (ie age, and perhaps labor mkt participation history), meaning that many must work for wages so that some do not have to. You are getting at something, however, in that the greater the number who do not have to work, the higher prices of consumer goods must be above current wages (the markup in PK terminology), so if the nonproducing classes tend to grow over time that does impart an inflationary bias as Minsky argued.

benleetJuly 10th, 2013 at 7:27 pm

I write a blog about economics, it's a hobby. I calculated that only 56% of all the U.S. work force have jobs that pay more than the poverty rate for a family of four. It may be lower, maybe 51%, now that a recent report stated that since 2007 the number of part-time workers has increased from 16.7% of labor force to 22.2%. Now, 5.5% of the workers is very close to 8 million, and 5.5% of the work force is 8.5 million. http://www.ebri.org/pdf/PR-1026.22May13.Notes-P-T…
My blog is http://benL8.blogspot.com — but it is a tedious analysis, I don't recommend it unless you like to slog through many numbers. I'm suggesting that maybe the ELR program appeal to a much larger population than normally expected. Maybe those citizens will vote with full knowledge of the possibilities. As Wray says: "The real cause is money. To be more specific, it is because we choose to organize a huge part of our social provisioning process through the monetary system, with much of our production controlled by capitalists. It is a monetary production economy—capitalists will not employ labor if they do not believe it will be profitable. (Note that is a statement of fact, not a criticism.)"

Tomas KurianJuly 11th, 2013 at 11:42 am

Big is not a solution. If people can live without work, they will. It would be also highly unfair to people, who work 8-10 hours a day, to tax them so some would not have to work at all.
The BIG is not creating jobs, it is only adding incentives not to work.

The solution is in increased work sharing, more time off, shorther working time. This really increases employment and enables creation of new jobs: in traditional economy as well as in new economy of leasure and free time.

But such decrase of productivity must be subvenced be government to avoid price rises.
( it is meant that people with shorther working time will get paid the same amout as before, otherwise there will be decrease of total distributed buying power)

More about it in my work:
Genom of capitalism, chapter 18. Method of passing productivity gains towards free time http://www.genomofcapitalism.com/index.php/18-met…

Such subvencing would not create inflation as production capacity of industry is the same as before increased automation ( even higher now) and only thing that is missing are customers ( employees stripped of their wages). By rejoining these people to working process by shortening the working time for all, demand side will stay the same, benefiting the businesses by increased sales.

All workers ( previously still employed and newly employed ) wil support the program as all will benefit from more days off ( that will be same for everybody) and there will be no stigma.

It is easy to implement, it can be phased across the industries, geographies…
Companies participating in the program would not suffer competitivness loss as lower productivity introduced to achieve social goal – to lower unemployment would be paid for be taxes on unproductive capital.

16. Periodic taxation of accumulated capital, and further 16.1-16.6 http://www.genomofcapitalism.com/index.php/16-per…

Valerie KeefeJuly 11th, 2013 at 9:14 pm

Yeah, that Basic Income of $35K sure does sound like it would be cripplingly large. It's a shame that even the most bullish advocate you could find put the number between 20 and 30, and then you used that as a BELOW-AVERAGE estimate of where Basic Income advocates think the level of payment should be at. Not to mention your refusal to put anything in terms of median income, per capita GDP, or anything that wasn't nominal, as though we're incapable of indexation in entitlements.

Also a shame that you think an entitlement has to equal a net benefit to 100% of the population, to be politically feasible, when, for a Basic Income of 25% of per capita GDP that I did a back-of-envelope calculation, the inflection point where increased taxation would lower disposable income was a little more than $80,000, i.e. where the top quartile starts. And that's with Basic Income being completely non-taxable.

Also, you know that the wage share is a movable thing, right? That increasing wages doesn't increase price levels inexorably? Tell me you're a good enough economist to have taken the time to look at the wage share of GDP and note that it does have the ability to move, please, because frankly, I'm horrified by the level of obtuseness and oversimplification and misrepresentation that you've engaged in here.

You know better.

sparkylabJuly 11th, 2013 at 10:41 pm

"If people can live without work, they will"

I will add the above comment: "If people can live without having to work *at their current crappy low-paid/minimum wage job*, they will."

I'm no economist, so maybe I'm missing something here, but in the world of BIG, who will be the diswashers, the 7-11 clerks, the wal-mart overnight shelf stockers etc, if they, quite rationally all go off and "enjoy a life full of adventure, self-actualization, contemplation, and freedom? "

L. Randall WrayJuly 12th, 2013 at 2:21 am

Dear Valerie: did you actually read the piece and as well the quotes from BIG promoters. I suspect NOT. You are all snarkle and no content? Try reading what they claim to be the goal and then Try to make the claim that what they are arguing for is $878 a year.

NeilWJuly 12th, 2013 at 4:23 am

I have to agree with that. 'Inflation' is a humpty dumpty word and the Price change indexes are fraught with complications.

The other issue is people use inflation when they really mean 'permanent reduction in standard of living', ie prices go up and the individual can't respond to increase their wage or other income.

NeilWJuly 12th, 2013 at 4:51 am

What's interesting is to compare that with a potential Job Guarantee position.

Let's say somebody spends 8 hours talking with Seniors in a care home and is paid a living wage for that work.

There little is produced from that work other than smiles and warm feelings amongst a group of grateful Seniors.

Yet actually in terms of effort it is much easier to talk to various Seniors for 8 hours than it is to drink beer on your own for 8 hours solid.

So that begs the question as to why talking to Seniors is 'acceptable' Job Guarantee work and won't affect the currency value, whereas drinking beer is not acceptable work and will cause the currency to degrade.

It clearly can't be the amount of effort involved – since the harder 'job' is the beer drinking one.

I would suggest that each society has some underlying level of Required Quid Pro Quo which it ascribes unconsciously to all forms of economic activity, and that level of Required Quid Pro Quo varies depending upon the social maturity of the society concerned.

So talking to seniors is seen as fulfilling the Quid Pro Quo requirement, and therefore others do not change their behaviour based upon somebody undertaking that activity and receiving an income for it.

Whereas drinking beer breaks that moral requirement, and therefore people object. They lobby for the income support to be withdrawn. The label of 'scrounger' is ascribed. People change their behaviour and withdraw from the market ("I'm not working 8 hours to pay for that layabout").

Let's face it, it would be so much easier if we could just pay income support and leave it there. So much less work required to implement the system.

But the reason Job Guarantee has to provide Jobs is because for income support to be stable it has to be attached to an activity that passes the Required Quid Pro Quo test – and the private sector and the existing public sector can't produce enough of those types of activities on their own.

I would suggest that what keeps the currency stable – what anchors the value in the real world – is that you have expended sufficient effort on activities that pass the Required Quid Pro Quo test to justify your income.

And therefore we've got to create those enough of those sort of activities to go around and show that people are doing them and getting paid for that effort.

L. Randall WrayJuly 12th, 2013 at 11:43 am

Neil: OK so you say that giving everyone a BIG will not be inflationary? Here’s the proper thought experiment. We put in place a JG to better anchor the currency; set it at $20k. A year of basic labor is valued at 20k, to get higher skilled and experienced, on average you have to pay a markup above that. Now we add a Big BIG. As I showed, some wanted to set that at $10k in the late 1990s; say $14K now (For Valerie, that is due to inflation). Schutz advocated a much more reasonable $30k (I say reasonable given the claims made by BIGgers for BIG) which is $41k (Valerie: inflation, again). You are saying that will not change the price of basic labor? I will not need to pay any more than $20k to get a year of labor even though everyone is getting somewhere between $14k and $41k? Note I’m leaving to the side the effects on aggregate demand–that is, adding trillions of dollars of govt spending to the economy.

NeilWJuly 12th, 2013 at 3:31 pm

I sure hope I'm not saying that and I need slapping round the face with a wet haddock if it's coming across like that :)

What I'm saying is that what differentiates a JG job paying, say, $20K and an income support scheme paying $20K is what people are doing with their time on those two schemes.

But most importantly what other people think about what the people do on those two schemes. People seem to have to be seen to be doing something useful in the eyes of other people if any income support type or state paid wage scheme is to last into the long term.

Bear in mind that the 'thought experiment' income support I'm talking about is either the JG design where 'work' is 'anything you want' (ie it stops getting paid when you get a hired by the private or existing public sector in the usual fashion), or it is a basic income to everybody where the tax system is adjusted to withdraw the exact amount in aggregate that is given to those in work with the private or existing public sector (ie a classic redistribution). Those two, I hope, should be macro economically identical in terms of the overall amount of NFA injected into the non government sector.

It's blisteringly obvious that you will overload the production system if you just give everybody $20K without altering the tax system. It will blow the economy up BIG style.

I think we can safely ignore anybody who believes that is the way to go as being of the lunatic fringe. If that is the main thrust of the article from your perspective then I agree wholeheartedly with your conclusion. Won't work – can't work as a matter of first principles.

However the more reasonable ones I engage with, and who talk about a Citizens Income, realise this and do adjust the tax system. My argument is that *still* won't work, because people have to be seen to be doing something with their time that satisfies some Required Quid Pro Quo test – and that type of activity won't happen spontaneously.

Therefore we've got to have a Job Guarantee that provides activities that *do* pass the Required Quid Pro Quo test, so that people in wider society will accept that those on the Job Guarantee deserve their wages/income.

L. Randall WrayJuly 12th, 2013 at 4:20 pm

Neil: I did not disagree with your quid pro quo argument (I definitely agree that at least in America, the BIG is a big non-starter, at least as designed by BIG’s “fathers”). Nor did I invoke the AggD argument (again I agree it would blow up the economy, at least when the economy recovers–which with $7Trillion additional govt spending would be very quickly!). However, the BIG fathers generally avoid talking about raising taxes because they KNOW that makes BIG a Big nonstarter. Zero chance. The only way they can sell it (at least to Americans) is as Xmas gifts from Santa Sam. I have already acknowledged that some do advocate taxes to “pay for it” including Clark (flat tax).

So we are just disagreeing (for right now) about the impact of a BIG on “work effort”. If you think $14k won’t affect it, or $41k won’t affect it, just how high can the BIG be before it affects work effort? What about $1M each, every year? $10M? A Quadrillion?

But, hey, if you like a big wet haddock across the face, I’ll give it a try!

Thomas BergbuschJuly 13th, 2013 at 1:59 am

Would it be fair to say that Prof Wray's argument ovetail with Alain Parguez's notipn that "[a] state of true inflation exists when because of the loss of real value of the currency there is a long run drop in global welfare. It requires both that a falling share of the money created is generating global real capacity and, as its twin, a long run drop in the purchasing power of income reflecting a rising required share of profits."? (Parguez, 2012, Modern Austerity Policies: An analysis of the Economics of Decadence and Self destruction)

kyunkyunJuly 13th, 2013 at 8:40 am

I am a Japanese.
I write this sentence by machine translation.
I am studying "Social Credit" of Clifford Hugh Douglas little by little.
If Douglas theory (A+B Theorem) is right,
It is thought that the Income guarantee which does not depend on the tax is necessary.
How do you think?

* Reference http://goo.gl/7XQrM

RobertJuly 13th, 2013 at 8:02 pm

In the current system, millions are 'living without working' because they are unemployed, without income, and must be supported by someone else. Even those who have Walmart type jobs now qualify for support.
If you believe that the future will include mass unemployment, then a modest BIG is one alternative to the welfare schemes currently in place. We already have an economy where only a subset of the population are producers. The rest are moochers, or whatever term you choose to disparage them with.
If scarcity were no longer perceived as an obstacle, a more generous BIG plan could be implemented. But we are far from accepting that reality socially. Automation will have to advance until it is blindingly obvious that we don't have to compel everyone to seek out 'income'.

John R. WoodwardJuly 15th, 2013 at 2:38 pm

It was me who expressed doubt that BIG is necessarily inflationary…in the spirit of inquiry not advocacy or punditry by the way.

I am scratching my head a bit because I am unable to cleanly reconcile the reality of mark-up pricing with the theorem that prices are set by the "twin blades" of supply and demand, at least as cleanly as you have in your analysis.

markup pricing leaves wage earners unable to buy up all output. wages offered by profit-driven entities will always be less than enough for all such entities to make a profit. competition for those profits exacerbates the disparity between purchasing power and output and leaves people unemployed, (and inflates asset values with surplus capital along the way). in these gyrations of supply and demand the price of labor is being set and it is always too low to enable consumption of aggregate output at current prices out of current income. i simply can't see any non-normative difference between filling that gap with BIG or ELR.

The supposed inflationary effects of either are one and the same. Isn't it the point of both programs that the income, whether earned or granted, gets spent on that output which otherwise cannot be sold at current prices? Are recipients of BIG more likely to spend it than ELR employees? Suppose the hypothetical spending behavior was the same. Business would be more broadly profitable as a result. And if Minsky is right this will only lead to more investment and further expansion of supply (a debatable point itself). How can a guaranteed government job prevent the wages offered by a booming private sector from rising. If it can't then isn't it true that business costs will rise in turn, reinstating the shortage of purchasing power and further necessitating raises in the public sector wages to fill the gap yet again–the very inflationary spiral argument that applies to your BIG analysis. To say that BIG will restrict the supply of labor and drive up the cost of employment is one half of the equation only. Business expands when it is profitable. How it does this exactly may not be as simple as the supply and demand story would have it. But if it is that simple, any increased demand, whether it came from BIG income or ELR income, will ultimately lead suppliers to bid up the price of labor and mark up their the price of output in order to preserve or even grow their profits. is this process not the engine of inflation (also the seeds of price and debt-deflation)? if this is how the real world works neither ELR nor BIG are without inflationary bias.

As far as I can tell, both BIG and ELR are possible solutions to the unemployment problem, but neither directly addresses the more fundamental (but related) problem of overproduction. It's worth adding that both BIG and ELR are also viable ways of checking the accumulation of debt and decreasing the drive to leverage profit centers, since it will be much easier for business to expand with retained earnings. Maybe this is the main selling point of either program.

for what it's worth i have my own purely normative reasons for believing ELR is likely the superior program, mainly that I believe citizenship as an idea is an important binding for any complex civilization (though on the other hand the protestant work ethic has outlived its usefulness imo). trying to be objective, i am much less sure of the differences.

Valerie KeefeJuly 22nd, 2013 at 7:04 pm

As someone arguing for 25% of per-capita NGDP, and who lives on a little more than same after taxes and savings, I'm telling you that you ignore a lot of we Basic Income advocates in pursuit of a cherry-picked they.

That one can live indefinitely but not in middle-class comfort on a Basic Income is a feature not a bug. People will still want to work, and they will still find work. Employment is not statically distributed among the working-age, with 34% of Americans condemned to a lifetime of technological unemployment and 66% constantly working. If that were the case, TANF graduates would universally be homeless.

You've made claims that a Basic Income will either be $1K or $35K a year, and in part one you were arguing against a Basic Income that exceeds PCNGDP (I would too, just as while I support a minimum wage in the 20-25% of hourly productivity band, I don't support one in the 80%-90% of hourly productivity band). Seriously, if all you can argue against are straw proposals, you haven't got a very strong case.

I've gamed out a Basic Income of that 25% of PCNGDP for Canada. The inflection point where it would be revenue neutral (discounting the value of income insurance) would be for a single person earning about $82,000 a year, or the threshold of the top quartile. So no, the vast majority of voters would not see it 'all taxed back'. And for that matter, the argument that any entitlement must be universally revenue positive for the entire population is, on its face, nakedly preposterous.

Of course, Namibia's pilot program was doled out at a rate of about 2.2% of per capita NDGP, and they still found dramatic welfare gains.

That sufficient content for you?

PS: You didn't address my point on the elasticity of the wage share.

Valerie KeefeJuly 22nd, 2013 at 7:06 pm

Most likely, as fewer people need to work those jobs, wages go up to attract people back into them, and in the medium-run, you'll see greater capital formation as the returns to automation go up.

You'll still get night-shift clerks. They'll just be saving for a starter home / bitchin' new amp with their paycheques now.

kd3July 23rd, 2013 at 4:47 am

We must be careful about saying BIG devalues the currency. This is analogous to the Monetarist/QTM mistake of assuming all new money goes into circulation. Those with BIG-only income are likely to spend all of it while those with higher incomes up are more likely to save it.

We must realize a commitment to BIG is a large societal change in which we accept BIG contributing to inflationary pressure which may/will need higher deflationary pressure (taxes–allocated however is deemed politically appropriate) to counter. We can always drain aggregate demand.

L. Randall WrayJuly 24th, 2013 at 12:24 am

Oh yes, right Valerie. With those big bucks of 8k per year so many potential workers will retire to a life of ease on golf courses and yachts that employers will scramble for low paid workers and ratchet up pay to, say, $80K per year for burger flippers (who will then live on the standard of living BIGGERS promise in their bait and switch; and the beauty of all this is that even with such high wages in burger flipping BIG WON’T CAUSE ANY INFLATION! Yes, BIGGERS can have it all, just they way they want it, because–well because that is the way they want it. Ain’t fantasy a nice game to play? Bait and Switch.

L. Randall WrayJuly 24th, 2013 at 12:26 am

Valerie: all bait, no content.

I do feel sorry about your low income. How about a job? Guaranteed to all? Decent pay and good benefits. Guaranteed. You prefer to pass that up for tiny little welfare handouts? Why?

Francis Li GoodwinsJuly 24th, 2013 at 9:47 am

Hi Kykunkyun,

Let me assure you that your are on the right track!

In the 1999 article on C.H. Douglas which you reference, the authors identify 4 premises of the Douglas text, which in fact determine 4 conclusions arrived at by Douglas, the first being the most important:

"First, the objective of industrial activity should be the
delivery of a sufficiency of goods and services to
the consumer, regardless of the profitability of
their production to a small section of society. Employment merely for the sake of earning an income, no matter what was being produced, should cease to be an essential feature of the economy. Hence it should not be up to 'High Finance or members of the Labour Party Executive
(however great their moral or intellectual qualifications might be)' to appropriate to themselves
the right 'to arbitrate on what is or is not "useful work" or withhold a share in economic prosperity from "non-workers" as thus arbitrarily defined.'

The policy conclusion is the payment of a basic income to all citizens, as an inalienable right of their citizenship (the so–called 'national' or 'social' dividend)."

The irony is that Douglas reached the right conclusion for the wrong reasons! The key to understanding this is found in Frederick Soddy's critique of the Douglas school found in his great work, __Wealth, Virtual Wealth & Debt__, published in 1926. I can't give you the page reference, because you'll need to read the whole book to figure this out.

Joe FirestoneJuly 24th, 2013 at 4:34 pm

This is the best post on JG and BIG I've seen. And I don't see anything wrong with satisfying the human right to work first, and then moving on to a BIG for those who need it. I don't see why BIG proponents wouldn't go along with that since in the end it provides for people who can't or cannot find a JG job they feel is worthwhile.

Certainly, as a matter of politics, in the US context, the JG should be much easier to pass than a BIG. So on those grounds, I think that should come first.

I also think that Neil raised an interesting question in comparing 8 hours of drinking beer with 8 hours of talking with the elderly. But I think it's a question that answers itself in a good JG implementation. That is, the answer to the question is that JG jobs would be defined as ones that JG participants, stakeholders, and ultimately voters, believe have social value either in themselves or in terms of their outcomes. So, 8 hours of beer drinking could in principle be a JG program job, but probably would not get defined that way in any contemporary society.

But this raises the still broader question of the normative component that will enter the process of defining jobs in the JG program. As I understand it the way that will be handled is to localize the job specification process, and that, in turn, will mean that the JG jobs that are going to be created will vary across communities and will be subject to differences in community norms and values. For example, JG jobs for Artists, playwrights, writers, sculptors, and other creators of cultural products that fall under the heading of art will be much more plentiful in places like New York, Boston, Philadelphia, Minneapolis/St. Paul, San Francisco, other big cities, and suburban areas, then they are likely to be in the bible belt and rural America. On the other hand, jobs involving spiritual and religious activities or supporting are likely to be more plentiful in areas where Christian fundamentalism is very important. Variations like this in types of jobs that are specified for the JG program locally are likely to affect internal migration and settlement patterns in the US.

What about jobs that have political overtones. In many areas, JG programs are likely to create jobs for community organizers. These jobs may be seen as political in nature and as involving organizing poor neighborhoods and people to participate more in the political process. This kind of thing is very good so far as I'm concerned; but it is sure to be controversial.

I think, more generally, that the types of JG jobs that are specified will likely provide continual targets for Congress people and other politicians to shoot at in order to discredit the JG program. I suppose the best defense against this is to make sure that job specification activities are always rigorously local and that there are barriers against political tampering in the job specification process. There won't be anyway however, to prevent continuing Congressional evaluations of the program that are motivated by and serve contending political ideologies.

L. Randall WrayJuly 25th, 2013 at 6:05 pm

Joe, good comments. I agree with all you say. On the community activists and political dimensions I agree this can be controversial. While not entirely satisfactory, it would be qualified not-for-profits, as classified by IRS. (Of course that now raises a current explosive issue! However from what I’ve seen that whole thing was vastly overblown, as the IRS appeared to simply attempt to do its job.)

Most Read | Featured | Popular

Blogger Spotlight

Dan Steinbock

Dr Dan Steinbock is a recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among the major advanced economies (G7) and large emerging economies (BRICS and beyond).

Economics Blog Aggregator

Our favorite economics blogs aggregated.