Guaranteed Income & the Future of Capitalism

Monday, April 4th 2011

This is an alternative to the Bullshit Industry.

You know - the bullshit industry we're creating to cope with the unholy clash of:

  • the obsolescence of humans as a factor in production;

... and ...

  • the work ethic.

The alternative to The Bullshit Industry goes under many names (a bit like Gandalf). I call it the Guaranteed Income. There are other forms; the citizenship dividend, negative income tax, basic income, etc, etc. Variations on the idea have been supported by all sorts of people; from some of Nixons advisers, to 1970s Scandinavian socialists to Milton Friedman.

It's one of those ideas that keeps returning.

Helping the Unfortunate

Most people think people who fall on hard times should helped. Canadian Conservative Senator Hugh D. Segal puts it this way:

If the state has the legitimate right, as a principle of progressive taxation, to a piece of your wages before you actually get them, surely, the principle of conservative balance between rights and responsibilities would imply that you have the right to support from the state when your income collapses.

But there's a problem. People don't like the idea of working to pay people who are idle. So most people will object to giving people money unless they consider those people genuinely incapable of looking after themselves. Most people don't want to work to support lazy people.

These people need some a way to distinguish between the lazy and the genuinely incapable of looking after themselves.

(I don't think "lazy" is a useful term in this context, because it describes too many different forms of behaviour with too many different causes. But people use it with regard to welfare recipients, so we'll stick with it for now.)

Cost 1 - Admin

The cost of the bureaucracy required to assess people; snooping into bank accounts, running call centres, and so on. In most Western countries this cost is massive. And a lot of the cost is hidden. It is a giant, bureaucratic make-work scheme.

Cost 2 - the "Compliance Effect"

The second cost is harder to measure. One of the aims of the bureaucracy is to maintain what is called the "compliance effect". That is: to make being on the dole more time consuming, poorly paid and boring than having a time consuming, poorly paid, boring job.

To some, the "compliance effect" makes "bludgers" get off the dole and into time consuming, poorly paid, boring jobs. Or, hopefully, motivated to get better jobs.

Tony Abbott MLC put it this way when he was introducing changes to welfare when he was in government:

Work can be made more attractive than life on welfare by changing the rewards of work or by changing the conditions of welfare. No government could cut unemployment benefits, because living on $170 a week is hard enough already, but this Government has changed what's expected of people who have been on benefit for some time.

Work for the Dole marks the end of the era of permissive welfare. It's the most important single change to the culture of employment and unemployment since 1972. Budget changes specifying that all job seekers under 40 on benefits for more than six months must do Work for the Dole or other structured activity, and undergo new cycles of activity as long as they stay on benefit, complete the new institutional architecture begun with the Job Network in 1996.

These changes are designed to make work more attractive than the alternative without increasing labour costs and without making anyone on welfare financially worse off. Another way to make work pay is to make non-work not pay. If the alternative to working for a wage is working for the dole, there's much more incentive to take work, particularly the entry-level and temporary jobs that employers often find hard to fill even when unemployment is high.

There are a few variations of this notion. Julia Gillard, the current PM in Australia, put it this way:

Newstart is there only to provide temporary assistance while people find a job ... we need people to remain motivated to get work.

Someone writing in the comments on the Australian web site put it this way:

The unemployed (at least the healthy ones) can go out and find a job. If all else fails they can go and pick fruit, then we will not have to bring in the willing workers from the pacific countries. Old age pensioners are too old to work, and in most cases have worked all of their lives.

"Work for the dole", paper work, forms, appointments to go to, courses to attend, etc. All part of the "compliance effect". To make people get out and work.

The problem is: this makes dealing with the bureaucracy difficult work for everyone. Not just the folks the commenter on the Australian web site thinks are too lazy to get a job.

So the bureaucracy starts treating everyone as a potential bludger.

So the bureaucracy starts to develop a confrontational, prescriptive, controlling form. It pries into peoples' personal lives, it demands banking details, it questions people about their family relationships, it has notices at the end of letters saying things like "It is an offence against the so-and-so act to submit false information".

But most people on the dole are not bludgers.

This is hard to get across to anyone who hasn't been on the dole for any length of time. Or has never been on a compulsory training course. Or suffered at the hands of Centrelink incompetence. Or known long term unemployed people. They just don't get it.

Most of the people I have met who have been out of work have fallen on hard times. Perhaps the industry they worked in has collapsed. Perhaps they suffer from some depression or had a car accident. Perhaps they're dealing with the effects of child abuse or domestic violence. Perhaps they're just young and confused or old and lacking in confidence. Not everyone is a good interview, a good manual labourer, is interested in making money; not everybody has skills employers want or the ability to run their own business.

Being treated as a potential bludger makes a difficult situation even more difficult. You alienate people. Make them feel guilty. Or angry. Or both! It makes it harder to help them. The people who work in the bureaucarcy who do want to help - and there are many - are hamstrung by unforgiving rules. A few can't cope with the "compliance effect" at all. They end up in real poverty.

Senator Segal again:

Pettifogging bureaucrats inquiring into your life because of badly designed, micro-focused welfare programmes is the kind of excess and state intrusion some on the left used to love. It brings social justice and respect for privacy into disrepute and gnaws at the respect for individual freedom conservatives are supposed to embrace. It is also wasteful of public funds and public time.

But it has to be said, getting people out and about and doing things isn't a bad thing sometimes. If a person is lost in a funk, or depressed, or just really nervous, they need a bit of prompting and assistance to get going.

Government agencies are not usually very good at this. They end up mandating, threatening, controlling, measuring ... etc. I think it's because they are usually centrally controlled. They are not capable of the subtlety and flexibility required to really help individuals with individual problems. They deal in types of individuals, not actual individuals. They deal in general rules, procedures and systems, they don't deal with actual situations.

And if there's ever a time you need to deal with a person it's when they're not coping very well. You need to help them in all sorts of ways, very dependent on the individual's unique circumstances and personality traits. Sending everyone under 30, under 40, under 50 (or whatever it is) on the same work for the dole projects is just silly.

Why can't we decentralise decision making more and leave it up to reputable volunteer organisations to help unemployed folks in a less bureaucratic fashion? Because bureaucracies don't trust these people either! :-)

It's loss of control, it's not measurable. So, invariably, unlucky folks face the unyielding fist of a giant welfare bureaucracy that treats them an untrustworthy numbers. But what people down in the dumps need is kindness, human contact. Not the ministrations of rule following, inflexible, monolithic purveyors of booklets and forms. If that worked, it would have worked by now.

Cost 3 - "Incentives"

There is another problem. When a person gets a job, income support is withdrawn gradually. For each dollar above a certain threshold a person earns, income support is removed.

This effectively reduces the wage a person gets when he goes from the dole to a job. If the amount per hour is a large part of my incentive to work, my incentive to work has been reduced.

Or consider a pensioner. Once a threshold is met, she starts losing the pension. If she works part-time it's hardly worth the effort. The pensioner might be a few dollars better off, but working two and half days a week! At not very good pay!

And often the "compliance effect" remains. People still have to do extra work complying with the bureaucracy. That means filling in forms, reapplying for income support when the work runs out, and so on.

That means some people end up avoiding some jobs because they still have to deal with the "compliance effect" and work as well! For very little financial reward. Yes, part-time work, a little work here and there, can lead to better work. But that process never begins because it isn't worth the hassle.

What other options are there?

Guaranteed Income

If you pay everyone a guaranteed income you deal with these three costs.

  • Everyone gets the income, so there's no need to differentiate between the "deserving" and the "bludgers". You eliminate most of the costly bureaucracy and most of the red tape.

  • People who are already having a rough time do not suffer at the hands of the "compliance effect". They're not treated as a potential bludger.

  • People keep every dollar they earn. The guaranteed income is never withdrawn. You eliminate that disincentive against work.

There are, of course, many objections to the idea of guaranteed income. Here are some of them.

Objection 1: It costs too much!

Balance the cost of having some bludgers versus the cost of maintaining the bureaucracy and the "compliance effect". How much do bludgers cost and how much does maintaining the compliance effect cost in terms of money and alienation?

Don't forget that the dole, pensions, disability pensions, and so on, are only some of the payments paid by the government. There are other forms of income support. Negative gearing on real estate investment. Tariffs to particular industries everyone pays for in increased prices. Free water for the mining industry. Tax breaks on share trading or capital gains. And so on and so forth. These are all dole in different forms.

Take the money currently spent on various forms of welfare, including income support, grants to industry, tax breaks, tariffs for some industries, and the cost of running the bureaucracies to administer all these payments, you end up with a grand total of some kind (this is hard to work out, because no-one wants you to know!).

If you take this and divide it up amongst the population that's X dollars for every man, woman and child. That could be the guaranteed income.

Sure, rich people would get the guaranteed income just like a struggling single mum. This isn't fair to some. But the rich person pays taxes. The guaranteed income is just compensation for all the tax breaks, grants to his industry and so on that have been removed. For the single mum, the income is a helping hand from the more fortunate.

No need to raise income taxes. Indeed, for lower and middle income earners earning most of their incomes from salaries there could well be a drop in effective income tax.

A tiered consumption tax on luxury items would tax the consumption of the wealthier members of society who can afford it; you don't buy a sports car when you're badly off! If you do, it proves you have money to spare. Part of what you pay for the car goes to help a struggling person elsewhere. You feel good about the car and good about helping someone else out ;-).

Objection 2: Rewarding Idleness

Why should you pay taxes so someone else can sit around doing nothing? That's not fair! You erode the notion that a "dollar earned is superior to a dollar received". You start to erode the basis for the work ethic!

If tax payers think taxes are being used to support bludgers, most will resent it. As Tony Abbott pointed out, this resentment is a risk to the consensus required to provide government support to unfortunate people.

Equally, though, there is something else at play. Brad de long:

Insulating the poor from cuts is a left-wing goal. But it will create a large class of Americans who get much, much less out of Social Security than they put in and for whom Social Security as a whole is demonstrably a very bad deal. Early Social Security guru Wilbur Cohen may well have been correct in his belief that "in the United States, a program that deals only with the poor will end up being a poor program. ..." Loading a large chunk of the burden of fixing Social Security onto America's upper middle class may be the first step in the creation of a mid-21st-century political majority for the phasing-out of the program as a whole.

link

But there is something else to add to this equation. As I wrote about in the Bullshit Industry, humans are approaching a point where we become less and less of a factor in production. That applies to white collar jobs, entrepreneurs, blue collar jobs, etc.

Humans are (gradually) being made obsolete in the traditional capitalist model. This is a good thing, and is the very thing all capitalists are working toward; eliminating labour costs.

So, the guaranteed income accompanies improvements in technology. It is designed to cope with this obsolescence in an efficient manner. You could implement it through the tax system.

As it stands much of the profits from technological advance accrues to those who own it or are vital to it. They are usually very busy, too. So they accumulate wealth but not much spare time.

Guaranteed income acts to spread the benefit of that automation more widely. After all, most technologists are standing on the shoulders of giants. At the biggest giant of them all is generations and generations of people working together. Call that socialist, if you like, but without that compromise we are doomed to two things:

  • A plutocracy; government by the rich for the rich and inevitable social disorder;
  • The plutocrat's neeblings, working hard in a make-work scheme.
  • The poor - not talented enough the participate in anything except make-work schemes, prisons or various forms of intrusive welfare system.

This is the suboptimal scenario that is currently unfolding. It degrades civilisation and democracy and is profoundly anti-capitalist because government is captured by vested technological interests who, oddly, act to stifle technology. The plutocracy assumes power and dominates, work is invented to occupy the plutocracy's neeblings. Atrophy and social collapse follow :-).

Alternatively, we take a different approach - the guaranteed income. This brings us to the possibility of a 3 day working week as automation starts to eliminate white collar work, unskilled work and more skilled blue collar factory work.

Objection 2.1: Why Do Shit Jobs if You Don't Have To?

Second, what incentive is there for people to do time consuming, poorly paid, boring work? People will not fear absolute poverty or the "compliance effect". They know they'll always have an income.

Is this a bad thing? Some would argue that it is. Fear keeps people "honest", it's a motivation to hard work. They may be reluctant at first. But they may find the work has a positive effects on their lives eventually. The benefit of hard work.

Often the people who make those arguments have interesting work or are bitter that other people are enjoying themselves whilst they're suffering!

I'm being facetious. But a lot of the time people motivated by fear are just depressed and less productive. If the poorly paid, boring time consuming work is less intensive (part time perhaps), people will cope with it better.

And let's not be so negative about human nature!

Godammit! What about positive incentives!?

First, fear also makes people avoid risky things, too. It reduces the incentive to be entrepreneurial. This makes people less productive.

Second, when new money is created by the central government, instead of spending it directly, or giving it to banks to then lend out, the government can transfer it directly to the guaranteed income. This reduces the power of marginally productive but overly influential financial elites.

This will act as a way of reducing inflation. There is no incentive to inflate the money supply, because the new money goes to everybody equally via (say) the tax system. It is spent at the same time. Financial special interest groups don't benefit in the same way.

This a very good reason that guaranteed income would face great opposition!

Inherent in the strictly economic view of the work ethic is the notion that activity only has value if it is paid. The need to "pull your weight" aside, does this really make sense?

Is doing something romantic for a loved one therefore less worthy than doing a shift at work? Is playing with your children of less value than working in the office? Is working on algorithms for software given away freely more valuable than working on the same stuff for money that only some people can access?

(From a business point of view, these things don't have direct $ value. But the business model of value breaks once it starts eliminating labour en masse. Because it is also eliminating consumers en masse. So the market system acts to gradually reduce the size of the market. So work gets invented to create a market again - in a make-work scheme. Crazy. Another way of saying it: the business model of value is becoming a less useful way to organise society at large around prices because of the very success it is having eliminating paid work!)

Anyway, there are only a few people who want to remain truly idle. And to spare everybody else their incompetence, perhaps this is good thing.

People who have problems can get counselling, treatment, and so on. Others could start their own businesses, volunteer at a local community organisation, program software, help pensioners go shopping, play music, complete high school, do work experience with a business, run a household, volunteer as firefighters, bring up their kids.

No, a lot of people want to do things because doing them has intrinsic value to them and others. A lot of the important work in our society goes unpaid.

Second, keep in the mind the guaranteed income covers the basics. Basic food and lodging. If you want to go on holidays, buy a new computer, get a TV, buy a car, own a home, live in you own home, get new carpets, and so on, you will have to work for it. Some people will be happy to do without those sorts things, but most people want things beyond the basics.

One great incentive remains, as old as the proverbial hills. People don't usually think about what they have, but on what others have that they want too.

In short, all the positive incentives to do paid work are still there. Some of the negative ones are removed.

Taxes aren't being used to support "bludgers", they're being used to remove fear from all peoples' lives - rich and poor alike. What could be more noble? Do we really want a society based on negative incentives and fear or one based on positive incentives?

I'll also let you in on a little secret. Shares, derivatives, and so on - various forms of "passive" income - are all rewarding idleness too. When you hear about people saying they're making their money work for them they're lying. Someone else is working for them, but doesn't realise it.

(The philosophy around this in capitalist circles is typified by the vaguely sociopathic writings of Timothy Ferris and his ilk. But they do make solid points.)

That's a facetious point about passive income, but you get my drift. There are all sorts of examples of "acceptable indolence" once you look for them. Song writers who spent 2 minutes writing a great chorus who live of the royalties for decades, for example. Someone who filed a patent 30 years ago and still gets royalties.

When you hear about people saying they're making their money work for them that's a euphemism. Someone else is working for them via the financial system. It could be by paying mortgage repayments, working in a petrol station owned by a pension fund, paying to play a song, or whatever it it.

The acceptably indolent did the work ages ago and still reap the benefits.

HAving a period of acceptable indolence is the reason many people do things. People work to reap some reward later on.

In moderation, there is nothing wrong with this. In fact, I'd argue that it is very natural. Old people live off the young. Children live off their parents. People rely on others to do work for them. We are a cooperative species.

Why not extend this notion into tax system, too? It seems perfectly capitalist to me? I don't have a problem with the idea that a person who was clever once (and filed a patent) is able to reap rewards from others for a while. But I see the same argument that someone who pays taxes for years and loses work should get something in return. Or the idea that if someone is an Artist, they need to be supported on the off-chance they produce great work everybody enjoys eventually. Some will, some won't. But we can't tell who, and they all need time to hone their craft.

And so it goes on.

A Slight Modification to the guaranteed income to Handle Objection 2

Alternatively, if a person isn't working or doing voluntary work, then the guaranteed income could accumulate as a debt. A debt that that could be paid off later if the person starts earning a good wage. For instance:

If I took a year to go to University, or help my wife with the kid, then I would accumulate a debt. Then I could pay it off when I started working again.

If a family has children, then the debt could be waived. That way one (or both) of the parents could work part-time and spend more time bringing up their children. What could be more family friendly than that?

If I found myself unemployed I could do some voluntary work. If I did more than 12 hours a week voluntary work then the debt would be waived. If I didn't do any voluntary work, then I would accumulate a debt. So if I spent a year surfing or just being idle, I'd have to pay it back once I got a job, wanted to start a family, buy a house, and so on.

Guaranteed income debts could be administered simply via the existing tax system. Not unlike a Higher Education loan (the HELP or HECs scheme).

This slight modification is not ideal. There will be some minimal bureaucracy. I'd prefer to keep things simple and not bother.

Objection 3: It will make it harder to employ people!

If everybody gets a guaranteed income, employers can take what they pay people now and reduce it. The result is that it costs a lot less to hire staff at the bottom end.

If I was running business and I had to employ someone a cost of $35,000 a year that's a big cost. Take the guaranteed income out of that and my business is starting to look a lot more profitable!

That means more jobs.

As income is not withdrawn and there is no "compliance effect", people will benefit from taking work when it comes up. It also means many controls on work places and so on can be done away with. People have a guaranteed income they can fall back on. It simplifies the process of employing people.

Finally, there's no centralised bureaucracy getting in the way of employees or employers and less paper work.

Of course, some people will not want to work as many hours as they did. Particularly if their jobs are not much fun. Why? If you have to work to earn $20k a year at $14 / hour that's about 27 hours a week. With the guaranteed income of, say, $10k a year, that's much fewer hours work required to get the same result. But that's the entire point - this is designed to cope with technical obsolescence of human labour.

Of course, if you lowered the minimum wage to, say, $10 / hour, the result would be I'd have to work more hours a week to get to $20k. I would probably work more, though; to buy a few extras, meaning I might work 15-20 hours a week. Either way, the employer is paying less to employ me, I have more income and work fewer hours, and they employ someone else part time to fill in.

Is the Guaranteed Income Feasible?

Probably not.

  • First, there is the cultural and (arguably) physical aversion to paying money to the idle. You have the traditional work ethic, too, which makes it a hard sell.

  • There are the existing vested interests, too: government and corporate bureaucracies (who have huge programs to administer and would be removed), politicians of all stripes (who love deciding where money will go).

  • Finally, we're all conditioned to the existing model. This actually makes people afraid of leisure time. People have been captured by the routines of the factory model and are afraid of not engaging in them.

Etc.

So I doubt we'll be setting up automatic monthly payments via the tax department and closing vast amounts of the government down.

But I think something similar (but less obvious and simple) is inevitable.

It will probably take the Bullshit Industry form instead of the more straightforward form I've outlined. But it will happen - because automation will gradually eliminate human work. This is what capitalism is all about - eliminating costs, including labour costs. It's built into every business model.

So either capitalism is compromised hopelessly to deal with vested interests, atavistic human psychology (the work ethic, etc), strange psychology around money (it is only a system of resource distribution, all morality around it is bunk), and so on, or we find a way to start gradually evolving into a leisure society using automated processes such as guaranteed income.

This will happen when the plutarchy's neeblings (mostly middle class professionals and self-employed working class) start losing their jobs and incomes and demand change.

I just hope the instruments of suppression are not automated enough to allow this rebellion to be put down ...

E.g. Robots with laser eyes!

"You will OBEY the plutocrats!"

"You will OBEY the plutocrats!"

"You will OBEY the plutocrats!"

Zap.

"You will OBEY the plutocrats!"

Crunch.

:-) Okay, so now I have started inventing an outrageous dystopian sci-fi story. Hmm. Excellent.

(I'd like to thank by father for the hours of conversation and initial inspiration for this pondering this topic - thanks!)