A Vague Plan for a Transition to Guaranteed or Basic Income

Monday, December 9th 2013

A large part of the constituency for a Guaranteed Income is securing its share of technological advance via the Bullshit Industry.

There's likely to an increased frequency of systemic crashes, however. The bullshit industry will attempt to rationalise work reducing technology and business practices in terms of, well, its own systemic biases. So society will be unable to deal with actual circumstances; emotive post-hoc rationalisation will blind people to the actual problem of human obsolescence.

One effect of this process is to "obscure and normalise" (in the same way higher and higher rates of unemployment are normalised as the "natural rate of unemployment"), but the effects of new tech will be unavoidable no matter how cunning the post-hoc rationalisation.

The problem is, the bullshit will become less and less effective as the technology improves. Tech just gets better at killing off jobs than the bullshit industry gets at inventing pretend work. Moreover, there will be competition from other jurisdictions with slightly less bullshit.

Market systems are now the object of technological innovation, for instance. Cryptocurrencies, digital markets, online reptuation, etc, all play a part. Many technologists see a market system as a "distributed system". Hayek put it this way in 1945:

The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate "given" resources—if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality. source

And there is working going on in the area everywhere you look. And all the precursor technologies are in place (mobile, easy to use computers, networks, cheap computation). People are starting to experiment (e.g. Bitcoin, wikpedia, open source, etc).


  • The bullshit will not be able to keep up with increases in computation, robotics, and machine learning. As traditional some jobs are automated (lawyers, admin staff, bureaucrats, and so on) a capable group of organisers will start to fall into relative penury. They will start to relate to outsiders rather than aspire to be insiders.

  • Conservative, enlightened owners of technology (and there are many) will realise their position is under threat if they continue to accrue larger and larger slices of national income. More and more creative outsiders without a stake in the system will start to name and question the bullshit industry.

But the conversion of the middle classes and organisational/admin classes from insiders to outsiders via automation has not occurred on a larger enough scale to create a political constituency for change. Yet.

When that happens we could drift into some sort of technofascism that imposes the bullshit rationalisation on society via the shadow bullshit industry, or take up more enlightened policies that make for a more civilised transition to an automated, post-industrial society.

At this point in history, though, all this seems like fanciful stuff. And, due to the unholy union of the "pull-yourself-up-by-your-bootstraps" philosophy and the bullshit industry, guaranteed income and other reforms don't seem to be culturally or politically feasible in 2013.

A transitional system may required to avoid more dangerous possibilities from not doing anything at all.

My suggestion is for Australia, but it could apply to any region - assuming it already has some sort of welfare system. In Australia, my suggestion would probably be cheaper than the current welfare system and, at the margins between unemployment and employment, be less likely to reduce the incentive to work.

Admittedly it is a threat to the parts of the bullshit industry (namely centrelink and a few other welfare bureaucracies), but I think it is politically feasible to take that particular lobby on.

Why? My suggestion could be the policy of a left-wing party or a right-wing party. It could be a policy that would allow for a novel synthesis of political positions.

But what makes it essentially a conservative position is that it is an attempt to secure the viability of the traditional mode of work, reduce admin for business and head-off more radical anti-establishment views that may arise during a crisis.

Moreover, it will allow for a smooth transition to a guaranteed or basic income once there is a large enough political constituency for it and post-industrial thinking is the establishment :-).

What makes my suggestion possible is advances in computational capacity, mobile computers (phones, tablets) and networking.

How It Works

Milton Friedman famously said "the problem of poverty is money." His solution? Give poor people money!

He proposes a negative income tax.

Here's how it works.

Let's say we set the rate at 50%. We set the threshold at AU$12000.

You subtract the threshold (12000) from the person's income. The result is a negative income or positive income.

  • If the result is negative the person pays tax.
  • If it is negative the person doesn't pay tax and receives a supplement.

How is the supplement calculated?

How about some examples!

Example 1: Positive Income

  • I have an income of $20,000.
  • I'd have a positive income of $8000 (20,000 - 12,000 = 8,000).
  • I would be required to pay tax on that $8000.

Example 2: Negative Income

  • I have an income of $6,000
  • I'd have a negative income of -$6000 (6000 - 12,000 = - 6,000).
  • With a negative income tax rate of 50%, I would be entitled to a supplement of $3000 (50% of 6000). My total income would be $9,000 ($6000 + 3000).

Example 3: 0 Income

  • I have an income of $0
  • I'd have a negative income of -$12000 (0 - 12,000 = - 12,000).
  • With a negative income tax rate of 50%, I would be entitled to a supplement of $6000 (50% of 12000), giving me an income of $6000 ($0 + $6000).

These are just examples. You could adjust the threshold and rate so that they reflected peoples' basic needs (on average).

Here are William F Buckley, Jr and Milton Friedman discussing the idea (in 1968!):


Buckley's main concern with the proposal was the problem of what he called the "disorganised poor". People who would blow the supplement on drink, gambling, and so on, and then look to others for the basics. In this context, he says, "what is needed is the administration of welfare". In other words: if you're on welfare, he wants wiser heads than yours to decide how you should spend your welfare money.

For Friedman it would be better to give welfare recipients the ability to decide what to spend their money on. After all, that sort of independent thinking and responsibility is the very thing you want to encourage.

I suspect Friedman also nails the contradiction of paternalistic welfare. "A welfare worker is not in a position to help the recipient", Friedman says to Buckley. "He is a policeman and a spy." To Friedman, the welfare worker needs to keep tabs on whether or not you are acting within the rules, spending money on the right things, not putting sufficient effort in, not secretly moonlighting and so on. A sort of welfare parole officer.

So in government or publicly funded institutions welfare workers have a dual role:

  1. Policeman and spy;
  2. Helper.

The person whose job it is to help you find work or sort yourself out is also there to police and spy on you.

The dual roles are often contradictory. The person being helped also has the power to cut you off welfare. So it often ends up being a power relationship rather than a supportive relationship.

Making an inference from Friedman's other thinking, the welfare worker also has a vested interest in getting paid! It is not in the interests of welfare workers to make themselves obsolete by solving the problem of unemployment! Naturally, the system of punctillious control over welfare recipients expands and perpetuates itself.

At scale, the paternalistic criteria become generalised to classes of people, not actual people and actual circumstances. A set of inflexible bureaucratic rules develop that are incapable of dealing with the vicissitudes of reality. Individual bureaucrats or welfare workers are unable to change the rules, so the system naturally filters out anyone who has the creativity to adjust them to reality. Due to the power relationship between welfare worker and welfare recipient, bullying or simple bureaucratic inflexibility can lead to difficulties for welfare recipients, often scuppering their attempts to get off welfare. Along the way, the bureaucracy perpetuates itself to keep bureaucrats and welfare workers employed.

With Friedman's proposal, you remove the need for special classes of people and the power relationship between welfare worker and recipient. The tax agencies take over and treat everyone in the same way - rich or poor. Welfare is integrated into the taxation system, everyone is equal in the eyes of the law.

Who looks after special cases or people who need more help? People with drug problems, difficult family backgrounds, people who can't manage their money? Private charity. As Friedman says, "the great virtue of private charity is that it can be individualised". (My emphasis).

I could wrong here, but I'm assuming Friedman would say private charity has more chance of providing a useful service to people in tough circumstances. Why? Rather than being large, general bureaucracies dealing with very broad classes of people, smaller private charities have more chance of specialising in helping actual people with their actual circumstances, or at least taking a more nuanced approach. They are less likely to filter out workers who have the creativity to help actual people with actual problems. And, they can concentrate on dealing with particular problems because the state is doing the more general, expensive job of supplementing incomes. Moreover, they can concentrate on helping and not on policing or spying.

Buckley was concerned that governments would increase the negative income threshold and possibly crowd out or preempt adhoc private charity. To which Friedman responded: "we're comparing alternatives, which [program] is more subject to this problem?" To Friedman, if you were starting from scratch you might be adding to the problem of crowding out private charity. But you need to compare the new model with the system that exists.

Incentives to Work

As it stands, a lot of welfare is withdrawn gradually if you start working. Many people on welfare do a calculation: the welfare dollars that are withdrawn are subtracted from the income made. It often ends up being the case that the person end ups hardly ahead at all, or with a negative result. They're working and fulfilling all the paperwork and busywork imposed by the bureaucracy. At the margins, the payoff for working just isn't there. As Friedman says: "to earn a little bit, to get off welfare gradually, doesn't pay".

For Friedman, the important point was the supplement would never be equal to the threshold point ($12,000 in our example). The calculation for the person below the threshold would always be: if I work - no matter how much - I'll be better off. In this way, work would always pay.

Say I'm earning $8000. I get an offer of a job that would pay another $2000 over the year. My income goes up to $10,000. That's $2000 below the threshold. I'd get a $1000 supplement. I'm $3000 better off. It still makes financial sense to work.

Say I'm earning $9000. I get an offer of a job that would pay another $2000 over the year. My income goes up to $11,000. That's $1000 below the threshold. I'd get a $500 supplement. I'd be $2500 better off. It still makes financial sense to work.

But, you say, what about the idlers? The people who'd sit around collecting their supplement and watching bad tv?

Importantly, the supplement is quite low. Admittedly, you do not have to prove you are looking for work to get it. But, for the most part, most people will look for work because the relative poverty of their position will be adequate motivation and there are no disincentives to gradually getting off welfare - work always pays.

For those who argue that this system will still produce an idle underclass of welfare recipients, I would argue that nothing much changes from the current systems of welfare that require reporting and oversight. The determined idler will rort that system anyway - and waste the bureaucracy's time doing it.

Sifting the "deserving" from the "undeserving" is a fool's errand in this regard. It just ends up trying to keep the honest people honest. It is also a make-work scheme for bureaucrats.

At the margins, the harassment involved in policing welfare recipients may provide motivation to some, but I would say that this is off-set by the disincentives inherent in any system of welfare parole policing, high effective marginal tax rates, inflexibility in the criteria that declare you "looking for work", power relationships replacing supportive relationships, and so on.

Again, I'd say: bureaucracies created to solve a problem are often very bad at solving it and very good at perpetuating it. It is a simple matter of institutional self-preservation. The welfare bureaucracy has no interest in actually solving the problem of unemployment: there would be no work for bureaucracts overseeing the system!

Variation: Work for the Dole

Okay, so you're still insisting all the costs of pursuing idlers are still worth it. You still want to make sure people aren't idle.

You could adopt a "work for the dole" scheme (not my preference), non-profits could "employ" people to earn their supplements at the minimum wage. The non-profits could report peoples' hours online, the supplement would be paid weekly by the ATO based on those hours. (Contact hours spent in education and training could count as well.)

People on welfare could choose the non-profits they want to work for and the non-profits could choose who works for them.

So, I'm earning $5000 a year. That gives me a "negative income" of -$7000. Say the minimum wage is $15 an hour. That's just under 9 hours of voluntary work I'd have to do a week in addition to my job if I wanted the supplement.

If someone logged no hours or partial hours, the supplement (or part of it) could accumulate like a debt - in the same way the HECs system works. Once a person started earning, their tax rate would be higher until the debt was paid back. So people could take time off to pursue business ideas, projects, or just take time off. But they'd end up paying it back.

Of course, all this introduces bureaucracy again: non profits have to enter peoples' hours. People have to assess peoples' eligibility for exemptions if they can't do the work with non-profits. Government paid non-profit work might crowd out paid work. And so on. It ends up being inefficient quite quickly. But it may deal with the "work ethic" emotionalism that surrounds welfare systems - at the cost of creating an ever-expanding bureaucracy that wastes time and money.

The Philosophical Case

The Private Property Compromise

The State protects private property. Yet no-one can really claim that they are entitled to a particular natural resource ahead of anyone else. Instead, natural resources have been claimed arbitrarily in the past (often using force directly or indirectly) and then passed on to descendents. An example is land.

So turning natural resources into private property means some people can't avail themselves of those natural resources. This system tends to benefit some people disproportionately over the generations; the people who luck into ownership via inheritance or timing or by virtue of superior political skill.

Note: I'm not saying that all private property has been claimed through sheer luck, force or politics. Some is created by mixing labour with natural resoruces, for instance. But sorting out who deserves what is a fool's errand. Things are as they are. Morever, people need to be able to own things. It's a matter of social stability; it allows people to work and be sure the rewards will be theirs. It gives people a stake in things that might otherwise be neglected if held in common or left without owners.

So a compromise is necessary. The supplement is compensation for the possible unfairness in the allocation of natural resources in the past. It lends more legitimacy to what might otherwise be considered an initially unjust allocation of resources.

Precursor to a "Productivity Dividend"

People who work on technology and whose skills are made obsolete are often made redundant.

Sure, they were paid for their time. But they don't necessarily derive any passive income from the company, business, or technology they helped produce and, eventually, automate the production of.

They have specialised in a particular area to help ensure society makes progress. It is hard for them to adapt at the pace of technological change, particularly if they are older. The result is long term unemployment, drops in wages, and so on.

In other words: the benefits eventually go to others, the specialists bear the costs of specialising in an area where human labour is declining in value.

Yet these people undoubtedly contributed to society. The negative income system is there as a form of insurance so they can get back on their feet and an acknowledgement of their contribution.

(It is also the beginning of the idea of a "productivity dividend" that would be more fully realised as a basic income.)

Taxes Apply Both Ways

Moreover, the State takes a proportion of your income if you earn above a certain threshold. It follows that if you fall below a certain threshold the government should supplement your income!


The overall idea here is to reduce some negative incentives (fear of failure, poverty, homelessness, fear of an inability to get medically treated etc) by putting a reliable floor under peoples' incomes. But to keep positive incentives intact (buy a nicer house, go on a holiday, buy fancy new shoes, start your own business, volunteer to fight fires, etc).

The principle is simple: the aim of civilisation is to reduce suffering and encourage effort so progress can be made.

The negative income tax allows people the free time to do things that have a time gap between when they start doing them and those thinga start to pay off. This allows entrepreneurs, artists, and others some leeway to get ideas off the ground without asking permission from anybody. It makes for a more entrepreneurial society.

Progressive Taxation

The argument for progressive taxation above the threshold is primarily a moral one. After a certain point, the marginal utility of extra dollars to a richer person is less than the marginal utility to a poorer person of having those dollars. In simple terms: there's a bigger qualitive leap between

  • not having a place to live and having a house
  • having a house and having a bigger house.

(This is linked to the civilisation argument above.)

The reason this argument holds true is that market outcomes are far from optimal. Some make too little, some make too much. How economic externalities are handled, good luck, political influence and so on all have an effect. A classic example is banking: some profits are secured due to government guarantees provided by everyone else.

Progressive taxation attempts to redress this by reducing the extremes in wealth and keeping the relative incentives for different levels of effort intact.

But it also reduces the likelihood of social breakdown at relatively little marginal cost in utility to the better off. Silly example: if nobody else has a house and you have a giant house people question the situation with intensity. If everybody has a house and you have a bigger house they question the situation with less intensity.

What About Australia?

In Australia, a negative income tax could be part of the usual PAYG scheme administered by the tax department (ATO). For the most part it would be automated. This would reduce the adminstrative costs significantly! You could get rid of the most of the welfare bureaucracy that distributes cash and assesses eligibility.

Income Acccounts

Every citizen would have an "income" bank account or equivalent. Perhaps the account would be transferable between institutions and be the same number as a person's tax file number. Only gross income or lump sums from employers would be be deposited into this account.

Salary Deposits

Regular (weekly, bi-weekly, monthly) salary deposits from employers' ABNs (or, in the case of self-employment your own ABN) would be analysed on a weekly, bi-weekly or monthly basis. If the sum of the deposits for the period was below the negative income tax threshold your bank account would be credited with your supplement at weekly intervals.

Supplements would always be paid weekly. (This is to deal with William F Buckley's concern that people might blow larger sums paid at larger intervals and leave none left over for the basics.)

Let's say the threshold is 24,000 per year. 6,000 a quarter. 2,000 a month. That's a threshold of 500 a week.

So if you earn a part-time wage of 100 a week and the rate was 50%, you'd get a supplement of (100 - 500) * .5 or $200 per week. Your total income would be $300 per week.

People with more complex or irregular income arrangements would have their income accounts analysed quarterly. They would be paid the supplement weekly over the following quarter.

Let's say you had a total income for the quarter of $1200. You'd get a supplement of (1200 - 6000) * .5 or $2400. You'd be paid this in weekly installments of $200 per week over the next quarter.


For non-citizens, the negative income tax threshold would start at zero and increase gradually after after n years of paying taxes. This isn't ideal (an ideal world would be civilised and would not have insiders and outsiders). But back in the real world, this handles the "people are coming over here to get the income supplement" objection that some unsavoury characters usually raise.

Threshold and Rate Adjustments

I'd set the threshold annually based on a calculation done across all the income accounts. The higher the sum of the incomes, the higher the threshold. So as the country becomes richer (or there's more money in circulation), the threshold goes up, if the country becomes poorer, the threshold goes down.

The transition to a basic income would be the result of gradually increasing the threshold over time.

The progressive income tax scale would also adjust automatically. The tax rates would eventually be based purely on the idea of taxing people enough to keep the threshold at a level that maintains a level of relative poverty the society deems is acceptable. As observational computing takes hold, this "level of relative poverty" would become easier to calculate.

I would seriously consider keeping the negative income tax arm of the ATO at arm's length from government, in the same way the reserve bank or the ABC are somewhat independent of government. So reviews of the threshold, for instance, would be carried out in a - here's me being really hopeful! - fairly apolitical (hopefully algorithmical!) way.

Reduced Admin for People and Business

You could also use the income account to subtract medicare payments, health insurance, superannuation and so on if need be. The idea would be to eliminate the pain of all that admin no-one wants to do.

For instance: you could get rid of personal tax returns. You could get rid of businesses doing tax admin for employees (they'd just deposit gross amounts into their employee's income accounts). Another example: a charitable donation one week would have an appreciable effect on your income (it would reduce your taxable income and effect the negative income tax calculation for that week).

Private Charity

The base supplement is just not enough for some people. They need additional services. An example might be a person with literacy problems, a history of abuse, a disability, and so on.

Government services and some private sector services exist because a bureaucracy dispenses cash to them (minus a handling fee :-) ).

You can't just dump the existing system, particularly all the specialised, individualised government services for which there is no private charity equivalent.

  • Without special services people with special needs may find themselves without support.

  • If you set up a bureaucracy funnelling cash to private charities to provide those services you end up making them part of the welfare bureaucracy and beholden to bureaucrats.

Here's a suggestion that may solve the problem.

Charities organise themselves. There would be a register of charitable organisations - names, ABNs. This would be public and online.

Charity workers log paid hours with particular people on behalf of particular charities (using the ABN of the charity and the tax file numbers of both charity worker and the person using the service). Charities could also log transfers of resources to particular people (giving a walker to a pensioner, for instance). This is signed off by the recipient and the person doing the charity work. A mobile app or simple web site would make this pretty easy.

If the recipient of the charity work is flagged as low income (we can calculate this via the ATO and the person's income account), then the work or transfer is considered "charity work".

The ATO applies machine learning to check that the work is valid. (For instance, it's unlikely a worker in NSW is providing in-person services to a person living in VIC.)

When a charity worker is paid into his or her income account by a registered charity ABN the ATO already knows how many hours of work he or she has done. A calculation is made: paid charity work hours with actual people are supplemented using a matched funding model: if a person earns $1 doing charity work, perhaps the ATO could pay, say, $1. With a cap at, say, $x per hour.

Same with the transfer of resources. The only difference is you're calculating the matched funding from the charity's accounts. E.g. $x outgoings on walkers would be matched $1 for $1.

Totals of these hours and transfers could go on the public ledger of charities. Something like Charity Navigator.

This does create an incentive to pay charity workers and may crowd out voluntary work. But that is happening anyway in the areas we're talking about; all this scheme means is that charities can operate by paying people lower wages than non-charities but still offer market rates. So they can expand to cover services previously provided by the welfare bureaucracy and hire good staff where necessary.

Importantly, people on charity can choose which services to use. (This may prove a problem with individuals prone to suggestion or manipulation, but I think many more would benefit from the freedom).

You get a more market-oriented solution to charitable work. By "market-oriented" I mean people can organise themselves and take account of distributed information, it is not determined from the top-down based on more limited information. It would probably be better than monolithic bureaucracies handing out grants, deciding where to spend cash and so on.

As I said, you may need to put a ceiling on charitable hourly rates or resouce transfers for matched funding, perhaps. But the ceiling may well be determined by the donations to charities from the public. Charities can only spend what they have and the government only matches what they spend.

Charity work that doesn't involve contact hours is not really part of this plan, because we're just talking about charitable work with individual, low income people. That may need to be dealt with.

Encouraging Charitable Donations

You could also have incentives built into the negative income tax calculation to encourage charitable donation. The principle being: the more you give, the less tax you pay. You keep donations tax deductible.

So if you earn a wage of 600 a week and the rate was 50%, you'd get a supplement of (600 - 500) … you'd pay tax on $100 a week.

But a donation would increase the threshold by the same amount as the donation.

The calculation would change from 600 - 500 = 100 to 600 - (500 + 100) = 0 … you wouldn't pay any tax the week you made the donation.


Finally, you could apply machine learning to pick up fraud and so on.

Keep It Transparent & Open Source

The software and algorithms that administer the system would be open source to make sure the calculations are transparent and reduce the likelihood of "enterprise software rot" and bullshit industry rent seeking. I would get the open source community involved - a national negative income tax system is an exciting project.


It seems a little too simple and perhaps too technocratic to me. No doubt I've missed some obvious things ;-).

The implementation would be technically involved, but it would be quite doable. There are examples of IT projects that easily scale to the sorts of numbers that would be involved. Plus: you could make use of existing financial networks and existing ATO infrastructure. The simplicity of the basic idea makes it easier to administer. Keeping it simple would be politically difficult - banks would want to make money out of it, so would IT companies, and other rent-seekers. That is why an entirely open source approach with paid contributors is so important.


Some wiser heads than mine have asked:

  1. What about artificially lowering the cost of human labour?
  2. What about fraud? In theory you could deposit money in someone else's account and they could transfer cash to yours, each of you picking up supplementary cash along the way.
  3. What about privacy?
  4. What about the cash economy?


  1. It does. But if the wages derived from wage-labour are no longer considered sufficient, what others choices do you have to alleviate poverty? Tax credits and so on have the same effect - they make wage labour cheaper less directly.
  2. I think that can be solved to a large extent using transaction tracking, which is necessary for the rest of the system to work any way.
  3. Most of the data I am talking about is already being accessed by government agencies as is. If privacy is a concern you shouldn't be using the banking system. If you do systemise transaction tracking and so on, it is at least done officially and under rule of law. You may be able to limit the deleterious effects.
  4. Transaction taxes of one kind or another would work here, I suspect. But I'm not sure about that.