What you think about a basic guaranteed income says a lot about how well you understand the nature of money and capital flow
For some time there has been a debate on the virtue of a basic income to spur demand. After the idea began to gain public traction in Europe more people in the US began to take notice and there has been a sometimes vicious back and forth among economic writers about the application of a basic income here in the US.
While that argument is as unlikely to result in a universal opinion as it is to reach any sort of legislative form, it does reveal the extent to which many very smart people understand the nature of the money we use.
PBS has an interview with Megan McArdle, an economic blogger with a Master’s in economics from the University of Chicago. She has written on economics for The Economist and The Atlantic, among other outlets. My point is that this isn’t Sarah Palin; McArdle is very smart. However, even she has trouble understanding capital flow as we see in her interview.
Why are you opposed to the guaranteed income?
Well, you’ve got a couple of problems with the guaranteed minimum income.
The first is just fiscal. If you look at how much income would be required to actually give anyone what even we consider a very basic standard of living, you’re talking about probably $15,000 for every man, woman and child in the United States. So you think about for a family of two adults — that’s $30,000 a year. That’s probably enough to live on, but what’s the fiscal impact of that? It’s about 200 million people you would have to be sending those checks to — a little over, actually. So you’re talking about in the region of $6 trillion a year, which is much larger than our current budget.
The follow-on question should have been, "But why do we care if the budget is tripled?"
Consider first that a significant portion of the $15,000 each person receives will return to Federal coffers as income taxes on the wages paid by businesses the money is spent at. While a portion of this will undoubtedly go overseas (to Chinese manufacturers for example) the American workers employed to import, transport, deliver, and retail the items all pay income taxes.
More to the point though, why should we care if the government spend more than it takes in? Although MMT folks have been telling us for years that there is really no net debt if the government simply owes money it creates out of nothing, and as long as it continues to pay its debt, in the currency it creates, those debts (and the currency) will have value. However, this thinking is now creeping into more mainstream thought as well, with at least the last three Fed chairs noting that the US cannot default on its debt since it is fully in control of its currency.
I am not suggesting that there is no consequence to spending more than you make in your household budget, or that states and cities have unlimited spending power. But sovereign governments which control their own currency have, in effect, an American Express card with no limit which they can use to pay their bills, including their American Express bill, every month.
So when McArdle says, “I don’t think there’s anyone in America who wants their taxes doubled” she is simply baiting readers who think that sovereign governments should only spend what they take in via taxation, which makes sense were we living under the gold dollar and the amount of money we could create was limited by the amount of minerals we could dig out of the mountains.
And how would a basic income affect work?
The other problem of course is that some people are going to drop out of the labor force. If you can live without working, some people will choose to. We don’t know how many there are; no one’s ever tried this experiment, but what is the end result? The tax base is going to be shrinking at the same time that the number of payouts has to go up.
Again, McArdle acts as if the $15,000 in payments would simply disappear under mattresses. We know exactly how this would work because we have done it before. When the ACA (Obamacare) took effect we saw many people leave the workforce. Free (or nearly free) healthcare IS INCOME.
Understanding the true nature of money is a barrier that is difficult to overcome. Money is simply the physical embodiment of anything that can be traded for an item of equal value. Thus, any public benefit, such as health insurance, is income just as if it were money received by the patient. The difference is that the ACA income can only be spent on healthcare, thus we have seen healthcare workers increasing at a dizzying rate for the past two years to take advantage of this increase in incomes.
Part of this is a bit moralistic. Everyone should be contributing. Having half of the population, or any significant fraction of the population, say that my job is just to take, and other people go out and make that money, I think that is morally problematic. Not, obviously, for people who really can’t work, for people who are unable to, for one reason or another, are unable to support themselves. But for people who can and choose not to.
ALERT! Be very wary when economic writers turn to moralism, it usually means their argument has little support in concrete terms. Here we see a call to the “work ethic” mentality, that hard work has a spiritual value. Now whether I agree with that or not is not the point, let’s look at the bundle of assumptions tied up in her statement. First, that workers who don’t need to work will simply sit home and eat up their support checks. Because they’re lazy. This recalls some of the more moronic statements from Congressmen lately about the “nature” of urban black workers and programs such as Supplemental Nutritional Assistance Program (SNAP) and Unemployment Insurance (UI). There is no reason to think that these workers won’t take the time afforded them by their basic income to pursue any number of worthwhile goals that might suffer from the flaw of not being profitable. Unlike the industrial period we all grew up in, where massive numbers of laborers were needed to power the machines of production, we no longer needed three shifts at the plant to produce widgets, but we still need people to buy our widgets. That is their contribution and is not an example of “taking”.
But even beyond that, what we know from looking at studies of people who are out of work is that being out of work makes you unhappy; it makes you less healthy. All sorts of socio-economic indicators say it decreases your wellbeing. Even though this can be a rational short-term decision, right: I don’t like my boss right now. I don’t like my job right now so I’m going to step back and stay out of the labor force. One place we do see this now is with stay at home mums — not to in any way criticize their decision, but ones who then want to go back to the workforce have a really hard time getting back in.
Wow. There is a lot in this bullshit paragraph so let’s take it apart in pieces.
But even beyond that, what we know from looking at studies of people who are out of work is that being out of work makes you unhappy; it makes you less healthy.
Yes. Lacking health insurance tends to have that effect.
All sorts of socio-economic indicators say it decreases your wellbeing.
There are no socio-economic indicators which measure “wellbeing”. If you think there are then cite them.
One place we do see this now is with stay at home mums — not to in any way criticize their decision, but ones who then want to go back to the workforce have a really hard time getting back in.
First, this is totally criticizing their decision. Moms have it tough, if they want a family there simply is no “decision” about it. They need to stop working for a least a brief period. Why? Because I don’t have a uterus, that’s why. And while they are gone I am going to put in more hours, be more productive, and network my ass off. Then I will be the one they need to interview with for a job when they “decide” to return to work and I have to weigh their lighter CV against the guy or woman without kids I saw right before them.
Are we not going to guarantee that every child gets educated? That’s a big expense, but that is a big expense for the government. In some sense, it’s a redistribution program because wealthy people don’t get nearly as much out of the system as they pay into it. Are we going to take that out and turn that into a voucher? It’s not that I wouldn’t necessarily support that, but you still need an infrastructure to make sure… There are some parents who wouldn’t send their kids to school if you made it a cash free grant.
What the hell? Has defunding public schools ever worked for any country, anywhere? Some parents would go to jail if they decided not to send their kids to school, just like they would today. This is another sign of the lack of a real argument from an economic writer, we reach out for the weirdest possible outcome and assert that it is the primary result of the suggested policy. I am probably as guilty of it is any other (although nobody reads my pointless drivel).
Are you going to take away health care benefits for people who are too sick to buy insurance on $30,000 a year?
No, I am also not going to advocate any policy based on the impact to a tiny minority of the population. Should we also outlaw all flashing lights at Christmas to protect epileptics?
A lot of immigrants are low-wage workers. They’re not skilled, a lot of them. They don’t have as much education as most Americans and so they never do get up to the point where they would ever pay enough in taxes to make back that check.
People who say crap like this have never hung drywall or picked fruit, I assume? That crap is hard, and it actually pays well when fairly compensated. More importantly, McArdle makes it clear again here that she really doesn’t understand the true nature of money, which is simply to provide a means of trade for an item or service of equal value. Immigrants, even those dirty, brown, unskilled ones (she doesn’t say that but you can infer it, especially since the only racial group where native-born workers out earn their immigrant counterparts are Latinos), will spend every dime you give them, and if history is any guide, they will start businesses and send a lot of money home, raising the incomes of people in their home countries as well. That isn’t just good domestic policy, it helps our neighbors as well.
First of all, part of what makes a welfare system work is trust, and having a very homogenous culture where you trust that people you’re giving welfare to aren’t abusing the benefits, and they trust that the benefits are going to be given out in their best interests.
I am not going to touch the mountain of racist crap coded in that statement. Again, McArdle misses the point, which remains that the nature of money really makes it unimportant who the funds go to, but instead that money is moving in the system and being traded for goods and services produced as much as possible in the US. This isn’t support for the people who receive the checks, it is support for the businesses and workers who are the very people conservatives claim to represent. If this isn’t “politically viable” then maybe we should ask why politicians, and conservative bloggers like McArdle, aren’t educating their constituents and readers about what money really is? It isn’t a sign of wealth or status, it isn’t a moral reward for hard work, and it certainly isn’t compensation for being homogeneous with the rest of our country. It is nothing more than a tool which can be traded for an item of value, and focusing on the moral qualities of the people who are conduits for pushing this tool through our economy is either a gross act of negligence, a simple act of ignorance, or both. The fact is, a basic income might not work in America for a ton of reasons. It might push too many workers out of the labor market. It could be too inflationary for the Fed to control. People might hoard it, stuffing it under their mattresses after all no matter what I think they would do with it. But McArdle can’t see any of these issues because she fails to understand the basic nature of money and allows bias against race and class to cloud her analysis.
PS- if you really want to read a brilliant take on the role of consumption in supporting demand you might want to read Harvey’s “Right to the City” wherein he borrows from Lefebvre to discuss the Great Recession.
Sources: In no particular order because there is a new ep of Cosmos on the DVR.