Funding a Universal Basic Income

Follow up note/Clarification:  "Aggregate demand," as described below, is perhaps overly simplistic.  Traditionally, aggregate demand equals consumption (in this instance, UBI per capita multiplied by the population) plus investment plus government expenditures plus trade balance.  Depending how generous UBI, ultimately, becomes… taxes could be drawn from UBI to cover government expenditures (beyond UBI itself), and if savings were to accrue from UBI, investments too, could be accounted for w/in UBI.  Therefore, UBI per capita multiplied by the population could conceivably equal aggregate demand.  Either way, the traditional definition of aggregate demand stands. But my primary argument still applies, as well: As long as aggregate demand, inclusive of UBI, does not outstrip aggregate supply, inflation is held in check and a UBI should be sustainable.

Funding a Universal Basic Income

Freedom is indivisible, and when one man is enslaved, all are not free.

-       John F. Kenndy

By J.M. Hamilton 3-12-2017

If you read no other editorial this year, JMH highly recommends Mr. Buchanan’s piece, The Misunderstanding at the Core of Economics, published in Bloomberg View.  In the piece, Mr. Buchanan cites recently deceased economist Kenneth Arrow for both helping to create - and taking down - the general equilibrium model, and the catechism of overly simplistic demand and supply models, often utilized to justify a great deal of economic activity.  The general theory of equilibrium (aka Adam Smith’s invisible hand) has been utilized to justify everything under the sun, from the religion of free markets with perfect knowledge, to free trade & globalization, and also, including – but not limited to – deregulation and de-unionization.

In the same piece Mr. Buchanan, by way of Mr. Arrow, notes: As with most theories, and the general equilibrium model is no exception, there follows enough caveats & conditions (exogenous & endogenous variables) to choke a cadre of Ivy League economists.  Politicians running governments, academics, economists, and think tanks are often sponsored, or beholding to someone, and that someone or something is all to often multinationals and plutocrats, who have a vested interest in perpetuating many of the myths surrounding the primacy of the free market.  Social outcomes are maximized, if government stays out of the way, and, as the U.S. Chamber of Commerce is fond of advocating, let the Robber Barons have their way.

The Godfather of capitalism, Mr. Adam Smith, recognized that the natural course of capitalism is for enterprise to seek out advantages, often afforded via the government, not the least of which is cartel and monopoly.  Monopolies are little more than socialism by private proxy. Without the checks and balances of competition, afforded by many entrants into the market place, said cartel or monopoly often charge obscene taxes upon society (albeit a privatized tax). 

Obscene taxes may foster dreams of revolution and regime change… some might recall the rallying cry of the American Revolution against a British Monarch: “Taxation without representation is Tyranny.”  Tyranny, by the way, is not the exclusive domain of governments; Tyranny may arise from the oligarchy that pulls the government’s strings, a – not so – invisible hand.

All of which leads us to the topic of my last piece, Another Reason for a Universal Basic Income, in which it was described how concentration & monopoly from M&A, free trade/globalization, and automation “were all killing jobs, and all too often opportunity, at an alarming rate.”  The same piece put forth the premise that a UBI would allow society to dispose of industries deemed irresponsible and morally repugnant. 

Further validating JMH’s premise, the NY Times ran an excellent piece last week – going into some depth – on how concentration in industry after industry has led to rising unemployment for Americans, and greater wage and wealth inequality (and arguably, the decimation of the middle class). Vanity Fair’s Hive ran a piece in late February, citing Trump’s billionaire buddy from Japan, Mr. Masa Son of SoftBank fame, who is being credited with the goal of investing $50 billion in America and creating 50,000 new jobs.  Apparently, Mr. Son does not hold out much hope for the longevity of these jobs he has yet to mint. The Hive article affords the following: 

“Within 40 years, in every aspect of every industry – doctors, lawyers, designs, etc. – I’m expecting artificial intelligence will exceed the wisdom of human beings,” Son said at an investor’s meeting.

Just to drive the point home, the U.N. recently reported that up to 2/3 of the jobs in developing countries maybe lost to automation.

Well, there you go.  Some may view the thought of a labor free economy (a.k.a. a fully automated economy) as darkness incarnate and a highly depressing thought; while others – myself included – look forward to an era, where future generations may have the luxury of living a life, w/out forty years of toil and an early grave.  Let’s face it: America maybe the land of the quasi-free, but w/out economic freedom, that is to say, freedom from want and fear, there truly is no freedom. (The leading Kennedy quote, above, immediately comes to mind)

So w/out belaboring the point, how do we fund future generations emancipation from the tranny of the nine to five grind, or the tyranny of no nine to five grind, and an economy driven by AI & automation?   That is, how do we fund for a UBI (universal basic income)?

Several avenues avail themselves, and as these things go, there are economic and political consequences to many UBI funding solutions (and the following is by no means expansive or conclusive):

Perhaps the key to starting up a UBI in earnest is the multilateral writing down of global public debt.  The U.S., Japan, China, and parts of Europe are all mired in unsustainable debt.  By having central banks monetize public debt, which has already been done to varying degrees, the debt- on a multilateral basis – can be written down or forgiven.  As long as this is done in a coordinated fashion, there should be no harm to purchasing power of each nation’s currency, or the balance of economic power among currencies.  Banks, insurance companies, and retirees may not like it, but many of these institutions are already used to earning close to zero returns on sovereign debt, if not in the case of Europe -- negative yields.

With debt carefully and methodically written down – or say placed w/in “bad banks” – governments around the globe would be free to spend again, particularly on a UBI.

And while we are on the topic of debt monetization, there’s no reason why central banks – as one of many means – can’t fund a UBI simply by printing money.  If the Federal Reserve can print trillions for Wall Street bank bailouts – seemingly with limited effect on the dollar’s purchasing power – then why can’t central banks support a UBI by the same means?

What’s the alternative to a multilateral public debt write down and central bank money printing?  Well, that would be taxation.  And taxing income wouldn’t quite get us there, unless rates are raised significantly and corporations & multinationals actually begin to anti-up and pay their fair share.  Presently, corporations & multinationals only make up eleven percent of the federal government’s revenue intake.  No, the bigger tax prize – if taxation is the route or one of many routes to funding a UBI – is global wealth. 

Global household wealth is estimated to be approximately $250 trillion U.S. dollars.  The richest one percent of the population owns half that wealth, and the U.S. possesses, approximately, between 45% to 50% of the high net worth and ultra high net worth individuals on the planet.  (This information comes via Zero Hedge, citing Credit Suisse’s annual global wealth report.)

So let’s do the math, half the global wealth belongs to the 1%, or $125 trillion U.S.  Of that, let’s say approximately 50%, for sake of argument, resides in the U.S., or $62.5 trillion.  Tax 30% of that wealth, and the U.S. national debt of $20 trillion is nearly wiped clean.

Now ask a plutocrat how’d they like to fund a UBI: Through a tax on wealth, or via international debt forgiveness and money printing?

If the plutocrat says neither, there is yet another means.  At some point, if the number of Americans out of work reaches a boiling point, and they recognize that the American economic and political process is rigged, specifically benefiting an elite few, there could be political upheaval.  There could be a revolution(s), not unlike those encountered in America and Europe in the 18^th, 19^th and early 20^th centuries, whereby the lands and wealth of royalty, and the aristocracy and The Church, were confiscated and handed over to nascent democracies, or authoritarian and totalitarian regimes.

Please don’t shoot the messenger.  Far, far wealthier capitalists – than your humble blogger – have noted that the “pitchforks are coming.”

In turn, confiscated cartels, monopolies, and multinationals could be run for the benefit of the people, preferably run w/in trusts established for the public’s benefit, and outside both private and public/government control.  The proceeds and profits would accrue to the people, and help finance a UBI.

Now ask a plutocrat how’d they like to fund a UBI?  My guess is the answer would be through some combination of public debt forgiveness and money printing.  The reality is, and to varying degrees, the funding of UBI could be achieved by a combination of all the above.

Has an U.S. oligarchy snuffed out freedom's flame?

Economic Considerations:

Borrowing from Keynes, the concept of UBI funding – particularly its economic sustainability – breaks down into two simple concepts: aggregate demand (population X per capita UBI) and aggregate supply (a nation’s gross domestic product). 

Regardless of how UBI is funded, it would be absolutely critical - that in order for the venture to work - that aggregate demand not outstrip aggregate supply.  If that were to happen, we’d get inflation and possibly, hyperinflation.

As long as aggregate demand is less than aggregate supply, we should be good.  A UBI is something that would be eased into, and in fact, a UBI is already enjoying some forms of experimentation in Europe, India, dozens of developing nations, and even in Oakland, California and the State of Alaska. 

If inflation were to heat up, government could look to control aggregate demand by either lowering the UBI allowance per person, or by incenting the public not to procreate (see China’s one child policy, presently, revised to a two child policy).  Untrammeled immigration is a factor that could upset UBI’s equilibrium, between aggregate demand & supply.

On the supply side, there are some that argue that the property, air, and natural resources – and earning a living from these resources - are among the rights of man.  That is, the world is owned/shared by all humans.  Moreover, just compensation from private ownership of the land, and rents accruing to lands, land use, and monopolies is a UBI tax.  These aren’t liberals, freaks, and socialist outcasts making these arguments, but rather, the following luminaries were said to be in favor of a tax upon the land (and among some, taxing rent seeking monopolies) to finance a UBI:  philosopher, John Locke; American revolutionary hero, Thomas Paine; former Treasury Secretary, Henry Paulson; Adam Smith; Winston Churchill; at least a couple of republican Secretaries of State; William F. Buckley; economist Joseph Stiglitz; and of course, Henry George.

Taxing economic rents off the land, resources, and monopolies is said to be “efficient, fair, and equitable.”  Such a tax is inherently just and progressive (which is likely why we hear so little about the Georgist tax paradigm, w/in our corporate controlled news media); and a tax upon rent seekers should spur more entrepreneurial drive and initiative, instead of rent seeking behavior, which is all too common in the crony capitalist model.

In the future, if rent-seeking monopolies continue to exist, they should be treated like the utilities that they are, and regulated and taxed accordingly.  This is exactly what our “democracy,” and elected officials, should have been doing all along - regulating business concentration - had they not been purchased and owned by the billionaire class.

Therefore, on the supply side, as a condition to allowing business to concentrate, or as a condition to the continued existence of privately held – rent seeking - multinationals & monopolies, government might insist that said industry would operate at a capacity or threshold, so as to meet aggregate demand. This would be the new paradigm, as opposed to standard monopoly operating procedure of restricting supply, so as to maximize returns (see OPEC’s recent attempts).  In other words, big business would operate in harmony with society, and not as its adversary, so as to mitigate inflation.  Another condition to allowing continued concentration might be that any profits, or private taxation, made above a certain threshold would be taken as part of a windfall profits tax regime; hence, mitigating a monopoly’s incentive to restrict supply, and drive up inflation and profits.

And the penalty for a privately held monopoly or multinational for failure to meet the production caveat stipulated to meet aggregate demand, or to dodge paying a windfall profits tax?  Answer: Public confiscation and/or the break up of said monopoly, into many competing businesses.  All of this, of course, smacks of the dreaded words, "industrial policy."  But we've had an industrial policy for the last 35 years, called neoliberalism, and it's been an abject failure for all, but an inordinate few.

Unfortunately, many of the virtues of private enterprise – the ability to provide many well paying jobs, and innovative products & services – have long ago been interred w/in crony capitalism's tomb.  Taxing (and public ownership of) rent seeking monopolies and inherited wealth, and encouraging entrepreneurial spirit, drive, and initiative w/ a considerably lower tax rate, if any, just might give capitalism the desperately needed dynamism and the shot in the arm it deserves.  

With a UBI, citizens would likely feel free, and possibly inspired, to seek additional forms of income, through private enterprise and initiative. 

Think about it… future MBA courses may teach students how to maximize production at breakeven, as opposed to how to maximize profits.  Then again, perhaps AI and robotics will eliminate the need for MBA courses all together.

Copyright JM Hamilton Publishing 2017

Another Reason for a Universal Basic Income

Another Reason for a Universal Basic Income

If you aren’t honest (about automation), you will continue to have a populist revolt that may not result in good economic outcomes in the future. 

-       U.S. Senator Heidi Heitkamp, via Marketwatch

By J.M. Hamilton (2-26-2017)

The case for a UBI (universal basic income) is unfolding before our very eyes. 

Bear with me, as we look at two seemingly disparate recent events:

One, the nascent acknowledgement of the Deep State’s existence, by a leading fourth estate news organization, the New York Times.

A wave of leaks from government officials has hobbled the Trump administration, leading some to draw comparisons to countries like Egypt, Turkey and Pakistan, where shadowy networks within government bureaucracies, often referred to as “deep states,” undermine and coerce elected governments.

So is the United States seeing the rise of its own deep state?

Not quite, experts say, but the echoes are real — and disturbing.

JMH has written about the Deep State’s extraordinary and abused power before. 

As my readers may know, the Deep State consists of: the DOD; the military brass, who ride the revolving door into the MIC; the intel services, NSA, FBI, CIA, etc, etc, etc.; the police state (i.e. fed, state, county and local law enforcement); MIC contractors (who own and operate much of the Deep State for profit); and the Wall Street banksters, private equity & hedge fund operators, who possess active stockholdings, or ownership, and help finance Deep State operations, directly or indirectly.  Some would broaden this definition to include the Justice & State Departments, and even the Department of Homeland Security. 

And who can forget the Federal Reserve, who has been printing money to keep up with the nation's catastrophic nation building adventures.

Some citizens may still wonder why the U.S. finds itself: perennially at war w/ the world; w/ special ops forces in 70% of the world’s nations; and last we checked, in the closing days of the Obama administration, with the U.S. bombing no fewer than seven nations.  The U.S. too, is the planet’s number one merchant of death.

(The U.S. is estimated to spend a trillion dollars, annually, on this racket... particularly when factoring in interest expense.  And now the Deep State is alleged to be leaking secrets to the MSM, as POTUS Trump has gone on the offensive with the Intel Services.)

But don’t take this libertarian’s/liberal’s word for it.  None other than conservative columnist, George F. Will of Washington Post fame, just did a piece on the topic.  Read here.  Or my pieces on privatized government as a profit center, here and here.

Eisenhower’s warnings w/in his farewell address to the nation have come to fruition, and our Democracy, and elected politicians, are heavily influenced, if not controlled, by the Deep State.  Which, by the way, makes us little better than Egypt, Turkey, or any other third world country run by military dictatorship or junta.  It’s truly frightening to witness, and yet, entirely foreseeable:

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economic, political, even spiritual -- is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.

Akin to, and largely responsible for the sweeping changes in our industrial-military posture, has been the technological revolution during recent decades.

In this revolution, research has become central; it also becomes more formalized, complex, and costly. A steadily increasing share is conducted for, by, or at the direction of, the Federal government.

Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers.

The prospect of domination of the nation's scholars by Federal employment, project allocations, and the power of money is ever present

• and is gravely to be regarded.

Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite.

-       POTUS Eisenhower’s farewell address. 

In the 20^th Century, Eisenhower may have been the most prescient individual, rivaling George Orwell.

Two, the acknowledgement that M&A, free trade/globalization, and automation are killing jobs, and all too often opportunity, at an alarming rate.

As written up by the NY Times, in the mere span of a couple of years, since the floor fell out of the oil market, the resurgent fracking - and oil production - industry has automated to a considerable degree.  Automation in the oil field, per the Times, is estimated to have eliminated 33% to 50% of the unskilled labor jobs.  Now, consider that pace of automation, the profit making potential of eliminating all human labor (often biz’s largest expense), and project it into the future….

Even the BOE has estimated that America may lose up to 80 million jobs to automation.

Apparently, many of tech’s titans have seen the future.  Mr. Bill Gates, mega-billionaire of Microsoft fame, is an advocate and believer in UBI, and believes he has a solution for funding UBI; that is, tax the robots. 

But what constitutes a robot?  Is a robot the automated/computerized command center at an oil or chemical refinery; is a robot the software and code; or is a robot any humanoid device or machinery that has replaced human labor?  Is a robot all the above?

We can see Mr. Gate’s concern… he’s fast-forwarded, and the future appears – largely – human labor free, particularly in regards repetitive tasks.  But even formerly bullet proof professions aren’t immune from job cuts. The poor don’t pay income tax; albeit, they get hit w/ predatory/regressive taxation all the time.  The upper middle class, and wealthy, pay the bulk of the nation’s taxes, via income taxes.  The uber wealthy – corporations, multinationals, & the billionaire class - often dodge taxes and basically write the tax code to their advantage; hence, the reluctance of the U.S. congress to go where even angels fear tread: revisiting the U.S. tax code. 

Now eliminate the middle class due to automation, M&A consolidations, and free trade and globalization, and one can see the tax burden growing exponentially, particularly w/ an aging baby boom population.

Hence, the mass exodus of major corporations out of the United States (so as to dodge taxes).  One can imagine beads of sweat forming upon Mr. Gate’s furrowed brow.

Capitalism (crony or otherwise) – as practiced today – does not provide enough employment for the world’s labor pool, and it's only going to get worse. M&A, a known job killer, aggravates the situation by eliminating labor/aggregate demand, which spawns successive waves of additional job killing mergers and acquisitions.  In the short run, Mr. Trump may, indeed, be successful in bringing jobs back to America (and he should be encouraged); but that event, will likely coincide w/ American manufacturing’s biggest push yet towards complete automation.

On free trade & globalization, economists have commented on how free trade agreements have harmed both U.S. labor and are a threat to national sovereignty.  And JMH, too, has taken up the topic on several occasions, here, here, and here.

M&A, automation, free trade/globalization, and AI are killing jobs at an alarming rate.  Simultaneously, the Deep State has bankrupted this nation with endless warfare and nation building, and has a pernicious impact upon U.S. global affairs and our nation's standing in the world.  Therefore, the case for a UBI has never been more clear.  Do the elite want to stave off, or prevent, a Luddite revolt, or eliminate a corrupt shadow state?  Better to come up with a UBI now, and not wait for the revolution.

But, as JMH stated going into this piece, there’s yet another reason to create a UBI.  Take the two examples provided above: the inexorable rise of a privatized deep state, from WWII forward (a shadow state that threatens the very fabric of our democracy); and the recent reinvigoration of an - increasingly labor free -  fossil fuels industry, due to petrol market rigging by OPEC and speculators (a fossil fuels industry that threatens the very survival of our planet).

The point here is simple.  If a leader or POTUS … or more importantly, the majority of the country’s citizens, want to eliminate an industry (because said industry, such as the private prison industrial complex – is exceptionally prone to moral hazard), what’s the biggest issue preventing the elimination of said industry?

Answer: JOBS.  

One can hear the refrain from the U.S. Chamber and the Business Roundtable in response to such a proposal, and foresee the subsequent lobbying efforts that would amount to scorched earth.

We’ll kill jobs and employee payroll if the U.S. eliminates or significantly curtails the MIC; we’ll kill opportunity for thousands of employees, if we end the morally bankrupt enterprise of privatized prison contractors; the U.S. will crush a million or more jobs, if the U.S. dumps big carbon (coal, gas, and oil) and goes entirely, renewable. (Interesting: The Chamber & the Roundtable are nowhere to be found, when jobs are being cut to juice quarterly returns.)

Institute a UBI, w/ a basic benefits package, and those types of arguments are eliminated.  And America, and other countries who choose to institute a UBI, are free to eliminate entire industries that are – as w/ the horse and buggy – antiquated, or operate against the earth’s, humanity’s and future generation's best interests. (All of this helps to explain why free trade agreements are negotiated behind closed doors by multinationals, and away from the public's prying eyes.  Many of these free trade agreements contain ISDS provisions that allow multinationals to sue nation states - w/in extrajudicial courts - run by and for multinationals - for passing legislation, rules, or regulations that are detrimental to said multinational's profits.  These free trade agreements are little more then multinational welfare, and this predatory behavior and these agreements should be destroyed and transparently renegotiated.)

Up until now a UBI really has not enjoyed public backing from the establishment, but that is beginning to change.  As with many progressive advances, this latest wave in favor of UBI is coming from the West Coast and the tech sector.  To be sure, JMH is not advocating the end of private sector jobs & opportunity; but rather, UBI would work in harmony w/ the private sector. 

In fact, UBI just might save capitalism. 

Look for economic considerations and how to fund for a UBI in my next piece.

Copyright JM Hamilton Publishing 2017