UBI isn’t bad or good

by Serban V.C. Enache

I’ve written in the past about Universal Basic Income, and readers of this website know that I don’t support UBI if it’s not paired with legislation aimed at capturing economic rent. Since John McDonnell said that Labour is supporting a UBI scheme, many voices were raised in opposition, even among the Left, and the Job Guarantee was invoked as a substitute. I will focus on economic arguments and will try to be brief.

These are some of the criticisms I’ve seen: “UBI is inflationary” – “UBI gives people more money to spend, but doesn’t increase production, unlike the Job Guarantee” – “A Job Guarantee is an opportunity for many, but an obligation for none” – “UBI doesn’t create employment; it leaves the private sector as the sole job creator” – “Workers won’t benefit from UBI, capitalists will, because UBI will allow them to pay workers less.”

Firstly, let’s analyze the assumptions, because if we can’t agree on the premise, we’re just wasting our time talking to each other.

“Workers won’t benefit from UBI, capitalists will, because UBI will allow them to pay workers less.”

Giving everyone a fast and non-bureaucratic safety net allows workers to organize better. Better collective effort = strikes are easier to pull off and maintain for longer. The argument that a UBI will allow capitalists to pay their employees less is the same argument fiscal conservatives make against minimum wage laws and unemployment checks; that this safety net is bad for business and bad for workers’ motivation. Again, in and of itself, UBI would directly increase labor’s bargaining power. To what extent? It depends on a bunch of factors…

“A Job Guarantee is an opportunity for many, but an obligation for none”

The same is true for UBI. Supporters of UBI and Job Guarantee should also have a plan to contain both legal and illegal immigration; because any of these two programs would explode the aforementioned, ditto for Medicare For All. And I know liberals and lefties don’t like this, but the difference between a territory and a country is borders – and the way to enforce those borders is through staff, technology, and barriers – BARRIERS – just like you need barriers on sidewalks to prevent drivers from parking there. And no, you don’t get off the hook because you love immigrants, when you support political parties that sabotage and destroy foreign countries, creating those refugees and economic migrants in the first place.

“UBI gives people more money to spend, but doesn’t increase production, unlike the Job Guarantee”

In what sectors will the Job Guarantee introduce the unemployed? I always ask this because it’s important. Without a proper answer to this, you don’t know how well the Job Guarantee will act as a price anchor. If people in the Job Guarantee are put to produce things like food, fuel, and electricity, then yes, that particular Job Guarantee scheme is a solid price stabilizer program. If you put people in the Job Guarantee to fix swings in the park, shine railings, read stories to blind kids, play the guitar for old folks in asylums, help elders afflicted with mental illness and the like, then that scheme will have next to no impact on price stabilization, even though it provides humane social services. As for the demand boost from UBI, I’m sure it won’t cause firms to say – hmm, higher orders this month, I still have tons of unused capacity, but instead of making these machine tools produce more cans and calling up folks I previously let go due to weak demand so I can service all these orders at a profit, I’m just going to keep production level as is and just increase my markup. Please, spare me this logic. Firms that will take this improbable decision will lose market share to those firms who will adjust output instead of prices. If people in the West are worried about this, then they should draw attention to weak anti-cartel legislation and or weak enforcement of these laws.

“UBI doesn’t create employment; it leaves the private sector as the sole job creator”

These type of points are just worthless rhetoric. No, it doesn’t leave the private sector as the sole job creator. The private sector is never the sole job creator. In fact, it can’t be.

As for the “UBI is inflationary” concerns… if you do an analysis on UBI with the marginalist point of view on currency value in mind, yes, UBI will be inflationary. But this point of view is fallacious, because at the margin, some people, many people, are already getting an income without a formal job attached to it. According to the marginalist lens, there should already be hyperinflation or at least high inflation caused by traditional unemployment checks and food stamps. If you’re a die-hard Minskyite and like to call food stamps “funny money printing,” like Minsky did back in his day, you’re free to do so, but that doesn’t make your argument correct.

One more observation… If economists, orthodox and heterodox alike, are worried that UBI will cause both demand side and cost-push inflation [people just becoming lazy], half of that fear doesn’t square away with their insistence that UBI will subsidize bad jobs. If under a UBI people are more willing to accept poorly paying jobs and or poorer working conditions, then firms won’t experience cost pressures.

Let’s look at a country that actually implemented UBI nationwide, let’s look at Iran. According to this working paper from 2017 on the effect of unconditional cash transfers on the labor supply, there were no extraordinary results. Iran’s UBI was implemented in 2011 as a necessity to the drastic cuts to gas and bread subsidies made by Ahmadinejad in late 2010; the Government argued that the subsidies benefited the rich disproportionately. The UBI was set at 29 percent of median household income, about 1.50 US dollars extra per head of household, per day. In the US, that threshold would be over 16,000 dollars per year, well above the standard scheme of 1 grant per month proposed by the likes of Andrew Yang.

Despite reports in local press that the poor were leaving their jobs to spend the extra money, the investigators found no such evidence. Of the individuals employed in 2010, 88.5 percent remained employed, 4.5 percent lost or quit their jobs and 7 percent became inactive in 2011. Of the unemployed, 26.3 percent got jobs in 2011, approximately the same number as those who lost their jobs in 2011. For those engaged in housework in 2010, 3.2 percent found employment in 2011, fewer than those who left their jobs for housework. UBI had a good impact on Iran’s service sector, in which many firms have a difficult time obtaining bank credit. Some examples of workers in the service industry are housekeepers, teachers and deliverymen. In fact, their weekly hours increased by roughly 36 minutes. The only bad effect on labor supply was folks between the ages of 20 and 29. However, this age group had a weak connection with the labor market well before the UBI was implemented; because Iranians can opt to enroll in tertiary and graduate education. In spite of all this, Iranian public reaction to the UBI program has been largely negative. So Corbyn and McDonnell might think twice about it… “As more oil exporting countries decide to remove energy subsidies, or for political economy reasons decide to transfer a part of their oil wealth unconditionally to their citizens,” the authors wrote, “the question of how such transfers affect the incentive of their citizens in working and acquiring skills become more important.”

So the problem isn’t UBI itself, the problem is that UBI won’t do what its advocates and detractors claim it will. The effect after the reform is passed is gonna be near zero. The macro-economic effect will leave the Government deficit the same, plus minus 1 percent of GDP or slightly more [aka. errors in projection]. If the reform will have good or bad effects, the effects will be very small. Iran’s been on UBI since 2011 [and the country didn’t fall apart, nor did it become a utopia for workers and consumers – and let’s remember the trade sanctions they are under; extra proof that UBI alone is not a doomsday scenario].

As for me, I support UBI as a theoretical, and I’ve laid down my view in the past on how to make it work. Those politicians and political factions currently advocating UBI are controlled opposition; they want to “pay for it” with VAT [a regressive tax], they want to leave land rents privatized [not to mention patents], and want to leave the asset side of banks undisciplined [free predatory lending with smokes and mirrors]. The benefits of UBI, if it produces any in net terms, will get eroded by landlords and money lenders. The Job Guarantee isn’t immune from this either. And I wish the MMT academics would give more thought to this, instead of advocating a cubic meter property tax [which doesn’t distinguish between buildings and land, giving it thus regressive, perverse effects], and instead of ignoring one of the gravest sins in the economics profession, that of equating Land with Capital. It’s not sufficient to have full employment if the Natural Commons remain at the mercy of the few. Why further tolerate this millennia-old tumor on the back of Mankind?

Derek McDaniel wrote about BIG & inflation this last September. His article is much shorter than mine, and I encourage readers to see what he was to say.

Land-Value Taxation & Farming

Dan Sullivan, from Saving Communities, talks on LVT and farming on his stay in Sweden in November 2014. Sullivan brings in a wide array of keen observations in terms of methodology and socio-economic consequences. Labor efficient and land inefficient firms vs land efficient ones. The different types of farmers. The different type of farms. The different interests among farm owners. Incentives and penalties. Land trusts. Appealing assessments. And much more. The video quality is only 240p, but the sound is clear.

Part 1
Part 2
Part 3

The folks from Saving Communities get everything right, especially from a moral standpoint, with a tiny observation in terms of banking operations, issue which can be tackled via asset side discipline reforms instead of full reserve banking, which has a regressive effect (doesn’t discriminate between lending for wealth creation and lending for wealth extraction) unlike the former. But I won’t get into that here – instead, I will quote their view on Money as a Common Medium and conclude this post with their Call To Action.

“Money is a common medium of exchange, without which modern production and exchange methods are impossible. Government, which demands money in taxes or as payment against necessary privileges, violates its charge if it forces taxpayers to resort to privately created money, and further violates its charge if it guarantees the value of privately created money or credit. Government’s demand for money requires that it issue enough money to satisfy the demand for money, and that newly issued money be distributed in a way that is fair to all citizens.

Government should issue enough money to maintain stable prices, with neither significant inflation nor deflation. However, it is even more important that government issue money directly into circulation rather than lending it to banks or granting banks the privilege of lending money they do not actually have.

Once money is rightfully issued, the exchange of that money is private matter, and the money itself is morally private property until it is redeemed by government.”

Justice Begins with You

“Each of us has an obligation, not only to advocate justice, but to be personally just toward ourselves and toward those with whom we interact. In this regard, charity without justice can be a device for sustaining injustice. That is, if you demand justice and another thing, you will get the other thing, and only the other thing.

In the aggregate, there is no such thing as ‘more than fair.’ That is, it is impossible to be more than fair to some without being less than fair to others, or to yourself. In every human interaction, other than that of punishment or restraint against those who had violated the rights of others, all parties should come out ahead. That is the minimum standard of justice.”

SavingCommunities.org

The scam of Marginal Tax discourse

Don’t follow the herd…

by Serban V.C. Enache

Recently, a talk about the size of Marginal Tax rates has entered a part of public discourse. The claims are that higher taxation on the margin is morally acceptable, because people making more money than others pay more in taxes, and the body of citizens benefits from Public Services, which are thus ‘better funded’ in this situation. If you’re a regular reader of this website, you’re familiar with Chartalism, so I won’t bother to (again) debunk the orthodox myth of ‘tax more, so we can spend more’ in a context in which there’s plenty of idle land, labor, and factories to go around. I will instead focus on the fraudulent claims these politicians and leftist activists make regarding marginal tax rates in the USA and the so-called moral soundness behind them.

First of all, marginal tax rates ARE NOT effective tax rates. In the mid 1940’s, the effective tax rate for the Top 1% reached an all time high of 45% of income. Most of the fiscal drag, however, fell on the bottom 50%.

People claiming that the good times of post-WW2 were due to the 91% marginal tax rate are ignoring the geopolitical, financial, and economic climate of that period. Namely, Europe and Asia were left devastated by the war, and the USA’s production capabilities were unrivaled globally. In the 1950s, the effective tax rate on the Top 1% was about 42% of their income, albeit the marginal tax rate at the time was 91%. Today, the effective tax on the super rich is slightly lower than what it was in the 50s.

Statements from these leftist activists imply that the rich were somehow paying 91% of their income in the USA’s history. That implication is an outright lie, and the failure of these activists to make that clear is all the more proof of them pursuing an ideological agenda, facts be damned, not unlike their republican counter-parts. And as for the claim that higher marginal tax rates bring in more revenue for the Government [so it can fund more public services or fund existing ones better], that too is false. Since WW2, tax revenue in the USA, despite changes in taxation levels, has remained about 19.5% of GDP.

Now let’s address the moral claims of these leftist activists, useful idiots of the Establishment. The left and the right and center are taught by conventional wisdom to view moneys that people make only in terms of sums, figures. They never ask from what type of activities those moneys are obtained. If they bothered to ask this little question, they would see how utterly unjust and fallacious the former logic is. There’s a difference between earned income and unearned income. There’s a difference between a markup drawn up from actual competition vs a markup drawn up from cartelization. There’s a difference between making money from labor, from profit [enterprise], from rent [land and other natural monopolies / natural commons], and from usury. If we recognize the nature of these different economic activities, then we wouldn’t be taxing the former productive ones and allowing the latter parasitic activities to go untaxed and unhindered.

We would be taxing economic rents, we’d work to abolish patents, and we’d have a banking sector that loans at near zero markups for productive purposes (for businesses to expand output capacity, for people to fix up their homes, that sort of thing). We wouldn’t tolerate a banking system like we have today, with sky high markups, that gives out loans mainly for speculative purposes – predatory schemes that thrive off asset price inflation (rents of location), only to later on transform the populace into serfs and then having the Enlightened, Humanitarian, Bourgeois Intellectuals and Caviar Marxists sermonizing about the evils of populism, isolationism, and the need for decision making to be had at Trans-National level among the properly educated and wealthy few in the attempt to create another Tower of Babel in the satanic ambition that representatives of a degenerate offshoot of human culture shall become gods in heaven, not just on earth.

In truth, however, the rightists are regressive because they want to reduce taxes indiscriminately (trickle down economics), and from these efforts, the rent-seekers and usurers reap the highest gains. And the leftists are regressive because they want a higher tax burden, that, like previously shown, falls mainly on the working classes, and not at all on the super rich.

The income inequality issue gets most of public attention, especially in the mainstream media, precisely because it’s a debate from which both camps argue based on flawed assumptions. The issue gets turned into political soccer, devoid of any actual facts, devoid of any true emotion of righteousness – it all becomes an opportunity to proselytize, to signal virtue, to shame, and to feign outrage in the worst way imaginable.

In truth, however, mankind has been plagued by a more gargantuan and sinister specter throughout history: wealth inequality. One solely requires the curiosity to search and the wits to see this truth, as it rises from the antediluvian dirt beneath our feet. Land, the first factor of production. Land, nature-made, unlike capital. The site value, established by the labors and investments of the community (including the public authority), NOT by the idle classes, landlords and usurers. The working classes will reclaim the natural and social commons, or they will be content to live with the idea that the word “The People” only exists de jure on some scrawny piece of paper, and not at all in reality, past, present, or future.

Nowadays, the hope touted among so-called progressive circles is a false one: that these Democrats with some new adjective attached before that label are somehow the forces of radical change for good. As Nick Barrickman concisely states, their role is to fool youngsters (and in my opinion some old timers as well) to vote for the Democratic Party, to fool them into believing that this war-mongering, thieving, and undemocratic party can be reformed. Young people generally don’t vote, or if they do, they vote 3rd party or independent; so that’s a demographic segment coveted by the Establishment.

It’s always effective to present two options, one as evil, and one as the lesser evil to the public, and then have the audacity to claim ‘freedom of choice,’ ‘political pluralism,’ and ‘the will of the People, in accordance with the law, has spoken.’

In domestic affairs, what the Republicans and Democrats offer the American People is simple: Feudalism with borders and Feudalism without borders.

For further info on what the Government should and shouldn’t tax, see these videos.

Property Tax vs Site Value Tax

Site Value Taxation & Agriculture

Site Value Taxation and Buildings

Site Value Taxation & Public Infrastructure/ utilities

Reply to Grace Blakeley’s Post-Brexit UK measures

by Serban V.C. Enache

In this article, Grace Blakeley outlines the economic and financial plights of the United Kingdom, how Globalization failed the working class and her proposed solutions for a post-Brexit UK.

I do not agree with some of her assumptions, nor with her policy prescriptions.

For starters, Continue reading “Reply to Grace Blakeley’s Post-Brexit UK measures”

Retirement Age, ’50s Women, Pensions, Contributions, and LVT

Solving the Mess

by Serban V.C. Enache

A few months ago, I wrote an article (Justice for the WASPI and All Pensioners) in which I proposed a return to the previous (lower) retirement age, for both men and women. I made the argument that as technological progress makes societies more efficient and productive with fewer and fewer labor inputs required – it makes no sense to force people to work longer and retire later. Continue reading “Retirement Age, ’50s Women, Pensions, Contributions, and LVT”