Basic income: some issues

I try not to watch politics programmes on TV. Andrew Neil's interview with Natalie Bennett about a basic income reminds me why.

I'm appalled by Natalie's inability to answer his first question: how to pay for it? The Citizens Income Trust has set out one way (pdf)* to do so: quite simply, abolishing the personal allowance and welfare benefits raises hundreds of billions.

Mr Neil's implication that a BI of £71pw is inferior to a personal allowance of £10,000 for the low paid is also wrong.

Take for example, someone earning £14,000 a year. She currently pays £800 in tax, giving a net income of £13,200. Under a basic income, she'd have to pay tax on all this £14,000. That's £2800. But she gets £3692 in BI. That gives a net income of £14,892. She's better off. BI, then, is better for the low-paid than the current £10,000 tax allowance.

This is even more true when we remember that low-paid work is often insecure. A BI is better for those who shift from work to unemployment and back again, as it ensures a continuous income with no threat of benefit delays.

In these senses, the interview was a car crash on both sides: Neil posing questions that are easily answered, and Bennett failing to answer even these.

This poses the question: what, then, are the more intelligent objections to BI?

The problem isn't that a BI gives too little to children, the disabled or pensioners. The CIT's costings show that they can get top-ups. Nor is it that a BI ignores housing costs. The CIT's costings show that housing benefit can be retained - though I personally think it should be phased out over time, as a big housbebuilding programme should reduce rents and hence landlord benefits.

Nor is it clear that a BI's treatment of immigrants is wrong. Because it's a citizens' basic income, immigrants would not be entitled to it - though they alternative insurance arrangements for them are possible and desirable. Such a restriction, though, should reduce public antipathy to immigration by removing the fears that they are "taking our benefits."

So, what are the more grievous problems?

One of the more common ones is that an unconditional income violates the norm of reciprocity and so would be unpopular. Dawn Foster says:

If you genuinely create a "something for nothing" culture – rather than one that exists merely in the fevered imaginations of tabloid readers – the backlash could be harsh.

To some extent,though, this is a feature, not a bug. Given that jobs are scarce it is just pointless and cruel to harrass the jobless into non-existent work. Indeed, helping some to drop out of exploitative jobs would force employers to improve their job offers, to the benefit of those who want to work.

However, it's doubtful how big a problem this is. Phil points out that it isn't a significant issue with Alaska's BI. And econometric simulations suggest it might not be for the UK either. In fact, insofar as a BI makes it easier to move into work - because there's no danger of losing income or of being better off on the dole - it might even reduce (pdf) unemployment.

For me, though, there are two other issues.

One is that a BI does create some losers. Anyone earning over £18,460 is worse off with a BI of £71pw than under a £10,000 personal allowance. This is a big problem. It suggests that a BI can only be popular if accompanied by more redistribution - higher taxes on the rich to pay for a lower tax rate on lower earnings and/or a higher BI.

Secondly, there's the question: is there the state capacity to effect such change? Everyone knows the shift to Universal Credit has been a mess. I'd like to think this because of Iain Duncan Smith's personal inadequacies. But it might also be that the state apparatus lacks the ability for reform. One of BI's great virtues - its simplicity and low administrative cost - also creates a big constituency in Whitehall opposed to it.

I suspect - hope - that there are solutions to this. A BI should not be introduced by the fiat of a single government. Instead, we need a new Beveridge report which would publicize its merits and ensure that it benefited as many people as possible. Only when it has such mass support should it be implemented.       

* This is just one possible costing. Here's a list of tax reliefs (pdf). You can make up your own savings from these. And here's a collection of papers on basic income.

Comments

[JR]

Chris - you contradicted yourself in one post.

If you have top ups (or a shadow system for immigrants) for disability/children you immeadiately get rid of the simplicity/low DEL cost argument and need a function to adminster this. Especially if CBI is less than JSA.

Public choice theory is the least of your worries when it comes to you winning an argument on CBI.

[Luis Enrique]

I'd be interested to see a crude model that allowed one to vary the labour supply response to BI, and think about the consequences.

BI is supposed to be sufficient to live on - if it isn't it would be condemning the unemployed to live in poverty. If it is sufficient, I sometimes think half the workforce would drop out.

[Kevin Carson]

Why pay for it at all? If you accept the underconsumptionist model of Hobson there's a chronic need for more spending not offset by taxes to increase aggregate demand. So why not just follow the Social Credit or Greenback route of creating money by depositing it into individual bank accounts as a Citizen's Dividend or Basic Income or whatever you want to call it, without paying for it via taxation or the sale of bonds or anything else?

From a free market libertarian perspective, that's actually far less statist than the current model of delegating control over the money supply to banks that *lend* it into existence at interest. How can it be less libertarian to create money out of thin air in the form of payments to poor people instead of interest payments to rich people?

[Fred Fratter]

@Chris:

It's not quite right that "Anyone earning over £18,460 is worse off with a BI of £71pw than under a £10,000 personal allowance." I'm lucky enough to be paid enough to have all my personal allowance clawed back. But that can be dealt with in the new income tax schedule.

[Dave Timoney]

Natalie Bennett's fumble points to a philosophical problem at the heart of the Green Party's support for a CBI (which is also indicated by their manifesto's silence on uprating).

Short of a post-scarcity society, the argument for shifting from a predominantly contributory system of welfare insurance to one of basic entitlement is structural unemployment combined with commodity deflation - i.e. we can produce more than enough goods and services short of full employment.

A Green argument for CBI would be that it doesn't make sense to incentivise marginal work that produces a large externality in environmental degradation. Better to pay people to cultivate their garden's than compete with drones as delivery van drivers etc.

But if we assume continued productivity growth due to technology (which could well be faster with a CBI), then the number of jobs will continue to shrink, which means a growing cost for welfare as a proportion of GDP. Whether the CBI becomes more parsimonious or more generous (and thus redistributive) over time depends on how we divvy-up the fruits of growth.

This is a political choice that the Greens struggle with because of their commitment to zero growth. In a low growth economy, where capital-labour substitution continues apace, you can only prevent the CBI from becoming a mechanism for immiseration through significant wealth redistribution via the state, which means the expropriation of capital. This conflicts with the Greens support for private property.

[Carol]

Give everyone including the rich a basic income (you didn't spell this out in your article). Make sure taxes are progressive enough that no one has a cliff effect where all of the sudden all BI disappears. It should disappear at some comfortable (food, shelter, medical care) level.

The BI, of course, is the entrepreneur society allowance. Remove fear of losing subsistence and you release people's ability to vote with their feet, away from dead end stupid jobs into new creative enterprises.

[An Alien Visitor]

Thanks Carol, when you put it like that it could really benefit the economy and society. It would increase freedom for many people in a system where everyone is free but some are freer than others.

A vote winner for me.

[Neil Wilson]

If you can pay people then you can pay people to work - because there is always something that needs doing that others see as needing doing.

Therefore the 'scarce' job argument is a non-sequitur.

Basic income doesn't work because most humans are not like the idealists that believe in it. Most people want to see other people working and contributing, Most people like and even want to be told to do something. Most people like to work.

Basic income in small areas appears to work because you have a fixed exchange rate with another bunch of people who don't have it. In other words you have a slave class doing all the work for you and supplying imports. Think Germany and Greece.

BI fails because those doing the necessary work get paid less and have to pay a higher taxation rates (about 50%) on their work. So they resent those that don't do anything and vote for 'the other lot'.

Which is why none of these experiments ever get anywhere or get to a value where people can live of it.

BI is another progressive idea that is neat, plausible and wrong.

Like fixed exchange rates and unlimited unskilled immigration.

[SpinningHugo]

"Nor is it clear that a BI's treatment of immigrants is wrong. Because it's a citizens' basic income, immigrants would not be entitled to it "

Free movement of persons in the EU doesn't allow that. You can't ringfence benefits (or tax relief etc) to citizens. That is what free movement requires.

So, you'll have to leave the EU to have it.

[UberLibertarian]

A wage subsidy is superior to a BI.
Also, £70 isn't enough to live on really.
Also, the savings to the taxpayer from the JSA aspect of this is quite small - it really depends on how successfully it can incorporate the elderly, kids, and the disabled ( and their respective carers).
The redistribution which could be quite high has to be balanced by much lower taxes on low earners.

[Forgot About Keynes]

So we can't have redistribution to the poor because the rich will throw a tantrum?

Tough. We're going to have redistribution one way or another.

If income and wealth isn't being sucked downwards to the poor, it will be sucked upwards to the rich. That's what has been happening for three to four decades.

The question isn't whether it's possible or not. Collectively, we've sent people to the moon and back, produced computers and the world wide web, put thousands upon thousands of man-hours into political co-operation (the EU, international treaties, etc) ... Have some imagination!

The problem with basic income programmes (and social security more generally) aren't that they're impractical or unfeasible, it's that they threaten the incomes and wealth of the richest ... but what are we going to do, just let inequality get worse? Come on.

https://forgotaboutkeynes.wordpress.com/

[Neil21]

Whither Warstler?

[Dave Timoney]

@Neil Wilson, re "there is always something that needs doing that others see as needing doing". Yeah, like building pyramids.

"BI fails because those doing the necessary work ... resent those that don't do anything". Au contraire. In a society where labour is increasingly superfluous, "work" becomes a positional good rather than an economic imperative. You can see the early stages of this in the shift to unpaid internships and the increasing cost of tertiary education.

The consequence is that the "haves" are increasingly attracted to the idea of a dole for the "have nots", which is one reason why the CBI is in vogue on the right as much as the left. Always remember that a CBI is just a mechanism, that can be introduced in either an egalitarian or an inegalitarian fashion.

@SpinningHugo, the free movement of labour in the EU does not entitle non-citizens to claim benefits. This point was coinfirmed by the ECJ in November. The benefits granted are a matter of domestic policy, hence why the Tories and Labour are competing to ratchet them down.

@Neil21, good question. I imagine he'll be along shortly with his "cunning plan" for slavery 2.0.

[Stephen Stillwell]

I would very much appreciate a considered opinion on a notion that has been plaguing me, if you might be so inclined.

If a global program/banking regulation were created that required sovereign debt to be backed with commons shares, Looks like it would pay every adult on the planet $20/mo, from the interest on sovereign debt, at 1,25%.

The neediest on the planet would benefit significantly, and the program would exist.

Beyond that; nations, states, and municipalities, possibly including corporate governments, (and I would particularly like a certain allowable quantity of individual sovereign debt) could be encouraged to increase sovereign debt, for infrastructure and particularly cash reserves, as their revenue allows, until the monthly dividend is sufficient in developed countries.

With all the talk lately, I hear none even suggesting the notion of a global system, but lacking one will only intensify the problem for poorer and undeveloped nations.

Thanks so much for your kind indulgence.

[Igor Belanov]

FATE has the reason for the Greens' confusion. They have positioned themselves as a moderate centre-left 'Old Labour' style party, promising spending increases and neo-Keynesian policies, coupled with a zero growth, protection of the environment philosophy. This is effectively contradictory. The logic of their position suggests a much more rigorous anti-capitalist line.

[reason]

Uberlibertarian
A wage subsidy is superior to a BI.

Well I'm glad you explained that. Now how do you know? (And superior in what way exactly?)

[reason]

Stephen Stillwell? Now that rings an ancient bell for me. Are you are retired professor from Sydney University, or do you just have the same name?

[reason]

P.S. One not often addressed issue - feature of BI is that it is an anti-centralization policy. It allows people to move to where they can afford to live, rather than to where they can find work. It will affect economic geography for good or bad.

[reason]

oops - I just remembered the Stillwell I remember was Frank not Stephen.
http://en.wikipedia.org/wiki/Frank_Stilwell_(economist)

[Invert]

BI appeals to me however I wonder how the public will react it they percieve that it's not spent on self-improvement but on anti social goods and services. Or worse the money isn't spent on food and shelter and the hands are soon out (welfare or on the street) for more.

[reason]

Invert,
maybe some of the bureaucrats who presently act as gatekeepers, could do some genuine social work.

[ukliberty]

Luis,BI is supposed to be sufficient to live on - if it isn't it would be condemning the unemployed to live in poverty. If it is sufficient, I sometimes think half the workforce would drop out.
It is supposed to be sufficient to live on, but to me that means no more than enough to survive, not luxuries. Often proponents mention ~£70 a week, like Chris did. Would half the workforce really be happy to leave work for that level of income? I've been on the dole and I would have much preferred not to have been.

[Richard Evans]

"Nor is it clear that a BI's treatment of immigrants is wrong. Because it's a citizens' basic income, immigrants would not be entitled to it"

Surely every EU citizen would be entitled to it? Also those highly skilled, highly paid people in the economy would have even more reasons to leave the UK - number of doctors fleeing the UK would be massive.

[Eleanor Firman]

The terms of production and consumption in the CBI argument are wholly contradictory. You can't re-distribute what is not produced. We can't all be Voluntary workers or 'vocational' freelancers dependent on CBI because there'd be no exchange of essential goods. Somebody has to do essential work but no way will CBI lead to higher wages for this - migrants will immediately take these jobs because they'll have no other income if they don't. But they'll still come, not least because eventually they would qualify for CBI. But long before that they would become the classic reserve army of unemployed forcing wages down unless you impose drastic immigration controls, which of course is one of the many illiberal unconscious wishes of CBI proponents. Why don't people get that? There are multiple other reasons. I'll just mention one more: The Alaskan model is a dividend not an income. It's next to nothing one year and a few hundred dollars the next. It's drawn entirely from the profits of fossil fuel extraction. It's basically one colossal bribe to the whole population to reject renewable energy. It's revolting.

[ukliberty]

"We can't all be Voluntary workers or 'vocational' freelancers dependent on CBI because there'd be no exchange of essential goods."

Which advocates for basic income say we can all be voluntary workers or vocational freelancers? I've never heard that suggested before.

[Bob]

Land Value Tax needs to be paired with basic income. It is also in the green manifesto, just combine the two ideas.