Tue Jul 10, 2012

The end of the working era?

When it comes to solutions to problems of income inequity and poverty, I’m attracted in theory to solutions that involve simply giving money to people who need money. This seems to me not just more elegant in most cases than alternative solutions, but potentially far more effective.

For example: rather than set up an entire government-run housing bureaucracy that builds and manages a huge portfolio of properties specifically for poor people, why not just give those people money to pay their rent? Or instead of setting up a food bank system that collects food from supermarkets, centralizes it, sorts it and then distributes it back out across the city to the hungry, why not just give those people money to buy food? Instead of artificially depressing the price of electricity for everyone (thereby subsidizing the consumption of the rich and encouraging more consumption by everyone), why not just give people money?

PHOTO: RENE JOHNSTON/TORONTO STAR

The mother of all give-’em-money solutions has come up in the international press a few times in recent days: a Guaranteed Annual Income. The proposal is simple: everyone is paid a basic annual income—enough to cover necessary average living expenses—no questions asked. People are free to work on top of that and earn as much as they like, but a basic living is provided to everyone.

Writing in the Financial Times (free subscription required), Robert and Edward Skidelsky suggest that because in Europe and North America, we have reached a point where efficiency and automization have made it possible to provide for the needs of society without employing the full-time labour of everyone—and thereby to increase profits for companies while decreasing the demand for jobs—it’s time to consider several radical ideas, including a GAI:

[The Government] should institute an unconditional basic income for all citizens. This would aim to improve the choice between work and leisure. Critics say this would be a disincentive to work. That is precisely its merit in a society which should be working less and enjoying life more.

At the Atlantic, in a piece entitled “The post-employee economy,” Conor Sen considers it further, first noting that productivity and profits have continued to increase over the past decades while hours worked have continued to fall. The problem for the average person is a surplus of leisure and a shortage of money. A shortage of money is not a problem for the economy as a whole, since it has continued to grow through employment-reducing increases in productivity. Could the solution be to consider a surplus of leisure to be a benefit rather than a problem and to address the shortage of money by simple redistribution?:

Maybe this sounds extreme, but in the past democracies passed laws to restrict child labor and limit the length of the workday, and instituted unconditional basic income for all [senior] citizens. The end of the age of consumption and the decreasing need for labor are intertwined, and we have just begun to come to grips with this.

If we could decided that everyone over 65 can be given a basic income, why couldn’t we decide that everyone is entitled to the same? And if we are indeed talking about an economy that is productive enough to support everyone—and ensure profits for the owners and managers of companies—without requiring or even wanting the labour of everyone, then the traditional argument of economic sustainability goes away, it seems to me. (That is, the ratio of those paying into the system to those taking out of it becomes less of a problem when those paying in have vast resources created by productivity gains.)

I can imagine roughly a million arguments in favour of and against this kind of thing—philosophical arguments, practical arguments, economic arguments—right off the top. It is an interesting question to consider—more attractive in many ways than considering the question of whether or how we should try to stop productivity gains in order to prop up employment.

But one very simple, basic question I always wonder about with direct large-scale income supplements is inflation: would giving everyone $40,000 per year or whatever, on top of (or in replacement for) anything they earn in the market, cause inflation such that the money becomes basically worthless? As a non-economist, I’m not equipped to even begin to know how to answer this question, but it seems like an important one. I have no idea how many economists will read this, but I’m interested in hearing any thoughts. (I’ll seek out some answers and follow up at some point.)

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Balance

Interesting thoughts. A couple things:

Some of the charities that provide direct service instead of direct funding do so because they are more efficient and cost-effective than having people purchase things themselves. Food banks get food from grocery stores at one eighth or one tenth the cost of you buying it. That’s why everyone should donate cash to food banks, not actual food (though it doesn’t feel as good). You spending ten dollars on canned goods could have been eighty or a hundred dollars worth of food if you just donated cash.

In other areas the direct funding idea makes more sense. Alberta doesn’t provide services for children with special needs such as autism. Instead, it has a team of medical professionals devise a service plan based on the needs of the child, figures out how much that will cost, and gives the parents money that must be spent on those services. A marketplace of service providers compete to provide the best service for that amount of money.

Hydro prices shouldn’t be subsidized not only because the rich get the discount (you could just income test the subsidy) but also because expensive electricity encourages people to waste less. It should be expensive precisely because of the various costs of producing it (pollution, for example).

As for guaranteed income, yes the million number of pros/cons sounds about right. I’m not sure how it would result in currency devaluation, as long as you don’t print more money. Provided it’s redistributive, all you’re doing is taking existing wealth and spreading it around. This would probably result in a big boost to the economy, as lower income folks would actually have money to spend (go look at the number of people on welfare and how much they get per month, both figures are staggering) and much of the redistributed wealth is just sitting in some rich family’s savings account.

That said, it may be a terrible idea. And, of course, the devil’s in the details. There are probably a whole bunch of unintended consequences (as always).

Regardless, I like this sort of dialogue. Why don’t we discuss this stuff more often?
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12:37 pm on July 11, 2012

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John

unfortunately this would indeed devalue our money fairly significantly. though the implications of dismantling a great deal of charities in order to free up that money to just give to people may have the opposite effect to.

40k a year however seems like far too high a number to me. then again transitioning into a post-jobs world may end up effectively just be a watered down form of communism to some.
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2:37 pm on July 10, 2012

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