Friday, April 01, 2016

Could a Guaranteed Basic Income Save America's Free Market Economy?

Remember when then-vice president Dick Cheney said “The American way of life is non-negotiable?” When you get right down to it, that attitude explains the current popularity of Bernie Sanders among American left-wingers and Donald Trump among the right – if you define “the American way of life” as “Anybody who's honest and willing to put in a full day's work can make a decently comfortable life for themselves, and perhaps a small family.”

Yet for many working- and middle-class Americans, that way of life is dying if not already dead. High school graduates who a generation or so ago could've found good-paying factory jobs are instead flipping burgers for eight bucks an hour – and evermore college grads are doing the same thing, with the added burden of an enormous (and bankruptcy-proof) student loan debt weighing them down even more. So it's no surprise that Donald Trump gets massive applause at his rallies when he promises to bring factory jobs back to America, either via undoing international trade agreements or imposing punitive tariffs on imports.

But such actions would be catastrophic for the country's economy, and cause serious pain to American consumers as well. Consider this relevant anecdote: over the past few weeks, Mein Spouse and I have fallen into the habit of watching early 1970s episodes of Monty Hall's old game show Let's Make A Deal, airing on a cable network. Neither of us are interested in the “deals” contestants make, but we like seeing all the early 1970s prizes that they win, and what those prizes suggest about technological changes and improvements since then.

A couple nights ago, somebody won a 25" color television worth $700, in 1972 dollars. According to the Bureau of Labor Statistics' inflation calculator, $700 in 1972 was equivalent to $3,970.76 today. By way of comparison, when I bought my 36" high-def TV in 2013, I paid just under $300 excluding sales tax.

In other words: the real, inflation-adjusted price of my television, not even counting the larger screen, clearer images and other advantages it has over a 1972 model, was only one-thirteenth as much as it would have cost 44 years ago. And I could cite similar anecdotes about every home appliance Monty Hall gave away in 1972: refrigerators, dishwashers, laundry washers and dryers, window-unit air conditioners – all cost as many if not more U.S. dollars in 1972 than they do today, even before adjusting those dollars for inflation (especially the microwave ovens, which were still new tech back then -- on another episode, somebody won an Amana Radarange that sold for $400 in 1972, compared to the $50 or so a countertop microwave costs today).

Some of those price drops over the past four decades are due to technological improvements, yes, but some of that is also comes from moving the factories out of America to countries with lower labor costs.

It's undeniably awesome that such wonderful appliances can be had for so very little money. Even people working crummy McJobs at $8 an hour can afford a microwave oven and color TV nowadays. At the same time, it's no mystery why today's un- or under-employed American ex-factory workers are unhappy about losing their steady, well-paying jobs and replacing them with low-paying, insecure gigs.

The problem boils down to “diffuse benefits, concentrated costs”: the benefits of these trade deals and technological improvements are spread out among all American consumers (not to mention the overseas factory workers whose jobs lifted them out of poverty), whereas the costs have been largely concentrated on American working-class families. Consider the perspective of an American McJob worker who, back in the day, had a high-paying factory position making 25" TVs that sold for $4,000 apiece and now flips burgers or stocks shelves for eight bucks an hour: yeah, he probably owns more and better appliances than did his 1972 counterpart working in the TV or microwave oven factory. But his job is a lot worse: a steady, constant, 9-to-5 position with regularly scheduled time off, paid vacation and sick days, full benefits and so forth is inherently better than a part-time, ever-changing schedule, no paid leave and no bennies gig, even if both have the same base pay (and they don't). At the same time, bringing back those high-paying American factory jobs via trade restrictions and tariffs would be spectacularly bad for consumers and the economy as a whole: if my TV cost $4,000, I wouldn't have one.

So Trump's plan to bring factory jobs back to America wouldn't bring prosperity with it. What about Bernie Sanders' proposal to raise the minimum wage to $15? Sounds good at first, but the end result would likely be a net loss of minimum-wage jobs. And his proposal to make four-year college educations free for all would only make a four-year college degree the new high-school diploma: a minimum educational credential that isn't remotely enough to qualify for a good job, merely an entrance ticket to the next level of schooling required for a shot at a decent job and a decent life. (Besides, even in a Lake Wobegon America where everybody has above-average intelligence and educational credentials, we'll still need shelf-stockers and burger-flippers, and they'll still need enough money to live on.)

In other words, bringing “good” working-class jobs back to America isn't a feasible option, and making today's working-class jobs as “good” as they used to be isn't an option either. Ignoring the pain of the working classes is another non-option; the people bearing the concentrated costs of America's economic changes are not only not mollified by reminders that all Americans benefit from the availability of affordable, high-quality consumer goods; they are getting angry over the repeated platitudes that their personal and familial hardships are a small price to pay for the greater good, or that they're selfish and entitled for wanting a better life than what they've got.

What about the suggestion that they retool themselves and acquire the skills necessary to be useful in the new economy? That's what they've been hearing for at least a generation now, and that's exactly why Donald freaking Trump is the GOP presidential frontrunner.

So here's a modest proposal: rather than passing trade restrictions or minimum-wage increases in the vain hope of making working-class jobs better, how about we eliminate minimum-wage laws altogether, discard our current patchwork coupon/voucher/food-stamp welfare safety net, and replace all of this with a modest Guaranteed Basic Income for all American citizens over age 18? Off the top of my head, let's say $250 per adult per week – rising every year pegged to the inflation rate, and classified as ordinary income for income-tax purposes.

Granted, giving $250 to every adult citizen would cost a fortune in tax money – but those costs would be somewhat offset by the elimination of however-much we currently spend on patchwork welfare programs (Section 8 housing vouchers, EBT “food stamps,” and so forth). Giving this money to every adult citizen regardless of “need” would be cheaper than our current system of maintaining an army of well-paid bureaucrats to decide who is and is not qualified, and hold the various hoops through which welfare recipients are expected to jump. Consider also the resulting economic boost—money given to the poorest of people goes back into the economy almost immediately, because those po'folks are not stuffing the money in their mattresses; they're immediately spending it on household necessities. (And of course, whichever companies they buy those necessities from are paying taxes on their resulting profits.)

Eliminating the minimum wage would (presumably) make this proposal more palatable to American employers – but at the same time, the end result would not be “Certain crap jobs end up paying a dollar a day,” because that basic adult income would reduce if not eliminate the number of people desperate enough to take any job they can get, at any wage that is offered. And while $250 per adult per week is not enough to pay for a comfortably secure middle-class existence (indeed, it's only a little higher than the official federal poverty level for one person), that guaranteed subsidy combined with whatever wages a worker could earn in a truly free marketplace would bring back the old “American way of life,” defined as “Anybody who's honest and willing to put in a full day's work can make a decently comfortable life for themselves, and perhaps a small family.”


Blogger Kevin Carson said...

I think if you taxed land at 100% of site rental value (maybe with a homestead exemption for the portion of one individual residence below median residental land value) and had a moderately high carbon emissions and mineral severance tax, it would fund a Basic Income of $1500/month or more.

Then eliminate all welfare and public pension spending from the federal and state budgets, cut the military budget by about $600 billion, and eliminate all police and prison funding for enforcing laws against drugs and sex work. Reduce income taxes (eliminating one bracket at a time from the bottom up) and corporate income taxes in proportion to the reduced expenditure (with the remaining corporate income tax, if any, at a flat rate and no exemptions of any kind).

The average person would pay almost no taxes other than a property on the portion of their house lot above the median value, and most renters' taxes would be effectively eliminated and instead paid out of their existing rents. In addition the great majority of the government apparatus would be eliminated, as would the police state and prison-industrial complex.

1:28 AM  
Blogger Jennifer Abel said...

A hundred percent annual tax rate for land? That would be a VERY bad idea, IMO. My goal is to eliminate poverty among the poor, NOT "stick it" to the rich. If businesses have to pay the entirety of their property value to the government every year, the end result will be an exodus of businesses from the country.

8:48 AM  
Blogger Kevin Carson said...

No, 100% of annual rental value would be figured at 5% of total assessed value each year. It would simply eliminate rents from monopoly absentee control of land and unearned appreciation of site value as sources of landlord income, so that only actual investments in buildings and improvements would be a source of income.

2:40 PM  
Anonymous Dave said...

The idea is attractive, but I fear that it might suffer the same logical flaws as Bernie's education plan. If everyone moves forward three steps, then that becomes the new starting point. Landlords will feel free to increase rent costs, for example, knowing that everyone has extra money to spend.

I still like the idea of cranking up the minimum wage. First of all, it is paid by business, rather than government, but it is mostly paid by businesses who were underpaying their employees to start with. Can't afford $10 per hour to pay your burger-flippers, then go out of business, and let someone else take your place who can.

But the higher minimum wage has other benefits as well. For example, it encourages people to work. The minimum wage is so low right now that even food stamps are more attractive, despite being absurdly low, degrading, and insulting. If you could earn more at a degrading job, many millions of people would prefer the degrading job.

The third benefit is the one we hear on the news all the time. The minimum wage is so low right now that parents can work a full-time job and still qualify for "welfare". If you increase the minimum wage, it would save the government billions.

I would be perfectly fine though if the government kept right on paying the "welfare" as an added benefit of working. If my taxes go up, but the money encourages people to keep their job, that sounds like a win to me.

8:07 AM  
Blogger Jennifer Abel said...

"Landlords will feel free to increase rent costs, for example, knowing that everyone has extra money to spend." Not necessarily, because those landlords will also know that (unlike our current state-specific welfare programs), people will be freer to move elsewhere. It's not like, for example, federally backed student loans, which do indeed contribute to monstrous tuition-price inflation because that loan money is earmarked for one purpose only.

10:35 AM  
Blogger Kevin Carson said...

The Georgist argument for land value tax, at least, is that landlords won't be able to raise rents to compensate for the tax because land at present isn't priced by the normal market pricing mechanism that works for goods in elastic supply. Land rent at present is a quasi-rent that depends on the buyer's ability to pay, and hence is already as high as it can get. So by definition the land value tax will come out of what they're already gouging the tenant. If income taxes on labor and sales taxes are shifted to a land value tax, all the taxes currently paid by ordinary people will instead come out of the rent they're already paying the landlord, at the expense of the landlord's unearned income.

On the other hand I've seen plausible arguments that if a guaranteed minimum income is adopted without land value taxation, a significant share of the increased purchasing power will be lost as ordinary people's increased income bids up rent -- Henry George's argument was that, absent land value taxation, most increases in social income disappeared down the rathole of landlord rent as people bid up the price of the fixed supply of land.

3:15 PM  

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