A New Golden Age Part III: The Basic Income Guarantee

The Basic Income Guarantee has an ancient pedigree, and it gives every citizen enough money to survive.

By Tom StreithorstOctober 13, 2015

A New Golden Age Part III: The Basic Income Guarantee

THE BASIC INCOME GUARANTEE has an ancient pedigree. Advocated in the Bible, proposed by Thomas Paine, almost put into law by Richard Nixon, it gives every citizen enough money to survive. Unlike typical welfare payments, it is unconditional. Everybody gets it: rich, poor, worthy, undeserving alike. You, me, the homeless guy sleeping under the bridge, and Rupert Murdoch all get the same monthly payment. If you are unemployed and get a job, no worries, your government grant stays the same. And it doesn’t demand that recipients use it wisely. It is just like regular money: you can spend it as you wish. Think of it as social security for everybody.

It’s not just a left-wing idea. Nixon proposed the Basic Income Guarantee to Congress back in 1969 because he figured it was the best way to eliminate poverty without creating a large federal bureaucracy. Conservatives and libertarians support BIG because it enshrines individual choice and keeps the nanny state to a minimum. Progressives like it because it empowers the poor and lessens inequality. After all, nothing liberates people at the bottom like money in their pocket.

I like it because it is the most efficient way of increasing demand. Republicans always advocate tax cuts to stimulate the economy, and while this policy prescription may be self-interested, they do have a point. Tax cuts put money in consumers’ pockets and so encourage spending. The problem with tax cuts is they mostly go to the rich, those very individuals who don’t need to spend every penny in order to get by. A rich person, presented with a tax refund, will not necessarily increase his or her consumption. Instead he or she might well save the money, and as we noted in Part II of this essay, “The Path to Prosperity,” it is the imbalance between savings and investment that traps our economy into secular stagnation. When the poor and lower middle class get cash in their pockets, they generally spend it straight away, and that is what the economy needs. The Basic Income Guarantee can be thought of as a tax cut targeted to those of us most likely to spend.

Ever since the Great Depression, the key economic question has been how to manufacture demand sufficient to absorb our ever-growing supply. Unlike every other economic system, capitalism has largely solved the problem of making things. These days, the only difficulty is finding someone to buy them. During the Golden Age, from 1945 to 1973, higher wages stimulated demand. Since 1982 until the financial crisis, it was growing levels of debt. In a world where automation continues to replace human workers, and increased debt threatens financial stability, a Basic Income Guarantee is probably the safest and most equitable way to guarantee sufficient demand for the economy to meet its potential.

In Part I of this essay, “Why Your Grandparents Lived Larger Than You Do,” we recalled the postwar Golden Age when real wages doubled, recessions were short, financial crises nonexistent, and GDP growth faster than ever before or since. During the Golden Age, productivity gains immediately translated into wage hikes. Technological progress allowed workers to make more goods and services, but since their salaries went up commensurately, they had enough money to purchase that extra production.

Since the Reagan/Thatcher revolution, productivity has continued its upward track, but wages have not gone up in step. Only increased levels of debt kept the economy from falling into recession. The obvious path to a new Golden Age, then, would be to return labor’s share of national wealth to postwar levels by paying workers more. This would not only create demand, it would make our society more equitable. Unfortunately, it might not work. Wages have stagnated since the Golden Age for a reason: demand for workers is not nearly as strong as it was 40 years ago. Technology has become a job killer. The flip side of productivity increases making goods and services more affordable is that fewer workers are required to make the same amount of stuff. If we force employers to pay workers more, they will have even more incentive to automate away jobs. Even with wages stagnant, the rise of the robots threatens almost half of all existing jobs. What wage increases were during the Golden Age, the BIG could be today: the means by which economic improvements are transmitted to ordinary people.

Once more of us are familiar with it, the Basic Income Guarantee should be an easy sell politically. It gives money to poor people, reduces taxes for rich people, provides a strike fund for workers, and cuts wage costs for employers. For the poor, the Basic Income Guarantee will enable them to purchase the things they need. No longer will poor Americans have to choose between heating oil and food, between medicine and shoes for their children. For the middle class and rich, it functions exactly the same as a tax refund. For workers, including freelancers, it is a priceless safety net. If your boss is an unreasonable jerk, you can tell him to “take this job and shove it” and still retain enough income to get by, albeit barely. Employers too will benefit. When workers get a significant part of their income from a government grant, then employers will no longer be required to pay a “living wage.” Firms’ labor costs could conceivably go down even as workers’ income rises. Also, demand increases — giving firms reason to expand production and hire new workers.

You might be saying, this sounds too good to be true. We have been taught, generally by well-fed men on expense accounts, that “there is no free lunch.” How can we increase the deficit, pay every citizen enough to survive, and not cripple the economy?

First of all, the economy is not a zero-sum game. Give poor people money and they will spend it in middle-class people’s stores. More demand benefits us all.

Secondly, as technology advances and less labor is needed to make the same amount of goods and services, the question becomes how to share the new wealth created by technological progress. If it only goes to the top one percent, demand collapses and progress makes us collectively poorer, not richer. When labor-saving technology came into the Port of New York, shippers were able to pay longshoreman not to work and everybody still came off better.

Remember, our problem is not making stuff, it is being able to afford to buy it. Our economy is not at full employment only because of lack of demand. Our output gap is a reflection of the imbalance between our productive capacity and our desire to consume. The Basic Income Guarantee solves that problem. Ever since the financial crisis, policy makers have been trying to stimulate demand by giving money to the financial sector, in the hope that they will lend it to the rest of us. Instead, banks have been sitting on their reserves. A Basic Income Guarantee bypasses the middleman and helicopters money directly into individuals’ bank accounts. What could be more stimulative than a check in everyone’s pocket?

Where right-wing and left-wing advocates of the Basic Income Guarantee differ is on the size of the payment. In Switzerland, a proposed BIG would have given everybody over $33,000 a year. The Green Party in Britain advocated a BIG of £72/week, around $6,000 a year. Other conservative thinkers suggest $4,500, which would get a family of four to 75 percent of the poverty level. Some BIG advocates insist the grant be truly big enough to live on and reject smaller payments as inadequate. But even miniscule amounts of money help. A program in rural India gave peasants 200 rupees, around $3 a month, one-third of subsistence, and found that even that small amount of money made a vast difference, especially to women, the very poor, and the disabled — the most disadvantaged groups in those villages.

Politically, it would be sensible to take even a small BIG. Even a third of subsistence would significantly improve poor people’s lives and would also stimulate demand. Baby steps might be the best path to a BIG that really was enough to live on. Personally, I think the payment should be enough to barely subsist, and not in London or Los Angeles but in Newcastle or Detroit. In this way, the BIG would encourage migration to disadvantaged areas, which would create jobs there.

Can we afford it? Since everybody from the bum on the street to Donald Trump gets it, the Basic Income Guarantee would replace means-tested programs. Social Security payments to seniors would be reduced by the BIG amount, leaving them financially unharmed. Advocates of a Basic Income Guarantee sometimes point out that BIG can be made revenue neutral. Give money to everyone, and you can reduce other welfare and pension payments. Raise taxes on the rich, and you could design a BIG that would not increase the budget deficit. That may be true, but it is important to remember that making a Basic Income Guarantee revenue neutral obviates its essential function. The fundamental purpose of a Basic Income Guarantee isn’t to eliminate poverty, free workers from fear, give a tax cut to the middle class, or lower wages for firms, but to stimulate demand. A revenue-neutral BIG misses the point. Considering the yawning and growing gap between our potential output and our actual output, a better question is: can we afford not to enact a Basic Income Guarantee?

A Basic Income Guarantee will boost GDP and lower inequality. Is there a downside? It has to be admitted that these policies will be inflationary. Dropping money into everyone’s bank account will cause more money to chase the same amount of goods. But inflation need not be a nightmare. Indeed, a great many economists agree it is precisely what the economy requires right now. Today, deflation is a much bigger threat to prosperity. The Federal Reserve, the Bank of England, the European Central Bank all aim to hit a two percent inflation target, and so far, they keep undershooting it. We need more inflation, not less.

Everybody from The Wall Street Journal to the National Enquirer hates inflation, but this attitude is deeply naive. Economists recognize that inflation has a number of positive effects. The first is that it makes debts easier to pay. The reason deflation is so dangerous is because it makes debts more onerous. The second is that inflation shifts consumption forward. If you think the refrigerator you desire will be more expensive next year, you shell out for it today. The third is that it increases entrepreneurs’ profits. Businesses make the good before they sell it. Inflation means they make it for less and sell it for more.

The group that gets really hammered by inflation is net creditors — those very few of us who lend more to others than they borrow from them, such as banks and the very very rich. It is a sign of their dominion over conventional wisdom that the rest of us have been taught to hate inflation, even if it actually would serve our interests. And, anyway, should inflation emerge, we have the tools to deal with it. An interest rate hike, now perilous because it could tumble us back into recession, could easily be enacted should the economy begin to overheat. All in all, a Basic Income Guarantee solves many more problems than it would create.

The last time the economy was in this bad of shape, it took a world war to restore prosperity. Manufacturing extra demand, with a Basic Income Guarantee and stimulative fiscal policy, could have the same energizing effect on the US economy as World War II did in the 1940s. It would boost GNP, lower unemployment, and reduce the output gap. It would increase the size of the economic pie. Admittedly, BIG would have a redistributive effect, shifting national income from richer to poorer citizens, but considering the redistribution in the other direction for the past 30 years, that is probably a good thing.

For most of our time on the planet, human desires have been constrained by supply. Famines occurred when population outstripped food sources. People were poor because technology had not advanced enough to enable us to satisfy everyone’s needs. Today, demand rather than supply is the bottleneck of growth, and, fortunately, demand can be increased with nothing more than political will. Once we recognize that we have largely solved the problem of supply and we are able to solve the problem of demand, we can once again create a Golden Age of plenty, with economic security for all.

Technology is offering us a free ride. We can rebuild our economy and make it better than our grandparents ever dreamed. Or we can continue to let the economy serve the interests of the banks and the very rich, allow inequality to grow and GDP to stagnate. Ever-improving technology allows us to produce more goods and services with fewer inputs of labor and capital. Without an increase in public sector investment and without a Basic Income Guarantee, that could doom us to increasing unemployment and immiseration.

Economically, the BIG is a no-brainer. The best argument against it is moral. While few of us oppose eliminating poverty and reducing inequality, many believe a BIG would disincentivize work and shatter the traditional link between production and consumption. The great fear is that BIG will turn us into lazy parasites sitting on our Barcaloungers, stuffing our faces while playing video games, like the humans in the movie WALL-E, where robots did all the work and humans vegetated.

I don’t think that would happen. For one thing, most of us will still want to work, to supplement our meager government grants. The work week might shrink, but few of us would complain about that. Secondly, doing nothing is boring. Most of us enjoy the pleasures of achievement and will still want to impress our peers with our skills and talents. By providing a safety net, a BIG would stimulate risk-taking and entrepreneurship. It would provide a subsidy for artists, academics, athletes, and others who could follow their dreams rather than wallow in stagnant repetitive jobs that could be better done by robots.

“By the sweat of your brow, you will earn your daily bread.” Many scholars now believe the Agricultural Revolution was the worst thing to befall humanity. Hunter-gatherers ate better, lived longer, worked less than their agriculturalist descendants. They were able to feed, house, and clothe themselves with only a few hours of work a day. You can almost say that work did not exist before the invention of agriculture. Hunting with your comrades, walking through the forest, and gathering berries was more like play than labor — certainly more fun than pushing a plow through hard earth.

Humans were hunter-gatherers longer than anything else, and hunter-gatherer bands would have never dreamed of not feeding one of their own. Perhaps the Basic Income Guarantee ultimately will allow us to return to ancient and better ways — to our true nature. Hunter-gatherers have been called “the first affluent society.” We fed ourselves off the fat of the land and spent the rest of our time telling each other stories, nurturing our children, hanging out, and creating art. Sounds heavenly. Ever-improving technology allows us to have that again. Perhaps that is the Golden Age to which we can return.


Tom Streithorst has been a union member, an entrepreneur, a war cameraman, a commercials director, a journalist.

LARB Contributor

Tom Streithorst has been a union member, an entrepreneur, a war cameraman, a commercials director, a journalist. These days, he mostly does voiceovers and thinks about economic history. An American in London, he’s been writing for magazines on both sides of the pond since 2008. He is currently working on a book on how the incredible productive power of capitalism and technology have the potential to bring us all prosperity and happiness but so far, we keep screwing it up. He also writes a regular column about economics at pieria.co.uk.


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