Who is more Fiscally Responsible - Citizens or Elected Politicians?

If at any point it is relevant to ask the citizens for their direct input on a particular topic to increase democratic practices, it would be: how should we spend public funds?

Fighting for Survival - Where is the Right to Life?

When the root of the problem is the need to survive then the immediate solution is to provide these means. Every other measure comes second – because those measures would facilitate a transition towards a new life – but no new life can be written...

Pollution Inequality and Living Income Guaranteed

Most people have heard about distribution of income and wealth and how unequal it is. But what about air pollution – is everyone suffering to the same extent or are certain groups/categories of people more exposed – and why?

Transcending False Dilemmas with Living Income Guaranteed - Part 3 - Tools of Intervention

Problems such as poverty, deprivation, insufficient incomes and job insecurity, to name but a few, cannot be tackled directly from within this economic paradigm – to do so with the use of fiscal and monetary policies would in most countries require substantial interventions – and create substantial drawbacks, crippling the economy in other areas, and over time, undoing its own efforts.

Transcending False Dilemmas with Living Income Guaranteed - Part 4 - Abundance of Choice vs Sustainability

Choices and options give u a sense of freedom, a sense of self-determination. So, it would seem that the more options we have available to choose from, the more freedom we have, the happier we are. And so, it would also seem that with the amount of choices we enjoy in our western consumerist lifestyle, we must have reached a state of absolute freedom. But have we?

22 January 2015

Perspective on ‘A Basic Income for Everyone is Not Affordable’ – Part 2

This blog-post is a continuation to the posts

Top Economist says: “Universal Basic Income is Not Affordable”
Perspective on ‘A Basic Income for Everyone is Not Affordable’ – Part 1

Read them first for context.

In this blog I’d like to conduct the thought experiment of playing out the assumption that a basic income can be provided to everyone unconditionally – to then see what possible problems might occur and assess: if it is affordable – is it do-able?

First point to consider here is that to organize such a money stream – you’ll quite likely have to use income taxes as a source of funding. And that’s where I foresee possible problems. Income taxes today are a touchy subject, because everyone feels they have earned their income. If part of it is let go of and allocated towards ‘the common good’ – that’s cool, so long as people feel that it is justified. Considering the basic income as one of the expenses, where a person will now receive this income regardless of how much they work – you’ll most probably run into resistance and if it were to be established – resentment towards those who choose to simply live off a basic income. Sure – everyone will receive it, so even if one works and part of one’s salary goes towards funding a universal income, one will equally be paid out a basic income. For some that may mean receiving back more than what one paid in taxes. But for others, it will square out or they’ll still pay more taxes than the basic income amount. Inevitably this will lead to resentment, because we’ve for decades lived within the paradigm that money is something you should earn. So – for some to pay for others’ income entirely – no strings attached – may be easier in theory than in practice. So – yes, the numbers may work out, but that doesn’t mean you’ll receive the approval of the majority and get a green light to manifest a universal basic income system.

When it comes to income taxes and resentment, consider the current state of the welfare state – the complicated rules, the intricate web of conditions to qualify – the conditions set to ensure a person ‘deserves’ the support given. This complexity didn’t come falling out of the sky – it exists because people demanded it to be so. Although the ideas of unconditionally giving money to everyone and of giving up a part of one’s income to realize such a situation are noble ones – it’s worth asking the question if we as a society live up to that nobility. Herein a follow-up question could be: and if we do provide an unconditional basic income funded through income taxes – what is to say we will not end up right where we started, with ever increasing demands placed on those who do not ‘contribute’ to society in the conventional way of taking up employment and in one way or another being part of the national economy?

Apart from resentment, we have to also consider the dimension of what effect funding an unconditional universal basic income will have on employment. Herein I’m not referring to what effect it will have to create a support structure within which anyone will be guaranteed an income regardless of work efforts and whether that will induce people to simply stop working. Rather – I’m looking at the ‘message’ that is sent out by taxing the incomes of those who work, from the perspective of it being interpreted or having the same effect as punitive measures. For instance, in basic income experiments, the effect on unemployment was negligible or only significant in relation to certain individuals, such as youngsters, students and mothers – where it can be argued that this is not such a bad thing – they will be able to focus on other activities, such as educating themselves or raising their children, which will have long term benefits for society and the economy as a whole. But within those experiments, only the ‘receiving’ aspect of a basic income was tested – the ‘giving’ aspect of a basic income was not. Within the experiments, money was made available by governments or organizations and the effects of receiving the income were observed. What didn’t happen, was taking a small village or town that was approximately representative of the national population and taxing incomes in that village in such a way as to generate enough funds to redistribute it equally among everyone, where the amount given to each one is sufficient to live off of. In that scenario, one might have observed a greater shift from employment to unemployment, simply to be on the side of those that ‘benefit’ rather than those who work and pay for others to benefit.  It is this effect on unemployment that Paul De Grauwe was referring to in his article.

I’ll continue in my next post.

16 January 2015

Perspective on ‘A Basic Income for Everyone is Not Affordable’ – Part 1

In my previous post I shared an article by Belgian economist Paul De Grauwe who came to the conclusion that a basic income would only work if it were limited by giving it to those who need it, rather than providing it to everyone unconditionally.

The article raised some eyebrows, but more importantly, generated cool discussion. The universal basic income concept is only one of the many basic income ideas that are suggested, discussed and promoted around the world. Ideas and concepts differ in name, in scope, in amount, in funding method, etc. – but all have the same goal in sight: to eradicate poverty, to stimulate economic growth and to secure human rights.

The Living Income Guaranteed proposal is one of these particular concepts or ideas. One of the points that sets it apart from other proposals is that it doesn’t suggest to provide a basic/living income to everyone unconditionally. Herein, I’d like to place the article by Paul De Grauwe into more perspective – or rather, the publishing of the article – I will not presume to speak in his name.

But firstly, keep in mind that the Living Income Guaranteed Proposal is not ‘against’ providing everyone with a basic income.  The consideration here is the affordability within doing so – and where affordability is theoretically possible, is it also practically feasible? The basis for the argument of universality is often found within the idea that everyone has a basic right to life, therefore everyone should receive enough money to live off. Sure, sounds good, but then we also have to consider that within the current economic model, many are able to satisfy this right for themselves adequately without the need for a supplementary income. Two other, perhaps more significant arguments, play a role within advocating unconditionality. The first consideration being the reduction of the labor force and the strengthening of the unemployment trap. If one receives a basic/living income without having to lift a finger – what is then the motivation to invest in education, develop skills and take up employment? The effects of providing a basic/living income to only those who need it then takes on an unintended punitive dimension to those who do work. Unfortunately – we have defined ‘receiving something’ as a ‘reward’ and ‘not receiving something when another does’ as a ‘punishment’. Providing a basic/living income to everyone is one way to prevent these adverse effects. The second consideration is the cost of administration. With everyone receiving a living/basic income – a check is written out to every adult citizen in the country, and that’s that – there is no bureaucratic lump-slump that is cost and time inefficient.

The Living Income Guaranteed proposal has a different suggestion to mitigate the adverse effects on employment. Rather than providing everyone with a living/basic income, the suggestions is to set the minimum wage at double the living income. Setting these conditions within the labor market makes employment attractive, because even in the lowest-paying job, one will be far better off than when living on a basic/living income.
Administration would still be simplistic as the proposal suggests, especially at on-set, to stick to providing a living income to those who are unemployed or retired. In other words – those who would usually receive ‘unemployment benefits’ or ‘pensions’ would instead receive a living income. Herein there are no strings attached from the perspective that there is no expectation that a living income recipient should find employment soon. Working/not working becomes a personal choice, but a choice that entails the consideration that when one is not economically productive, it is reflected in one’s income.

So – before looking at the affordability of a universal basic income, it is worthwhile to remember that: even if it is not affordable (in practical terms), that’s okay too – the same goals can be achieved in different ways.

In my next post I’ll lay out some concerns in relation to funding a universal basic income through tax revenue.

02 January 2015

Top Economist says: “Universal Basic Income is Not Affordable”

This is an article by Paul De Grauwe translated from Dutch.

You can find the original article here: http://www.demorgen.be/opinie/een-universeel-basisinkomen-kan-nooit-van-de-grond-komen-a2166604/25mXp2/

A Universal Basic Income Will Never Happen

Top economist Paul De Grauwe, professor at the London School of Economics, writes weekly about people, the world, the economy.
30 December 2014

The idea to provide everyone with a basic income exerts a strong intellectual appeal towards both the left and right side of the political spectrum. The appeal for left is that a universal basic income that is sufficiently high can ban poverty. For the right, a universal basic income is popular because it will remove the unemployment trap. In the current system of unemployment benefits, the unemployed lose their benefits upon finding a job. That discourages the search for a job. This shortcoming disappears with a universal basic income. Because in that system, the unemployed retain their basic income after finding a job.


With such broad support you would expect that the universal basic income is already a reality. But that is obviously not the case. And that has everything to do with its affordability. Due to the fact that in such a system everyone, both rich and poor, working and non-working, receive the same basic income, the government requires to organize a massive money stream.

A numerical example: Suppose that the universal basic income is 1000 EUR per month (which is not that much if it is intended to ban poverty entirely) and that the basic income is given to all adult Belgians. This would mean that government expenses would increase by 100 billion, or 25 percent of GDP.

The universal basic income of course makes it possible to save on large portions of social security. Unemployment benefits and benefits for illness can be scratched; we could also save on pensions. But an important part of social security is not dropped. For instance, health care, child support and the portion of pensions above 1000 EUR remain.

Andreas Tirez from the think-tank Liberales has done an interesting exercise on the subject. He came to the conclusion that after deducing the savings on social security that would become possible through the basic income, there is still a shortage of about 35 billion EUR. That is about 9% of GDP.

It then also means that, after the introduction of the basic income, tax revenue would have to increase by 35 billion. The total tax burden that now represents about 51% of GDP, will need to increase to 60% of GDP.

Weakening work incentives

One can argue over these numbers. Do they overestimate or underestimate the costs of a universal basic income? The reality will not be far off in my opinion.

A universal basic income that has the ambition to ban poverty from the world, is then immensely expensive. That doesn’t need to surprise you. To give the poor (a minority in society) a basic income, you have to also provide a basic income to the large majority that doesn’t need it. This leads to new problems. The working majority receives a basic income that stands loose from labor efforts, but will have to pay extra taxes (and not a small amount) on their labor incomes. And that is the best way to weaken work incentives.

Conclusion: The only realistic system is one where the basic income is limited to those who need it. A universal basic income will never happen.

23 December 2014

Ending the Vicious Cycle of Economic Inequality with Living Income Guaranteed

“Rising economic inequality was a major driver of the financial crisis. With the OECD recently debunking ‘trickle-down’ economics, our new report sets out the links between inequality, the growth in scale and influence of the financial sector, and the dangers for financial stability.”

“Privatisation and the doctrine of maximising value for shareholders have increased the amount of economic activity focused on extracting the largest possible short-term profit. These trends are referred to collectively as ‘financialisation’.”

“This diagram lays out the seven indicators of economic instability, each fuelled by rising inequality and increasing financial sector activity:

Our report describes how these indicators laid the path for the 2008 crash, and threaten to do the same again:

  1. Increasing inequality depresses demand since consumption levels depend more on the wages of those at the lower end of the income scale, than the profits of the wealthy
  2. In the face of stagnating wages, households rely increasingly on debt to maintain their lifestyles with rising asset prices, especially in residential housing, worsening this.
  3. Financial liberalisation allows money to flood into countries with trade deficits, such as the USA and the UK, providing the funds for debt-led consumption.
  4. Snowballing wealth at the top increases risky financial speculation.

Inequality doesn’t bring growth, it brings economic instability

In recent years there has been a marked slowing of growth across the world’s wealthiest economies, with none returning to the growth trends experienced before the crisis. Many have begun to speculate that this stagnation could, in fact, be a permanent development – meaning that wealthy economies are fundamentally unable to create enough demand to keep growing.
The mainstream political consensus has for decades now suggested that inequality is a price worth paying for economic growth. But new research from the Organisation for Economic Co-operation and Development (OECD) shows definitively that this inequality/growth trade-off is false – adding to a growing body of research showing that inequality actually prevents economies from growing. This points to a fundamental structural flaw in the economy: if the proceeds of growth are not shared, the pie stops growing.

The pursuit of higher returns for the already wealthy within this dwindling pie cannot persist forever. With wealth refusing year on year to trickle down, debt has been used to plug the wage-consumption gap for the rest. The signals are showing quite plainly that this pursuit of growth, via inequality, is ineffective and unsustainable.”

The New Economic Foundation suggests both reversing the trend of liberalizing the financial market and at the same time implementing efforts to reduce inequality. The implementation of the Living Income Guaranteed proposal will see poverty eradicated  and ensure a limit to inequality where, at the very least, everyone will have an income sufficient to lead a dignified life – herein effectively stopping the currently allowed trend of unrestrained inequality where the wealth of a small elite is paid for by the lives of many. Concurrently, financial markets will be restrained by limiting the need for excessive debt and the move towards citizen shareholding of human rights and basic resource companies – where those profits are utilized for the funding of a Living Income Guaranteed – flowing back into the goods and service market – and no longer the currency in a financial monopoly game. Unfettered inequality and an unrestricted financial market are unsustainable – the solution is here – please read and share the Living Income Guaranteed Proposal to redefine our economy and manifest the values and ideals of humanity, dignity and justice – in fact.

About the New Economic Foundation:

NEF is the UK's leading think tank promoting social, economic and environmental justice. Our purpose is to bring about a Great Transition – to transform the economy so that it works for people and the planet.

The UK and most of the world's economies are increasingly unsustainable, unfair and unstable. It is not even making us any happier – many of the richest countries in the world do not have the highest wellbeing.

18 December 2014

Set Your Priorities Straight

“So, since Ukraine is nonetheless now gearing up, with American taxpayers’ money, to replace its weapons-supply that was used-up or destroyed in the war to-date, and also to build an immense new military graveyard for a planned 250,000 corpses of Ukrainian soldiers in the next and future rounds of invasions against the rebelling region in Ukraine’s (former) southeast, the IMF is basically quitting continued financing of that ethnic-cleansing campaign against the residents in that region. The EU has already quit funding it, other than a token half-billion-euro donation delivered on December 10th. Only the U.S. remains committed to funding it, by donating whatever weapons and military guidance are deemed necessary in order to conquer, and/or to expel, the pro-Russian residents in Ukraine’s former southeast. 98% of the U.S. House voted for it, and so did 100% of the U.S. Senate. At least 67% of the U.S. public are against it.”

The question that comes up is: How is that possible? How does that work?

When the majority of the population does not support the funding of a foreign war – how is it possible that those ‘representing the people’ vote in a totally different direction?

And what is more – why is this not hitting the headlines? While everyone’s focus is on Ferguson, whether or not Putin is becoming the new Stalin and the apparent ‘shock’ at torture practices  – the American elite goes about deciding what to do with taxpayers’ money without anyone even noticing that it stands squarely against the wishes of US citizens.

According to PovertyUSA, 46.2 million Americans live in poverty in the USA – that is 1 in 6 – and 1 in 7 American households were food insecure last year. Why oh why would you consider funding a foreign war – when at home, people are in desperate need of support?

Many justifications are put forward for military spending – but do they hold up?

Creating security for your citizens starts with guaranteeing personal financial security. Reviving the economy starts with ensuring effective flow in the domestic economy by reducing inequality and ensuring everyone is enabled to be an active and empowered participant in the economy. Building world peace starts with eradicating crime at home by making sure no one has a reason to destroy another’s life out of spite, because they are lacking. Democratization starts with recognizing the wishes of your people at home and acting according to those wishes – increase direct political decision making and build in mandatory budget referendums.

The real threats to civilization – the real wars that are being fought are not wars between countries, are not wars between people of different religion and different race. The real war is the war against against poverty – the fight to survive.

A Living Income Guaranteed would be a better use of funds currently allocated to military operations – if you really want to achieve the goals mentioned above – then start by implementing a Living Income Guaranteed – you have no right to meddle in foreign affairs when you allow your own people to live in destitution.


08 December 2014

Fighting for Survival - Where is the Right to Life?

“The leader of a violent gang that controlled life inside one of America's most notorious jails testified that he directed guards motivated by sex and money to smuggle in drugs and cellphones and facilitate attacks on inmates who challenged his authority.
Tavon "Bulldog" White described a culture of corruption inside the centuries-old Baltimore City Detention Center, led by a gang that has its own language and laws and authorities. The Black Guerilla Family's hierarchy includes a "minister of education" who quizzes members on gang literature and a "minister of finance" who manages the profits sent by cellphones from behind bars.

The gang's smuggling schemes even fund the bail that frees gang members who can't pay to get sprung from jail, he testified this week.

Gang leaders, not guards, are the ultimate authority inside the jail, he said.”

I really suggest reading the entire article as the snippets of stories being told in it are quite astounding. This is not the synopsis of a TV show, but an example of what actually takes place behind the walls and fences of a prison – it goes beyond what anyone could imagine scripting for a movie or a show. When jail time is seen as a solution to crime, this is the results we start seeing – not only do gang members ‘go back’ to a life of crime, they continue the same participation and behavior for the entire time of their incarceration. Now – I don’t mean to say it is like this for everyone. I’m sure there are those individuals who get a wake up call from spending time in prison – or in other words, who actually use that time to reflect on their lives, what they’ve done, who they’ve become and whether that’s really who they want to be.

But when criminal behavior is the result of lacking the financial means of doing anything else with one’s life, then being in prison is unlikely to facilitate any form of personal transformation – because they know that once they get out, they’re back to where they started,  however much they may want to change – their opportunities in life do not.

Reading some more on Baltimore, it’s clear that it is a city that is struggling with a high crime rate, in a second article, I came across he following:

“Interviews with community leaders and residents show that few are looking exclusively to police for the answer. Though many believe street-level officers should be more visible and work to strengthen ties in the communities they police, most point to jobs as the only way to reduce gun violence.

"A lot of these cats got dreams — they don't want to do this [drug dealing]," Lawrence Davis, 35, of the Coldstream-Homestead-Montebello neighborhood, said as he looked on at the shooting near City College. "There aren't enough opportunities, and this is all they know."

City Council President Bernard C. "Jack" Young said police need to boost foot patrols. But he placed much of the blame for the increase in violent crime on the economy.

"Until we're able to create employment opportunities for our citizens in Baltimore, and to address the drug problem that we have in Baltimore, I don't see where we're going to really get out of this," he said.”
Can Baltimore wait for employment opportunities to be created to reduce its level of violent crime? Can we continue to entertain the illusion that it is possible that enough jobs can be created for everyone who needs one with the increasing tendency to replace jobs through labor saving technology? When the root of the problem is the need to survive then the immediate solution is to provide these means. Every other measure comes second – because those measures would facilitate a transition towards a new life – but no new life can be written if the right to life is not recognized in the act of giving a living income when no other source of income is available.


And watch:

27 November 2014

Who is more Fiscally Responsible – Citizens or Elected Politicians?

In the blog-series ‘Democratization – Put your Money where your Mouth is with LIG’ I briefly discussed an argument against direct democracy (placing authority directly in the hands of citizens rather than elected politicians) that dates from the time of Plato – the argument being that citizens would make ‘bad decisions’ and don’t possess the necessary intelligence, knowledge and skills required in political decision-making.

I came across the following information when browsing through the comments on a blog regarding the implementation of a Basic Income in Switzerland:

"Switzerland is an interesting laboratory for direct democracy.

I dimly recall a very interesting study by (I believe) University of Zurich (maybe 20 years old).

They analyzed for each of the 26 Swiss cantons (=states): (1) influence of direct democracy on canton politics (which varies by canton. Some cantons don’t have all that much direct democracy. Others such as Appenzell-Innerrhoden don’t even have a parliament because EVERY single law is passed directly by the people). (2) fiscal situation of the state.

The highly fascinating result was this:

the stronger the people can directly influence public spending and taxes, the healthier the canton’s budgets (!!). The people tended NOT to spend more than they had. Rather, the professional politicians (or the canton’s that gave elected officials greater power) tended to be more fiscally irresponsible."

Naturally, my interest was peaked and I went to search for studies about this topic. And, yes, you guessed it – I found the material supporting these claims. I think we can all agree that when states spend beyond their means – we have a case of bad political decision-making. According to the logic of the argument that it would be dangerous to have citizens directly participate in politics, we would expect citizens’ involvement within budgeting decisions to exacerbate fiscal irresponsibility. And yet – here we have an example that not only shows that citizens wouldn’t make matters worse – but that citizens would do better than elected politicians when it comes to balancing the budget.

If at any point it is relevant to ask the citizens for their direct input on a particular topic to increase democratic practices, it would be: how should we spend public funds? Voting a person into office is one thing – but it is the budget that really determines political policy for the coming year. Mandatory budget referendums should be a minimum requirement for any regime to qualify as a democracy, really. When the extent of your political participation is to vote someone into office – then all you have is ‘hope’ that the people in power will use public funds responsibly and for the purposes that you expect them to. Mandatory budget referendums would create a point of direct accountability towards the citizenry that once politicians are in power, they are indeed acting out their mandate on behalf of the people. It would immediately reduce corruption and prevent budgetary deficiencies down the line, where one is suddenly told that the retirement age has to increase and austerity measures are being implemented because there are insufficient public funds and one only then starts wondering ‘well, where did all the money go?’. 

The fiscal problems most countries are experiencing today could have been prevented. It is now a time of walking through consequence that has already been created and yes, it is worthwhile looking for solutions to address current problems head-on – but it is most important to prevent the same scenario from taking place again. In Dutch there is a saying ‘a donkey doesn’t bump his head on the same rock twice’ – seems like humanity can learn a thing or two from donkeys since we have this tendency of not even looking at what it is we bumped our heads on and why – but simply try to put some ice on the wound. However much we may be upset with governments and politicians – we are the ones who gave them the power to do what they did. The consequence that is here is as much ours as theirs – and rightfully so. If anything – let us at least learn from our mistakes – otherwise all the troubles we’re going through will really be for naught. Let us at least enshrine solutions within the constitution and develop new political practices that we can pass on to the next generations, because surely, part of the consequence we are experiencing is due to continuing traditions from previous generations, but that doesn't prevent us from rising to the occasion and creating new traditions to shape a better future.