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?

02 April 2015

Meconomics: Fear of Missing Out and Opportunity Cost – Part 2

This blog-post is a continuation to:
"Meconomics": ME-Economics
Meconomics: Fear of Missing Out and Opportunity Cost



Read the above posts first for context.

In the previous post I had a look at the concept of opportunity cost and how we ‘make use’ of this concept in our language and daily living, or in other words – how the concept of opportunity cost is embedded in our psychological make-up and how it plays a role specifically when we make decisions. We saw that opportunity cost involves a dimension of a sense of ownership towards ‘the road not taken’ – where it then feels that we are ‘losing’ that option when we choose something else. We also looked at the role imagination plays within the creation of this sense of ownership.

So now, let’s have a look at an example of opportunity cost in economics and then take our understanding of the psychological origin of the concept – as how it exists within ourselves – to re-assess the ‘place’ of opportunity cost in economic situations.

Let’s take the example of interest:

“Interest is compensation to the lender, for a) risk of principal loss, called credit risk; and b) forgoing other investments that could have been made with the loaned asset. These forgone investments are known as the opportunity cost. Instead of the lender using the assets directly, they are advanced to the borrower. The borrower then enjoys the benefit of using the assets ahead of the effort required to pay for them, while the lender enjoys the benefit of the fee paid by the borrower for the privilege. In economics, interest is considered the price of credit.”

So, part of why you pay interest on a loan is to compensate the lender for the opportunity cost they incur by borrowing you the funds. The lender’s opportunity cost stems from the idea that he/she could have invested the funds and would have made a profit through investments. When reading this information for the first time it might intuitively sound like ‘it makes sense’ – because as we have seen in the previous post, we can all relate to the experience of opportunity cost. But does it really make sense?

When you’re struggling to decide which shoes to buy and end up choosing one pair over another and you experience a sense of ‘loss’ towards the pair you didn’t buy (your opportunity cost) – who compensates you in monetary terms for that opportunity cost? Do you ask the shopkeeper for a discount as compensation for your opportunity cost, because you could have bought the other pair? You don’t. And in this example we see that it clearly wouldn’t make sense to either.

We understand that when buying something and we have to decide between two options where only one can be taken – that making a decision involves letting go of the other one – it’s simply part of the nature of decision making. Even though we for a moment imagined owning both pairs, we do ‘come back to reality’ so to speak and see that we can only own one and that the other ones are not ours and stay at the shop.

So – why is it any different with lending money? A lender might imagine making a profitable investment on the one hand and lending the money on the other hand. But when it is time to decide – the road not taken is simply that: the road not taken. Once the lender decides to lend the money, it means he didn’t decide to make an investment and so that means he doesn’t get to make a profit either. That was the decision made and the lender could simply take responsibility for their decisions instead of ‘making a financial claim’ to the profits they could have made. Because remember – it’s not because the lender ‘could have made a profit by investing’ that the lender would have. What if, had the lender not borrowed the funds, he instead used the funds to make a really bad investment and lost all his money? That would be equally possible. Should a borrower then be paid a fee of gratitude because the loan potentially prevented the lender from losing his money through a bad investment? Lol – that somehow doesn’t happen.

So – we can ask ourselves why it is okay for a lender to make a ‘real claim’ (meaning: it is expressed in monetary terms, that means someone pays it, that means it has actual consequences on their purchasing power and living arrangements) on a cost that is based in imagination – but in other situations we can’t? Another way to place that question is: why do we allow it? Why have we never questioned it? Is it because we secretly WOULD LIKE TO be compensated for our imaginary losses? Because we secretly WOULD LIKE TO have it both ways without taking responsibility for our decisions?

It opens up even more questions as we look at: how could we do it differently? What other lending and borrowing models could we create? What would be their foundation? Or will we simply keep it as it is and allow such a significant point to be founded on a ‘glitch’ of our own logic?

This topic was also discussed in a Google Hangout – so for more information – check out:

25 February 2015

Meconomics: Fear of Missing Out and Opportunity Cost

When you study economics, you get introduced to a concept called ‘opportunity cost’. The definition of ‘opportunity cost’ is:

“The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.”

For instance: “The opportunity cost of going to college is the money you would have earned if you worked instead.”

So – say that if you are choosing between two pairs of shoes in a shop – the opportunity cost of buying the one pair is the other pair of shoes that you did not buy but could have bought instead. This concept comes up very often in economics, where it is said that opportunity cost is what sets accounting apart from economics – because in economics, the opportunity cost is included in the cost of, for instance, running a business or making an investment.

Now – I had never considered the concept of opportunity costs within daily decision making. It was only once I had become familiar with the concept in my economics studies that I noticed how we actually include opportunity cost within decision making in our every day lives. Let’s look at some examples, starting with going back to the shoes.

Say that there are two pairs of shoes that each look really appealing – where you actually don’t want to choose between the two and if you had the money – you’d buy them both – but you don’t have enough for both, you only have enough for one pair. So – you have to choose – because in the end you reckon it’s better to come out with one nice pair of shoes than with none at all. So, you make up your mind and buy one pair – and, you know, these shoes are comfortable and nice looking, so you’re quite satisfied with your purchase. BUT – in the back of your mind – there is that other pair of shoes – the ones you didn’t buy and there’s this sense of being unsettled, because – what if you didn’t buy the ‘right shoes’? What if you would have ended up being happier or more satisfied with the other pair – now you’ll never know. That experience of feeling unsettled or uncertain, like a bad taste that kind of spoils your satisfaction with the shoes you bought – that is the opportunity cost of buying the shoes you have.

And it’s interesting – because you went in with no new shoes – and you came out with a new pair of shoes – but somehow it feels like you also ‘lost something’ – as though you had to ‘give up’ the other pair of shoes, because they ‘could have potentially been yours’. What we don’t realize is that: they were never actually ours. Rationally speaking, we couldn’t have lost them, because we never owned them. So – where does that sense of loss come from?

If you slow yourself down when deciding to buy shoes – you’ll notice that something plays a significant role in that department and that is: Imagination. As you decide on which shoes to buy – you’re imagining wearing them/owning them. You imagine wearing them to specific events, you imagine what others will say about the shoes while wearing them, you imagine how they will fit with your clothes and outfits. So – within your imagination, you ‘act as though’ the shoes ARE YOURS ALREADY. Then, when you step out of your imagination and have to now, in physical reality, decide which shoes to buy, it feels like you have to ‘give up one pair’ – because even though it was only in your imagination that the shoes were yours, you created in those fleeting moments of imagination/projection an actual emotional relationship of ownership with both pairs of shoes.

Let’s look at another example:

Have you ever heard someone (or yourself) say the following in relation to a potential partner that they are hesitant to go into a relationship with/commit themselves to, because: “What if he/she is not ‘the one’?” And “What if, as I commit to this person, I miss out on meeting my perfect partner?” Without going into a discussion about whether ‘the one’ or ‘a perfect partner’ or ‘a soulmate’ exists – if you look at the logic that is used in these instances: it revolves around opportunity cost – the fear of ‘missing out’ on all the things you can’t do because you’re committing to one option. In looking at these statements – it’s interesting to see that there is again a component of imagination – because, you only concretely have one potential partner in front of you – one real live person – but in your imagination there exists so many other ‘potential options’ or ‘one specific other perfect person’ that you might not have met yet. And – instead of making a decision about the one real live person standing in front of us and deciding whether or not to be in a relationship with them or commit to them – we allow ‘imaginary people’ to enter into the equation. And many times a relationship opportunity is passed up on, because of that notion of ‘what if he/she is not the one’ or ‘what if a better opportunity comes along and I miss it?’

There are many more examples, here are some common phrases that refer to opportunity cost:

“You can’t have it both ways”
“I could have done something else with my time, you know”
“I invested so much effort in this project and for what?”

In having defined the concept of opportunity cost and had a look at how we use this concept in daily decision making, we will continue in the next blog by looking at the consequences of this logic in our economy.







Other blogs in this series:
"Meconomics": ME-Economics

17 February 2015

"Meconomics": ME-Economics

I’m sure everyone or most have heard of the words microeconomics and macroeconomics – where microeconomics looks at single factors/products/services and the effects of individual decisions (for instance what happens when I increase the price of the product I’m selling) and macroeconomics works with aggregates, looking at entire markets or the economy as a whole (what happens if the price of oil increases in the economy). However, in my economy studies I haven’t come across a single word that describes how we live economic decisions and apply ‘market logic’ in our personal lives – so here I am making one up: Meconomics, short for ‘ME-Economics’.

Sure – we can say ‘what you’re looking at is psychology – not economics!’ And yes – I am looking at psychology – but I’m looking at economics in the same extent as I am at psychology. Here is an example of how our Educational system enjoys fragmenting reality – breaking it up into bits and pieces so it can neatly fit in a particular box – and, apparently, what fits in the Psychology-box does not fit in the Economics-box. It’s mind-boggling to consider that economists may have never had any psychology course at all – that’s like a doctor not being trained as a nutritionist! (Oh wait, that’s the norm... case in point!)

If you take a moment to consider you’ll agree that psychology should be at the basis of our education – because everything we do, we do as a human being; How can we understand politics if we don’t understand human behavior? How can we understand economics if we don’t investigate our inner relationships with giving and receiving? How can we understand the function of the body if we don’t take account of the effect the mind has on it? How can we understand law if we don’t understand the law of our being? In other words: How can we understand the world if we don’t understand ourselves?

So – Meconomics will be a series of blogs investigating how we are maintaining the status quo of the economy on a micro and macro level through applying/living out the same logic, the same reasoning, the same models in every day life, whether it pertains to decision making, relationships, community living, self-image, socializing, parenting, siblings and so on and so forth.

If you have any ideas for topics to include in this series, feel free to leave a comment so I can dedicate a blog to it as part of the series. Let’s cover new ground, new ways of looking at economics, new ways of looking at ourselves – so we can become aware of how we are in fact, through the principle ‘as above, so below’ creating the rules of the game that determines human life on Earth in so many ways.

01 February 2015

Perspective on ‘A Basic Income for Everyone is Not Affordable’ – Part 3

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’ – Part1
Perspective on ‘A Basic Income for Everyone is Not Affordable’ – Part 2
Read them first for context.

In my previous post I shared my concerns over utilizing income taxes to fund a universal basic income by looking at what social dynamics would be created as well as a possible punitive effective on unemployment.

In this post I’d like to look at particular taxes that have been suggested for funding a basic income.

When looking at ‘where to get large sums of money’ – we’ll almost instinctively turn our gaze towards the ‘rich’ in society. “They have lots of money and surely they don’t need it.” Herein I would refer to Hollande’s super tax in France – where the plan was to tax the rich at a 75% rate. Facing resistance and protest from the wealthy in society, the tax was quickly watered down until it quietly died altogether. Yes – in theory, the rich have money that could be allocated towards a basic income, but that doesn’t mean you’ll ‘get it’ – the money currently is not yours, it’s theirs, obtained according to current and past laws and agreements. Regardless of whether they are a minority among voters – their position in society enables them to impact the national economy and influence public opinion through other means. In other words, if they don’t agree with the tax policies, you are unlikely to get them passed. Whether that is a good or a bad thing is not under discussion – it’s what we have collectively created and it is not something we can simply sidestep or ignore when looking for practical ways to implement a basic income.

Another suggestion to create revenue from tax is to tax luxury products. Herein I consider the same point of what message it would send – is it ‘wrong’ to buy luxury products? Must there be an additional price paid for luxury products? I for one have no issue with luxury and I think most would enjoy to live a life that can afford luxury – I see it as worthwhile to make life more comfortable and enjoyable for everyone. The aspect that is concerning about luxury products at the moment is within conspicuous consumption, planned redundancy and planned obsolescence. These are issues that can be tackled otherwise, for instance by setting higher production standards and ensuring demand-based production.

Using pollution taxes to aid in funding a basic income is in my view not a solution. On the one hand, if the pollution tax is ineffective, loopholes will be found to avoid paying the tax as is happening today and pollution will not effectively be reduced. Then pollution taxes become a license to pollute and we are in fact requiring companies and individuals to be willing to pollute and ‘pay the license’ to assist in funding the basic income. On the other hand, if the pollution tax is effective in that it is an actual deterrent for pollution – then we would see a gradual decline in pollution and less and less tax revenue from pollution tax, so then it would not be a sustainable revenue stream.

All of the points I described in this and the previous two posts are reason to consider becoming more flexible about the universality principle within the basic income movement. I understand the experience of feeling like one is compromising in one’s ideals – I have been there. If you scan over the topics of this very blog, you will see that we started with investigating an Equal Money System, then stepped away from that idealism towards an Equal Money Capitalism system and then further ‘downgraded’ (if you want to see it that way) towards a Living Income Guaranteed solution. I indeed felt like I was compromising on ideals and was ‘downgrading’ my promotion of solutions – but what I didn’t consider was space-time practicality. It is easy to conceptualize a new world, a new system and we tend to forget that we have to work with what is here as what we have already created. So, I am willing to take our current reality into consideration and work with what is here, because it is pointless trying to force a solution that most resist at this stage. I have found it assisting to keep the goal in mind: which is to secure human rights and herein the freedom for individuals to start determining what kind of world they would like to live in, for themselves and for everyone else. So, I have let go of trying to force an ideal outcome on the world, considering that in that very act I would be stating that people don’t know what is good for them. I would rather work with what is here and see what adjustments can be made within the current framework that would remove the need for a survival-mode and instead open up the space for each one to ask themselves who they would like to be, what they would like to be a part of and what world they want to contribute in creating.

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.

Affordability

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.