back to article Basic minimum income is a BRILLIANT idea. Small problem: it doesn't work as planned

Given that we've a general election coming up, people are starting to actually pay attention to what the various politicians are saying. Which is, of course, interesting, for it's often the first time that said politicos are asked whether their sums add up. So it was when Natalie Bennett of the Green Party was “questioned” - …

  1. Paul 87

    This is why we're better off with the current approach, increase the tax free allowance for everyone, so that instead of being given money for nothing, you instead get to keep more of the money that you earn in the first place. It also greatly reduces any associated administration costs with redistributing the money.

    The flip side is that social security should be just that, a safety net for when your life goes to hell in all sorts of unexpected ways, of course there's corruption, people who play the system for their own benefit (pun intended!) but despite media reports they're a minority.

    1. JS001

      "This is why we're better off with the current approach, increase the tax free allowance for everyone, so that instead of being given money for nothing, you instead get to keep more of the money that you earn in the first place. "

      1. The current approach is to give people money for "nothing"

      2. Under your proposal, merely increasing the tax free allowance, how do you earn money if you have no work?

      1. Anonymous Coward
        Anonymous Coward

        @JS001 The devil is in the details

        Good point, theoretically the people with no work will subsist on welfare. But if the state collects less money by increasing the tax free allowance, where does the extra money come from?

        The eternal dilemma of the welfare state is how to pay for it.

        This idea was also called a "negative income tax" by Milton Friedman and is repeatedly trotted out as a solution to welfare state problems. But as solutions go, it is not the worst idea to come down the pike. The problems begin when people try to "improve" it.

        Most state tinkering with economic incentives falls over as people progressively discover work arounds, scams and free rides. Pointy headed bureaucrats so rarely get it right and often focus more on how they and their departments will benefit from the welfare programs they must administer, while politicians like to dangle free "stuff" to get votes. Complicated schemes = good, simple schemes = bad for political entrepreneurship career prospects. Yet another perverse incentive in the mix.

        But as Tim points out, direct cash distribution helps fix quite a few issues:

        1) Less overhead for welfare services and less complicated to administer

        2) Less opportunities for disbursement fraud and mis-allocation

        3) Cash goes directly back into the economy and lets the free market reign.

        4) People have some degree of freedom left in what they can or can't do with their money

        4) Is what most people will complain about, How do you prevent the cash from being drunk, smoked, snorted, injected, screwed or simply gambled away? The short answer is you can't but you can threaten to cut if off, if certain standards aren't met (like taking drug tests or attending meetings).

        Which further complicates the fundamental simplicity of the idea.

        Some think recipients should perform work before receiving the "free" cash.

        But not everyone who is poor is easily employable, yet another issue.

        Workfare has its appeals but needs further administration to manage it. Employers who want to hire welfare recipients are usually thin on the ground. Only prisons seem to do this on a regular basis, which is really quite sad.

        Problems.... problems....

        1. JS001

          Re: @JS001 The devil is in the details

          I'm for basic income.

          re point 4, we should just let people get on with it. How they spend their money is up to them, we can''t control it so don't bother worrying about it. Just give them a lump sum, say that's your lot. If they spend it on fags and booze then the public purse sees some return.

          "Some think recipients should perform work before receiving the "free" cash."

          Yes. Which is nonsensical in an economy where work is scarce.

          "Workfare has its appeals..."

          Workfare has been used to give businesses free labour - funny how we object to handouts except to businesses (and 'people like us'). The workfare workers don't get the minimum wage* and paid workers lose out.

          * I'm inclined to think the minimum wage could be abolished if basic income were introduced.

          1. Anonymous Coward
            Anonymous Coward

            Re: @JS001 The devil is in the details

            In the USA at least, how much workfare pays depends on the state. IIRC New York City wasn't paying minimum wage to workfare recipients (presuambly under the assumption that they were receiving other benefits) and was forced by the courts to change the rules.

            I think minimum income could fall down in many countries because lots of us unmotivated people don't need much more than the basics. Basics plus Internet access, thanks.

            To overcome indolence the idea of the free market forcing people to work is nice, but it falls down on it being really hard to say that it's OK if people starve. I also think that unmotivated people won't become motivated to do any more than just get by.

            Given that problem, I like the idea of a minimum income guarantee plus a very rapid and pushy unemployment and welfare system, with workfare, education, training and job-seeking with the aim that working-age adults are working (or at the very least bored shitless) for 40 hours a week (less statutory holidays and leave, of course). The bad thing is that it'll cost more than the current system which tries to saves money by being deliberately slow or hands-off, but at least it would be a more positive and more helpful system.

          2. LucreLout Silver badge

            Re: @JS001 The devil is in the details

            Which is nonsensical in an economy where work is scarce.

            Where's that then? We've had several million East Europeans move here and find work despite English being their second language. So it would be the height of stupidity to imply that work in the UK is scarce. It's evidentially untrue.

            1. Missing Semicolon
              Meh

              @Lucrelout Re: @JS001 The devil is in the details

              Correct - work isn't scarce. It's just too cheap. Since we don't like people to starve, we ensure they don't. Due to the disincentives TW is talking about, work below a certain wage therefore isn't worth doing. However, if you are a) not entitled to the benefits that make this so, and b) come from a place where the low-wage economy of the UK is still much better than where you come from, you will work for far less than the locals.

              Result: a 1:1 ratio of new jobs with incomers to do them.

              The circle to be squared here is to make sure that employers can afford to pay the wages that are needed by people to make work worth while. That means that low-wage work must be subsidised, and that is unpalatable as it "subsidises exploitative businesses".

              It's hard.

        2. itzman

          Re: @JS001 The devil is in the details

          Only rational thing is a cradle to grave state pension based on whatever the country can afford. And then tax luxury, not labour not essentials..

          And cut back on public services as deliverables, just deliver the money.

          1. Elmer Phud

            Re: @JS001 The devil is in the details

            " And then tax luxury, not labour not essentials.."

            That was the original idea of V.A.T. - but now?

          2. James Micallef Silver badge

            Re: @JS001 The devil is in the details

            "tax luxury, not labour not essentials"

            thus completely flipping current system on it's head. Currently tax is highest on labour (income tax) and spending (VAT which is regressive). Basically, working poor and middle-class pay tax at these rates. Tax is currently lower on businesses*, Capital gains, and dividends (and inheritance?), which is paid mostly by richer people.

            But really if you have a cradle to grave handout wage, you can't afford that without taxing labour.

            Separate point, it occurs to me that if it is really 'cradle to grave' then parents will be given handouts for their children... not a good idea to incentivise indiscriminate breeding, I think

            * except US basket case, I guess

          3. Tom 13

            Re: And then tax luxury, not labour not essentials.

            The problem with that is that the economically illiterate cannot get it through their thick skulls that:

            1. There isn't enough money in luxuries to run the modern state even sans welfare.

            2. By definition a luxury good has a highly elastic demand curve which further adversely affects item #1.

            But these are par for the course when some can post

            Which is nonsensical in an economy where work is scarce.

            with a straight face. If work is scarce, by definition there isn't enough money in the economy for the luxury of a welfare state.

            Make no mistake about it, the welfare state is the ultimate luxury good. If we were all just a little above the edge of starvation there wouldn't be any question about whether or not you worked. If you didn't work, you couldn't eat. Period. We did this experiment about 400 years ago. Communism, aka the welfare state, failed badly. We shouldn't continue to try to replicate it and expect different results.

        3. Anonymous Coward
          Anonymous Coward

          Re: @JS001 The devil is in the details

          What's pretty clear is that if there were a basic income, marginal tax rates would have to be high to compensate, and these may be politically unacceptable.

          Let's say that someone earning £24K should pay the same net amount towards the state as today.

          Today's scheme: £24K income, £10K personal allowance, £14K taxed at 20% = £2.8K tax. Plus NI at 12% on earnings above £5.7K, that's another £2.2K of tax. So: income £24K, tax about £5K, person keeps £19K. (This is all very rough, as the NI system is intentionally complicated so that people don't understand how much they are being taxed; it also ignores the employer's NI tax)

          As an alternative, say we have a simple system where everyone receives an allowance of 130x52 = £6.7K per year. This person receives £24K income, but to be as well off as before needs to pay back that £6.7K plus the original £5K tax; this means they need to be taxed at almost 50% on their total income.

          This seems to me pretty fair: you receive your weekly £130 allowance, and if you choose to work, you pay 50% (which could be a flat rate from the lowest to the highest earners) on every penny, but you keep your allowance. This marginal rate is not really much higher than what we have today, but to make the numbers add up it may have to be more.

          Questions:

          1. Being taxed at that level on every penny you earn: would this disincentivise people to take any sort of job?

          2. Could we really afford this sort of payment to everyone, including those people who currently receive little or no state benefits? (Couples where only one partner works, for example)

          3. How is the level set? If it is too low to live on (especially considering housing costs), people will be seen to suffer from lack of food or heating or whatever, and there will be demands for top-up benefits and we'll be back to where we are today. If it is set so high that you can live on it comfortably, people may well decide just to enjoy their lives and spend their time on leisure pursuits rather than gainful employment, which (one presumes) would have a negative effect on the economy.

          However, one obvious starting point is inheritance tax. If the money you left when you die were automatically divided up between all the remaining citizens of the country (and *none* taken by the government), I think people would be a lot less unhappy about being taxed on it.

          1. 's water music Silver badge

            Inheritance conumdrum

            However, one obvious starting point is inheritance tax. If the money you left when you die were automatically divided up between all the remaining citizens of the country (and *none* taken by the government), I think people would be a lot less unhappy about being taxed on it.

            If money is just another proxy for power, how come the prime minister passing on his job to his daughter feels so much more wrong than the prime minister bequeathing his fortune in the same way? Discuss.

            1. James Micallef Silver badge

              Re: Inheritance conumdrum

              "If money is just another proxy for power, how come the prime minister passing on his job to his daughter feels so much more wrong than the prime minister bequeathing his fortune in the same way?"

              Interesting point. I guess from the PoV of majority of people they sort of expect that it's only right and fitting that whatever tiny savings they have saved and scrimped be passed on to their offspring when they shuffle off this mortal coil, and that's quite different for the 0.1% with 7 and 8-figure ++ inheritences. But what to do? Automatically dividing a deceased's inheritance across a country is effectively a 100% inheritance tax rate, and the only result of punitive inheritance rates is that rich people will find ways not to pay it (set up more and more of their assets in trusts, or gifting it to offspring before death etc), while the middle class will have to pay full whack.

              What's true for inheritance taxes is true of all other taxes... as long as their are loopholes, the rich who can afford the lawyers will legally avoid taxation, and the poor don't have much to tax* so the middle classes will continue to pay a disproportionate amount of their incomes in taxes.

              *except what they generously contribute as excise on booze and fags

              1. dogged
                Stop

                Re: Inheritance conumdrum

                > *except what they generously contribute as excise on booze and fags

                Harsh. They also pay VAT on a lot of other things. They pay the same amount of VAT on clothes because they have to - try walking about without any clothes on and see how how much of a "non-essential luxury" that tax is levied on.

                They pay VAT on women's sanitary products - rich women are unlikely to have more periods so that's just as regressive.

                They pay VAT (twice!) and Green-based excise duty on fuel so that they can get to their shitty low-paid jobs and be sneered at by people who live closer and ride super-expensive tax-free bikes. They might also pay VAT on car parking in order to stay in their shitty low-paid jobs because they can't afford to live near where they work.

                The system is rigged and you can sneer about booze and fags all you like but as long as the new lycra-clad middle classes keep on claiming their pensions and draining the NHS for thirty years past retirement, the problem is not the poor.

    2. Eric Olson

      There are a number of problems...

      With welfare as practiced today with goods and services as the main benefit, with a side of cash, as well as the idea of the negative marginal tax, which speaks about your idea of exempting further income from taxation. Both suffer for gross inefficiencies and both try to satisfy moralist on either side of the aisle (to speak from my American based experience).

      I can't speak for the UK, but the problem here is that both the right and left tried to appease moral outrage by either attaching work for credit schemes (the Earned Income Tax Credit is nearly a real-life version of the negative marginal tax) or by offering an almost cash benefit but restricting what it can be used on. Both were compromises, from what I can tell, that came out of the hand-wringing that began in the Reagan administration in the 80s and culminated in the late 90s with the Clinton welfare reforms (attaching work, looking for work, and retraining programs in exchange for benefits).

      To make matters worse in the US, at least, a lot of these welfare programs are administered by the states. That means moving to find a job (something that is even more important in the uneven recovery happening here) results in a loss of benefits and a lag time before new benefits kick in, plus the process of reapplying using new paper and pen forms, going through the same invasive investigations instituted to combat fraud, and in some states prone to inchoate bouts of moralist rage, drug testing (pity the person moving from the many states that allow medicinal or recreational pot use to a state with absurd alcohol and nicotine consumption that wants save 5 cents on the dollar spent for drug testing).

      Basic minimum income is something that at least in the US is going to be a hard sell exactly because the reactionary wing of the Republican Party (right wing) are the kind who get all sorts of laundry in a twist over the idea that someone might be using a cash benefit to by a few joints, a candy bar, or saving it to make a purchase on a TV or other item. I won't leave out my scorn for Democrats, as I'm sure some of that party will still want to continue some other benefits, like hands off Social Security, which would make the entire thing completely unworkable.

      This is one of the few times that I agree with Worstall, mainly for the same reasons. It increases agency, allows a person more dignity and privacy on their choices, is more efficient both in terms of cash can be spent most anywhere and administration would be next to nothing compared to today's process, and it allows for a way in which many disparate programs trying to accomplish the same end can be rolled into one. And unlike the UK, the US's top marginal rate is 39.6%, even for those Warren Buffett types... at least on income. There is a whole other discussion on how to handle the various excise taxes that end up punishing the bottom 20% even more because they are generally inelastic costs.

      1. codejunky Silver badge

        Re: There are a number of problems...

        @ Eric Olson

        "And unlike the UK, the US's top marginal rate is 39.6%, even for those Warren Buffett types... at least on income."

        The first income tax was a progressive rate system from 1 to 7 percent. When the amendment was debated some opponents in congress argued for a 10% cap. But the tax supporters assured it would never be that high so the cap was unnecessary. Within 8 years the top tax rate cascaded from 7 to 73% by 1921.

        That is a condensed copy from 'The End of Prosperity'. It is definitely worth a read. Tax punishes everyone in direct and indirect ways

        1. Eric Olson

          Re: There are a number of problems...

          I find taxes to be a necessary evil, and the implementation of such is more about what the end-goal of the society rather than towards some kind of ideal state for economic growth. It's hard to argue with a straight face that taxes only hit the ones who are taxed. If it's a level-ish playing field, a company being taxed at 15% of profits will look around, see that their competition is getting hit with the same tax, and just hike prices, reduce wages, pare back benefits, etc. to other wise pass that tax on. However, a company is a bad example for two reason: One, it's not a level playing field, as even at the state level here in the USA, one company might be taxed a lot higher or lower purely based on where they incorporated; Two, there are very few sectors of the economy that don't include competition on some level with internationally-based entities.

          This is where I tend to take issue with the those like Worstall, as I find there is too much conflation of business behavior with individual behavior, even when the latter is looked at in aggregation. The two are very different as many changes in the market struggle to overcome even the collective neuroses of people. Even stepping away from the Wall Street/Main Street dichotomy or the 99% vs 1%, humans are rather unreasonable. Game theory and behavioral economics shows that time and again (and something Worstall alludes to in his article) people don't do what the logical thing would be, and cultural or social mores often inform decision-making, even if it's deleterious to the individual. Aggregate that to a national level and that behavior still persists, which is why trying to assume that people are the same at the market is folly at best. A company is serving a set of masters with a very defined end-goal: Make money. An individual's end-goal is much muddier, and they are the only decision-maker, not a committee or group of people who have to reach consensus.

          So with all that, the behavior of people when taxed is not so cut and dried as what companies do. Companies offshore, do inversions (Medtronic buying Covidan and reincorporating in Ireland to lower then tax bill), hold money in international subsidiaries, etc. People... you'd think that if the super-rich really felt that tax policy in the USA was so terrible, they would have the financial means to go international, become a citizen of some tax-friendly nation, then "live" there while still maintaining assets here in the USA. Yet few do. Very few, despite the loud headline from the financial media, renounce their citizenship. And staying in the USA, the numbers in low-tax states compared to high-tax states tell the same story. The taxes on the top 10% in CA, NY, and other high-tax states are absurd. Yet they continue to live there.

          The USA was, in the 50s, up around 90% on the highest tax bracket, of which there were many. It also correlated with some of the highest growth seen in the country's history. When it was finally flattened and the top marginal rate reduced in the 80s, the impact to the bottom line was negligible and the economy didn't react much at all until the internet took off like a rocket in the mid 90s. The tax cuts in the 2000s in response to a recession did nothing, and the recent incremental increase (really just a roll-back of the last round of cuts) is being accompanied by the best growth seen in nearly 15 years. Do I attribute the growth to higher taxes? No, but it also seems to demonstrate that tax rates and economic growth aren't as closely linked as many would like to argue. They are probably indirectly linked at best, and easily overwhelmed by external factors like technological innovation.

  2. Andrew Ducker

    The Mincome experiment in Canada didn't really show the result you're talking about:

    The results showed a modest impact on labor markets, with working hours dropping one percent for men, three percent for married women, and five percent for unmarried women.

    ...

    These decreases in hours worked may be seen as offset by the opportunity cost of more time for family and education. Mothers spent more time rearing newborns, and the educational impacts are regarded as a success. Students in these families showed higher test scores and lower dropout rates. There was also an increase in adults continuing education.

    (References from http://en.wikipedia.org/wiki/Mincome)

    ====

    So, basically, mothers worked less, and kids who should have been in school worked less (and educated themselves more), and everyone else worked the same amount.

    1. Tim Worstal

      There were some US experiments, Minnesota maybe? Worked out a little worse.

      1. JS001

        Not basic income, they trialled negative income tax.

        1. Tim Worstal

          Yes, but in hte effects on labour provision they should be the same thing. Different in other aspects, but not this one.

  3. Anonymous Coward
    Anonymous Coward

    Does it matter?

    Does it matter that a universal basic income doesn't enlarge the economy? I think this should be looked at from the point of view of the state. If the cost to the taxpayer is reduced overall through the massive simplification of the system, then the drain on the state spending reduces. True, it will put some of the people in various less-than-useful jobs administering the current system out of their jobs. Combine that with a single flat rate tax system (possibly with a tax exempt threshold), and suddenly the cost of administering the system becomes tiny compared to what it is at the moment.

    So when these steps are combined, and the resulting tax cut through flattening the rate, does the turnover of the economy actually increase over all? There is a good chance that once the secondary effect is considered (people spending more), the "size" of the economy may well actually go up (but that's only important for the purpose of allowing the government to borrow beyond it's means, something that could be argued to not be a good thing on a regular basis).

    1. dogged

      Re: Does it matter?

      > If the cost to the taxpayer is reduced overall through the massive simplification of the system

      But is it? This is what I've been asking various Greens of my acquaintance. They've costed their proposals at at about £265 billion and their proposals _require_ that you keep the state infrastructure for such things as housing benefit because £75/week in our current housing rent bubble is instant eviction.

      Apparently (they tell me) the DWP costs 1.5 times the cost of JobSeeker's Allowance in maintenance/admin and this means scrapping it will release that money. But if we have 2 million unemployed then freeing up that money will only pay 5million. Then they talk about how much they'll raise by abolishing the tax-free allowance but even that's still subject to NI and will, naturally, cost a collection overhead. In any case, I never got straight answer as to where the money would come from.

      The problem with the Greens is their insistence on Magic-based economics in which a deliberate permanent recession somehow raises more money and increases living standards. Sorry. I don't believe in it.

      1. Anonymous Coward
        Anonymous Coward

        Re: Does it matter?

        > Combine that with a single flat rate tax system (possibly with a tax exempt threshold), and suddenly the cost of administering the system becomes tiny compared to what it is at the moment.

        It doesn't work for a sizeable chunk of the system. There are a large number of exceptions - people who are severely ill and/or disabled - where £130 doesn't cover expenses (i.e. needing 24 hour care). Hell, around here it wouldn't even cover rent in social housing, so those out of a job would still need support.

        Assuming you are giving the parents the money for the kids (it was cradle to grave, right?), it also encourages parents who shouldn't be having kids to have more of them just to get the £££. If you don't pay parents for the kids, then you get a much worse poverty trap as today with parents on benefits with 5 kids. Unless you start wanting to forcefully sterilize portions of the population, this is an "interesting" route to go down.

        Society is full of corner cases - the problems with policies like this is they try and treat everyone as if they were "average" - it simply isn't true.

        1. Anonymous Coward
          Anonymous Coward

          Incentives for sterilization?

          You wouldn't have to sterilize portions of the population forcibly: you could offer incentives (available to all but only significantly attractive to some). A couple of examples that come quickly to mind: licencing (and perhaps providing free of charge to the user) "recreational" drugs to anyone who has been sterilized; or paying them an extra benefit, perhaps 1.2 x one child's-worth of child benefit, to cover that parent's part of the 2.4 children of a "standard" family. Or maybe both; they'll both appeal to those lines of descent who expect to do forms of work that have now disappeared, and that raise people to think of bettering themselves as betraying their class.

          But that would be long-term thinking (i.e. beyond the next election), and so not of interest to your average politician.

          1. LucreLout Silver badge

            Re: Incentives for sterilization?

            appeal to those lines of descent who expect to do forms of work that have now disappeared, and that raise people to think of bettering themselves as betraying their class

            I don't understand this. I mean, I understand your message, but I don't understand why people do that to their kids.

            Grandad was a miner. Grandad #2 worked the ships. Dad was a factory worker. I was raised with a few "rules" regarding work....

            I was expected to do it until I retired. It wasn't going to be optional.

            I was raised to respect the working man whatever their job. [1]

            I was told education was the key to getting a better job than dad had (our familial industries no longer existing), and that I should get the best job I could and do it the best way I knew how.

            My family is as working class as you'll find on these shores... back when the middle classes didn't confuse working class with welfare class. I work in the City. My family are rather happy about that.

            [1] - The phrase was "working man" but it was understood this applied across both genders.

            1. Anonymous Coward
              Anonymous Coward

              Re: Incentives for sterilization?

              I was told education was the key to getting a better job than dad had

              Nonsense, kissing the arse of the fvcking idiot above you does that. Education, from my experience in industry, is pretty irrelevant to achieving a better job. Everyone likes a yes-man.

    2. Anonymous Coward
      Anonymous Coward

      Does high top tax matter?

      It's long struck me as irrational to want to earn more and more once you've got more than enough. There's a level beyond which I don't care about the extra tax rising to 100%. I won't try to work out the minimum such level, but an income equal to national average income plus national average house price plus national average car price is at least that high: If you can buy a house and a car within a year's earnings, and still have enough for the rest of life, you're earning at least enough.

      1. James Micallef Silver badge

        Re: Does high top tax matter?

        "It's long struck me as irrational to want to earn more and more once you've got more than enough"

        Beyond a certain threshold of 'comfortable living', the motivation is supplied by ego, the simple desire to be the best. On one hand, this can be looked at as mere greed, however the other side of the coin is that we have to thank perfectionists and extremists for delivering some awesome technology to humanity. After all, the same mindset that says $1mln income a year is quite enough might lead to the same reasoning as 64K RAM should be quite enough for anyone.

        1. Eric Olson

          Re: Does high top tax matter?

          One has to wonder then if ego and personal glory is driving things, then a tax rate would have little impact. I think part of the problem we face right now is rather than entrepreneurs and innovators making up the bulk of the top tax bracket, it's a lot of people who work in fields like management, executive leadership, and other low-ROI fields. They've engaged in an international circle-jerk to make sure that their pay is based off the CEO across the street, who in turn bases their new compensation package on the guy across the street, all the while raising the bar even higher to artificially constrain the number of available candidates.

          If your only motivation for higher pay is to get back at the guy who got a raise, then you're probably not the kind of people we should be basing an entire tax policy around.

    3. Anonymous Coward
      Anonymous Coward

      Re: Does it matter?

      1. Surely the basic income would replace the personal allowance?

      2. It's perfectly feasible (using a suitable formula) to have progressive taxation without thresholds. A flat tax does not take account of how much easier it is to make more money if you are already in a privileged position in terms of employment or capital. It would tend to destroy social mobility (downwards as well as upwards!) and lead to even more concentration of wealth (much of it unearned) in the hands of the same few people.

      3. Wouldn't a flat tax also act as a greater disincentive to work for people on a low hourly rate than those on a higher one?

  4. Anonymous Coward
    Anonymous Coward

    I am not sure if what is described is the same as Negative Income Tax which has a built in ibcentive to go out and do some work to improve the total weekly income.

    There was an editorial about it and the trials undertaken in the US in the April 1973 edition of Analog SF.

    The US trials seem to bear out the observations expressed by Andrew Ducker (above) regarding trials in Canada.

    As to where the money comes from, quite simply the savings made by removing several layers of bureaucracy that exist at the moment with the welfare system as it exists today costing nearly as much to administer as it hands out.

    1. Tim Worstal

      The negative income tax (from Milton Friedman) is similar in intent but still different. Because it's conditional. You don't get it if your income is above the baseline. That makes it a great deal cheaper, of course, but you've then got those incentive effects.

      It was that negative income tax which eventually led to the EITC (in English, working tax credits)

  5. JS001

    " Because we've actually done trials of this, in the US in the 1960s and 1970s."

    Was basic income tried in the US in the 70s? Or was it more like negative income tax?

    And were the trials methodologically flawless?

    Unfortunately Tim Worstall hasn't gone into any depth here, so we don't know how he arrived at his conclusion. But if the trials weren't of basic income and/or they were methodologically flawed, they would undermine his conclusion.

    1. mfckr

      Anecdotes re: US basic income experiments: http://www.bostonfed.org/economic/conf/conf30/conf30a.pdf

      1. JS001

        Why do you say that pdf is about "basic income"? The pdf doesn't mention basic income, citizen's income, citizen's dividend or demogrant. It says "The negative income tax was tested in four separate experiments" - it is talking about negative income tax, not basic income.

  6. Epobirs

    Remarkably naive. The people selling food stamps for cash are generally junkies who will forgo eating for their fix. Of course they don't get full value.

    1. Ken Hagan Gold badge

      "The people selling food stamps for cash are generally junkies who will forgo eating for their fix. Of course they don't get full value."

      That was Tim's point. They valued the liquidity more than the face value of the stamps.

      1. Mark 65

        I think you'll find the market valued the liquidity more than the face value of the stamps. The stamp sellers were price takers. They could have held out as long as they wanted, their impression of the value is wholly irrelevant.

        1. Eric Olson

          Except that in deals between individuals, the seller's impression is entirely relevant. You can't hand-wave away unreasonable behavior because it's unreasonable. Humans aren't return-maximizing robots; they can do often do things that are entirely illogical and even deleterious just because they can.

          You can try to catalog the various factors that can cause a human to forgo profit even if the opportunity is there; in this situation, the case study is a junkie who is clearly trying to get their next fix. You can certainly chalk it up to a moral failing rather than a feature of humanity. We value intangible things with rates that are wildly different from others. And taking it as an aggregate and coming up with a nominal value will fall apart as long as people continue to assume that those variables aren't interdependent.

          The only construct we have today that can quickly and easily process those calculations is the one in your head; and it's only good for you. Maybe some day everything will be assigned a value and a grand unified theory of human behavior can be fed into a supercomputer and each single person's actions predicted, but until then, grand proclamations about what is and isn't relevant in a transaction between two people is foolish.

  7. Nathan 13

    It would make things fairer

    Take your single male or female worker on low wages with no children. He basically gets sod all help, where as have a sprog and you get all sorts of benefits and help thrown at you!

    1. Anonymous Coward
      Anonymous Coward

      Re: It would make things fairer

      Though on the flip side people are now starting to wake up to a real state spending crisis that looming an a decade or so when there are increasing numbers of old people without children needing support where the state will not be able to rely on this being picked up by their families.

      1. Mark 65

        Re: It would make things fairer

        The way the World is headed the ones with families will find they are also unable to rely on their kids for support as they're too busy living hand-to-mouth themselves.

  8. Ossi

    Thanks Tim. Really nice thought-provoking article.

    Never going to happen, of course. There's no way that politicians will be be able to resist the temptation to take away from one group and/or give to another.

    1. Anonymous Coward
      Anonymous Coward

      That's why its called a bureaucracy.

    2. Brewster's Angle Grinder Silver badge

      It's worse than that. Busy people can't abide a "layabout" (thinker, dreamer, poet...) It seems unfair to them that somebody should get something for doing nothing (or for raising sprogs). IIRC Aristotle criticised Plato's Republic along the same lines so this debate has got form.

    3. I ain't Spartacus Gold badge

      Never going to happen, of course. There's no way that politicians will be be able to resist the temptation to take away from one group and/or give to another.

      That's a ridiculous comment! If people are going to lambast politicians for being too stupid to think straight, they need to do so themselves. Almost everything politicians do involves taking something from one group, and giving it to another. Whether that's 'quietness' in allowing planning permission for something, taxation and spending, or a minimum income guarantee.

      I know there's a need to be scepitcal of politicians and keep an eye on the buggers. But this mindless cynicism is really annoying, as well as being dangerous to the process of democracy (which is the only system we've so far found that at least vaguely works).

  9. DropBear Silver badge
    WTF?

    A lot of that article seems to be implicitly based on the premise that those who "don't work more" simply do so because they're less inclined to work (or because it would apparently land them in a worse position than working as much as they do) - I wonder where exactly does the Dire Straits interpretation fit into this: "I used to like to go to work, but they shut it down / I've got a right to go to work, but there's no work here to be found"...?

    1. a cynic writes...

      re: doesn't work as planned

      Given Telegraph Road was recorded 32 years ago it's probably not the best description of the jobs market today. We currently have more people in work in Britain than ever before and a large migrant population who have moved here in the last 10 years to do that work. That does sort of suggest that nationally a lack of jobs isn't the issue.

      On a personal level, I know people through my wife who work part time and are unwilling to increase their hours since they would lose benefits and be out of pocket. I don't think they're lazy (they do work after all) just sane.

      1. Yet Another Anonymous coward Silver badge

        Re: re: doesn't work as planned

        32 years ago we 'destroyed' well paid jobs in mining, steel, shipbuilding and have 'created' may more zero-hour part-time minimum wage jobs.

        (well if new jobs are "created" by politicians surely old jobs aren't merely "lost")

        1. Paul

          Re: re: doesn't work as planned

          Anon coward wrote:

          >32 years ago we 'destroyed' well paid jobs in

          who's this we?

          you mean the government stopped artificially helping broken business models?

          there's an irony that some people say, and I'm not saying it's you, we shouldn't bail out the banks with their broken business models, yet we should have bailed out iron, steel, shipbuilding.

          actually, the bank's business model was great *provided* you realise that part of their business model relied on the government effectively being the underwriter. If you're a serious gambler and you can bet money you can't afford to lose on a long shot, knowing the government will rescue you, you should make that gamble!

  10. Alan Denman

    We have something similar here ... Insurance relief

    It works like this, everyone pays more for home insurance so that insurance companies can sell home insurance to those in low lying flood areas.

  11. Nick Kew Silver badge

    Working through the numbers

    Worstall hints at having worked through the numbers. Someone's done it for real here. It makes a lot of sense, but only if it rids us of all means-testing crap.

    BTW, high effective taxation on the poor (through byzantine rules and means-testing) is a bigger scandal than on the rich. Once upon a time I was proprietor of a business that was failing to make money. When my savings ran out I found myself in real poverty but also disqualified from benefits. In the worst year (2003) I lost out on benefits worth nearly three times what I earned, compared to sitting at home doing absolutely nothing of value but just claiming jobseekers and housing benefit. In other words, an effective tax rate between 270 and 280 percent. And I've met (and heard of) others in similar circumstances since my own situation radically improved!

    1. JS001

      Re: Working through the numbers

      "Worstall hints at having worked through the numbers. Someone's done it for real here. "

      But that person suggests taxing the 'universal benefit'. We don't want to tax a basic income. The basic income should be tax free. What you earn on top of that should be taxed.

    2. Yet Another Anonymous coward Silver badge

      Re: Working through the numbers

      Was made redundant after our company was bought by an asset stripper.

      After paying 40% tax my dole claim was rejected (after 8 weeks) because I had started work on the 2nd of Jan so I didn't have enough full years. I applied for income support but didn't get it because I owned a house (or rather the bank did) so was asset-rich.

      So I voted with my feet - it's nice here on the pacific coast.

      I hope all those Russian billionaires you are attracting to live tax free in London make up for all the scientists and engineers you are losing.

  12. Nick Kew Silver badge

    The US case

    You say that in the US case, it didn't increase overall economic activity.

    Can I dig a little deeper into that assertion? What was the alternative system you were comparing to? If it was that vs a "grapes of wrath" scenario without a means-tested rule-bound safety net then that result is exactly what you'd expect. Did the US system in question ever replace something that had actively penalised marginal work and low incomes?

  13. Black Plague

    What about inflation?

    Would a basic minimum income for everyone cause sellers to jack up the price of basic necessities (food, water, rent, etc.), since they know everyone has *at least* the same income available to them?

    1. Nick Kew Silver badge

      Re: What about inflation?

      Nope.

      Food is bound by competition, and will always be unless and until we fall into famine. Water is regulated, so a little unpredictable but also very sensitive. And rents are massively inflated by means-tested housing benefit which removes all incentive to seek lower rents, and would therefore stand to fall substantially if we moved to a flat-rate basic income where everyone is incentivised to seek value.

      1. JS001

        Re: What about inflation?

        " And rents are massively inflated by means-tested housing benefit which removes all incentive to seek lower rents, and would therefore stand to fall substantially if we moved to a flat-rate basic income where everyone is incentivised to seek value."

        Really?

        I thought wages and scarcity drive rents and housing benefit was capped below 'market rates'.

        1. Nick Kew Silver badge

          Re: What about inflation?

          I thought wages and scarcity drive rents and housing benefit was capped below 'market rates'.

          When were you last in the rental market?

          I've actually had this conversation on the doorstep. Going to view a place, waiting for the agent. Turns out the agent is showing prospective tenants round en masse, so I get talking to the other two people there. One of them is a (very) young non-working single mother, who explains exactly how she'll outbid me (she already knows the place because she knew the outgoing tenant). She has an exact benefits budget, so her incentive is to get the best possible place for that money, and she can outbid me. She has no incentive to consider a cheaper place, or even to haggle over the rent. Quite the opposite to my (market-driven) incentive to find a suitable compromise between price and quality and then drive the best bargain I can on it.

          It's a vicious circle. Housing benefit puts a floor under rents and drives them up. So yields for landlords are supported, and they're prepared to pay high prices, and house prices in turn are driven up. So government sees homes are "unaffordable" and pours yet more money in, pushing up prices and rents all over again.

          It's not a new problem, either. Nor is it so bad now as when the rent acts drove all but the borderline-gangsters out of the market altogether. But it's still a disgrace that hardworking people should have to pay taxes to price themselves out of housing.

          1. JS001

            Re: What about inflation?

            "When were you last in the rental market?"

            I've been a London tenant for nearly twenty years. Several flats and houses.

            "It's a vicious circle. Housing benefit puts a floor under rents and drives them up. So yields for landlords are supported, and they're prepared to pay high prices, and house prices in turn are driven up. "

            What proportions of house price increases do you attribute respectively to,

            1. housing benefit

            2. scarcity of housing (fewer houses being built than 30, 40 years ago)

            3. availability of credit (e.g. mortgages)

            4. government subsidising property ownership (e.g. right-to-buy, help-to-buy, interest-free loans)

            5. wage increases

            "So government sees homes are "unaffordable" and pours yet more money in, pushing up prices and rents all over again."

            Seems to me the government pours money in because of the British obsession with property.

            1. Nick Kew Silver badge

              Re: What about inflation?

              What proportions of house price increases do you attribute respectively to,

              You're right to say housing benefit is far from the only factor. Cheap and excessive credit and direct government subsidies also push prices up, as indeed did money-printing which prevented a healthy market correction after the 2008 bust.

              Wage increases, up to a point, but what matters more is that other things - both necessities and many luxuries - are now so much cheaper than they've ever been, so fewer demands on our pay.

              But housing scarcity? The evidence is against that: we have more house per head of population than ever in our history. Scarcity comes through rising aspirations: second homes at the top end, somewhere nice with all mod-cons in the mid-market, and even students expect their own room and reasonable facilities. Sure, the perception of scarcity feeds sentiment, and there is scarcity in the most popular locations and types of property, but not such as to drive prices up across the market.

              1. DaveDaveDave

                Re: What about inflation?

                "But housing scarcity? The evidence is against that: we have more house per head of population than ever in our history."

                Good lord, talk about denial. We have a terrible, appalling, housing shortage in London and the SE. That is not offset by hundreds of thousands of unwanted homes in Ebbw Vale or Manchester or wherever.

                It's one thing to allow your prejudices to form your opinion, but another entirely when they force you to deny reality.

            2. auburnman

              Re: What about inflation?

              "Seems to me the government pours money in because of the British obsession with property."

              Why is wanting to own your own home called an 'obsession' by so many people? If you can afford the mortgage or get assistance via rent-to-buy etc it is lunacy to pay rent when you could instead slowly be buying up an asset that will be a great boon when you're older. Not to mention not being at the whim of a landlord jacking up the rent or selling the property when your lease comes up for renewal.

              1. JS001

                Re: What about inflation?

                "Why is wanting to own your own home called an 'obsession' by so many people? "

                I wasn't alluding to home ownership particularly but that it simply MUST increase in value.

          2. Duffy Moon

            Re: What about inflation?

            The disgrace is that the majority of welfare goes directly to wealthy landlords in the form of housing benefit.

            The housing situation in this country has come to be in a pretty sorry state. I'm 44 and I have come to the realisation that I will never be able to afford a place of my own. If I had dropped out of school at 16 and started working, I'd be in a much better position.

        2. Squander Two
          Facepalm

          Re: What about inflation?

          > I thought ... housing benefit was capped below 'market rates'.

          This is the sort of thing politicians like to say, because they really believe it, because they're fucking idiots.

          Housing benefit is a part of the market. Its existence is already taken into account by market prices. The only way to find out what this hypothetical "market rate" is that one can then cap housing benefit below is to scrap housing benefit. As long as housing benefit exists, the housing-benefit-independent "market rate" is hypothetical and literally unknowable.

          When politicians say that they have capped benefit A below market price A, what they really mean (whether they realise it or not) is that they have set benefit A at a politically acceptable arbitrary level which sounds nice.

      2. This post has been deleted by its author

      3. Anonymous Coward
        Anonymous Coward

        Re: What about inflation?

        The soaring rent levels were triggered by the last Blue Party administration who abolished rent registration and rent controls "to stimulate the private renting sector" which was needed to fill the gap created by the sale of Public sector housing (without the proceeds being used to build new efficient properties for rental).

        It a bit of history that the coalition conveniently overlook while they are trying to vilify anyone who has the temerity to claim help after paying contributions for years.

        In my case while recently between jobs my below average rent support was reduced by 25% because of the tiny spare room here, despite the fact that 1 bed properties locally are around 30% more than I currently pay to a landlord who appreciates a very long term tenant who gives no trouble and has saved him countless amounts in preparing a property for new tenancy.

        The Local housing allowance was supposed to be the "leveler" of rent where only an average for accommodation in the local area was paid. it worked well until the fucktards now in power started looking for ways to remove rights that we have contributed towards for most of our working lives. its the usual bully boy stuff from people who have no grasp of real life for the average citizen.

        1. Nick Kew Silver badge

          Re: What about inflation?

          The soaring rent levels were triggered by the last Blue Party administration who abolished rent registration and rent controls

          That is just so totally and utterly wrong it really needs answering. So let me recollect my first professional job in London as a young graduate in 1983.

          A minor but memorable row from 1983 was the Champagne Socialists denouncing Mrs T for reducing the levels of LHA (it wasn't called LHA then but it was basically the same for benefits claimants). It was reduced to £130/week for a single person in London. That was just over my gross salary (£128), even before PAYE tax took another £44. And that was an above-average graduate salary at the time: many jobs including traditional professions paid £100 or less.

          Housing was not at all cheap before Thatcher. But worse, the 1977 rent acts drove honest landlords right out of the market. Tenancies simply didn't exist in the open market. Unless you had a grapevine - like students or nurses - all you could get was a "License" to live somewhere. Nothing exclusive, and no protection against a landlord filling "your" room with 20 other people, Rachmann-style. That's what really badly needed reforming.

          I had expected London accommodation to be expensive. But I hadn't expected that I'd end up paying more than 60% of my income, and five times what my student room in Cambridge had cost the previous year, to live in a run-down HMO in Peckham. Nor had I expected to have to take such a big cut in living standards: the student room wasn't exactly luxury, but at least I had basics like hot water available most days.

          When you've been through that, you have a lasting distaste for paying tax to help people far richer than you price you out of even a student room. It happened to me a generation ago, and I suspect a lot of young people today will identify with that.

          A universal income and no means testing - as advocated here - would fix all that. The more you earn, the better you live. And regardless of what you earn, you have an incentive to look for a lower rent, in that you get the benefit of whatever isn't paid in rent. Landlords would have to accept competitive rents or face voids and no rent.

        2. Squander Two

          Re: What about inflation?

          > the gap created by the sale of Public sector housing (without the proceeds being used to build new efficient properties for rental).

          I used to believe that too, until I met someone who managed housing associations for a living, who would roll her eyes at it. The point she would make, repeatedly -- and she was talking from the point of view of someone whose job was to provide affordable housing for people who needed it -- was that, every time you sell a council house to a council tenant, you not only have one less council house but you also have one less person who needs a council house. It's hard to argue with the arithmetic.

    2. Whiskers

      Re: What about inflation?

      > Would a basic minimum income for everyone cause sellers to jack up the price of basic necessities (food, water, rent, etc.), since they know everyone has *at least* the same income available to them?<

      Not in a free market. but yes for an unregulated monopoly.

    3. Dave Bell

      Re: What about inflation?

      There are some similarities with the shift of EU farm subsidies from produce to land area, around 1992. Partly because the money became tied to land, and included "set-aside" reducing the area cultivated, the food mountains vanished. Farm-gate prices dropped. Land prices, purchase and rent, shot up.

      I can see basic income having some of the same sorts of effect. It's all very well talking about agency, but how can we ever challenge the supermarkets?

  14. Gordon 10 Silver badge

    We'll probably need it within a century

    Assume for a sec that we stumble through the next century or so without wiping each other out or eating the old as wouldn't grey, there will probably come a time where we have the technology to eliminate most kinds of work but will not have the technology to support a post scarcity Economy. Then unless there is some kind or support of the unemployable lower and middle class the world will go to hell in a hand basket.

    1. Gordon 10 Silver badge

      Re: We'll probably need it within a century

      "Wouldn't grey" = "soylent grey" autocorrected!

      1. Grade%

        Re: We'll probably need it within a century

        Soylent grey? Eww. Too stringy and no fat on the bones. Solyent sinister seems more equitable: No one needs that useless left arm and think of the fabric savings!

        1. I ain't Spartacus Gold badge
          Happy

          Re: We'll probably need it within a century

          Grade%,

          I'm disappointed in you. I thought Soylent Sinister would mean eating the left handed...

          If you make us eat our left arms, how are we going to look at our digital watches?

  15. Yet Another Anonymous coward Silver badge

    Overly simplistic?

    So you pay everyone the same benefit ( your tax-free allowance is basically benefits) and you make a huge saving by not having all the admin and economic incentive problems.

    What about people who need extra help, do they still get more for disability, do people who need nursing care get it or does it all come out of their 15k year?

    It's the same argument with flat tax. If we all paid a flat rate with no allowances, bands and loopholes you would raise the same amount paying 13% as we do now with 20%/40%. Except that assumes the billionaires would pay their 13%, which they wouldn't

    1. Paul

      Re: Overly simplistic?

      The billionaires who won't and don't pay tax, well, you still want them to live here and spend money, at least they pay VAT.

      And if there are people who would pay tax elsewhere but decide they will stay and be a taxpaer, you're better off.

    2. JS001

      Re: Overly simplistic?

      The basic income proposals I've seen for the UK leave disability benefit as-is.

    3. Solmyr ibn Wali Barad

      Re: Overly simplistic?

      "Except that assumes the billionaires would pay their 13%, which they wouldn't"

      This Russian experiment with a flat rate of 13% had one rather unexpected result. Lots of mobsters suddenly started to pay income taxes.

      Usual claim was that hiding the money required a real effort - and it was so much simpler to declare an arbitrary sum, pay it off, and forget about the matter. Of course, such an arrangement could not work for very long. As soon as the tax board could grow real teeth, they started to dig into the sources of the declared income.

      It's somewhat plausible that billionaires (despite being, like, y'know, #greedybastards or something) would have similar sweet spot in regard to taxes.

  16. Anonymous Coward
    Anonymous Coward

    >> There's no way that politicians will be be

    >> able to resist the temptation to take away

    >> from one group and/or give to another.

    ...whereas the funds for a universal free income drops like a gentle dew from heaven, I suppose.

  17. Gareth Morgan

    Tax allowances

    increasing tax allowances gives more to the better off.

    Means tested benefits are assessed using net earnings so increasing allowances increase net earnings and that reduces benefits. The better off keep the gain.

    1. Paul

      Re: Tax allowances

      You're not giving more to the better off, you're taking less off them. It's an important distinction.

      1. 's water music Silver badge

        Re: Tax allowances

        You're not giving more to the better off, you're taking less off them. It's an important distinction.

        Only for no-spherical better off folks not in a vacuum...

        Like coding, economics is pretty simple until the users get involved.

  18. johnwerneken

    BINGO!

    That is the problem alright with sharing the wealth - there is not enough of it to share!

  19. Paul

    I think a citizens' income would be a good thing.

    Everybody gets a very basic standard of living, just sufficient to have food and shelter and basic clothing. The disabled, their carers, and pensioners, get additional.

    But also reduce the zero-tax band to near zero. Why? A key thing is that all citizens should have "skin in the game", at the moment voters dependent on benefits don't care about government efficiencies, but if they realise they are paying for waste, they might start to care, and they have no reason to not be involved.

    A simpler tax regime should be implemented, even a flat rate tax. Some people will say "but the rich should pay more". They do, it's a percentage, not an absolute amount.

    Abolish NI, it's a pointless separation. I think should also abolish the abitrary distinction between salary, savings interest, and dividends. All these things make collecting tax more complex and expensive, and complexity causes loopholes which the rich can subvert.

    The hordes of civil servants doing the administration of benefits and taxation will massively reduced. Ok, this will create a spike in unemployment, but the burden on the taxpayer will be reduced because they'll only be receiving citizens income rather than a full salary!

    How many? There are 70,000 workers in HMRC, if that could be reduced to 10,000, that'd probably save about £2.7B. There's 45,000 at the DWP, cut to 10,000, that'd save another £1.6B. Total £4.3B

    If the citizen's income was set at say £6000 a year, those savings would be enough for over 700,000 people.

  20. J.G.Harston Silver badge

    The big hump to get over will always be the huge numbers of people who will say: how ***DARE*** my taxes go to pay people to just lounge around watching Ricky Lake!!!!!!

    1. teebie

      To which the reply is: that half-arsed phone operator / jobsworth / survey taker / personal bugbear you had to deal with last week - how much would it be worth to you to never have to deal with them again?

      Sometimes putting someone in a job makes it worse for everyone - them, who don't want the job, the employer, who has to deal with the awful employee, and the customers, whose lives are impacted by the awful/incompetent/obstructive behaviour.

      Sometimes its cheaper to pay comeone not to work than to deal with the consequences of their employment.

  21. Mike Bell

    We already have this

    It's called the Fractional Reserve Banking System. Unfortunately, the money gets handed to the very rich rather than to Joe Bloggs.

    When you borrow from a bank, they mostly lend you money that doesn't actually exist. With the government's permission, they are permitted to effectively print the bulk of it, conjured out of thin air as 'new money'. And yet, they collect back from you all of that new money plus interest. Ker-Ching!

    Nice little earner for zero productive work.

    1. DaveDaveDave

      Re: We already have this

      That's a lunatic conspiracy theory rooted in old-fashioned anti-Semitism. Could I suggest that you ought to go hammer a six inch nail up each of your own nostrils, thereby improving your brainpower significantly?

      1. Mike Bell

        Re: We already have this

        Educate yourself.

        You don't have to look very hard to find out how the world's money supply actually works. Note the criticisms, in particular.

        1. John 62

          Re: We already have this

          Fractional reserve banking is obviously not necessary for an economy, but it's one of those things that we all accept because it gives us interest on our savings and free current accounts, like Google gives us free web services because of all the data it aggregates and then sells.

          If we didn't have fractional reserve banking, I'm sure the politicians would have plans for all that capital lying around doing nothing.

        2. I ain't Spartacus Gold badge

          Re: We already have this

          Mike Bell,

          You've mis-read that Wiki article, partly as it's very badly written. Particularly the table on lending. It also confuses bank capital and bank reserves. Banks are in fact regulated to maintain two main types of assets:

          1. Cash (or very liquid) reserves - which is money they use every day to cover normal withdrawals, plus stuff they can access if there's a run on the bank.

          2. Capital. This is money the bank owns (or its shareholders do). This is to cover losses on loans - so that even if say 5% of the people they've loaned to default, they can cover the losses without taking from savers' accounts. From memory minimum capital adequacy ratios in the UK are something like 7% - but the Bank of England stress tests last year meant you had to have over 10% to pass - and if you didn't you had to sell more shares or bonds to get there.

          The thing that the loonies who don their tinfoil hats and scream about FRACTIONAL RESERVE BANKING fail to understand, is the bank balance sheet.

          Banks aren't legally allowed to just loan money. They have to have it first. If you save £100,000 with the bank, there are 2 transactions in the bank's ledger. They get £100k of cash (an asset) and a £100k liability (the balance on your account). These match, so the bank's books balance.

          Banks pay interest on cash on deposit (well not much at the moment...). This means that they must make a profit on that money, or they can't cover the interest. So they loan some of it to someone else at more interest than they're paying their savers. At that point they have created another 2 transactions, £90k of the £100k saved goes to someone else (debited from the cash ledger) and they gain a new asset - which is the loan to this person of £90k. The books now balance again.

          Here's a simplified balance sheet:

          CREDIT ------------- DEBIT

          £10,000 ---------------------------- operating cash (part of deposit from person A)

          £90,000 ---------------------------- mortgage debt owed by person B

          --------------------------- £100,000 savings account balance (owed to person A)

          £100,000 --------------£100,000 - totals balance

          Some explanations get very confused by a couple of things. The counter-intuitive bit that if I've got cash in the bank then they have a corresponding liability in that they owe me that cash. And the rather weird terminology that gets used about money. Basically we use various definitions of money when talking about the money supply. Almost no-one uses M0, which is the actual notes and coins printed/minted by the government - most calculations for the purposes of dealing with inflation use M3 (there's M0, M1 to M5 each includes everything in the earlier ones, plus some extra). M1 includes bank current account deposits as money-equivalents, plus notes and coins not held in bank vaults (that Wiki article explains this badly). I can transfer cash out of my current account to someone else's in order to settle a debt - thus the bank has probably created some M1 money when it lends cash at the same time as holding an account for me. However this is complicated, as I'm unlikely to have all of my money in a current account if there's lots of it - savings accounts aren't measured in M1, plus banks also may borrow from the markets in order to lend (also in ways that don't add to M1). Finally the money they lend out won't all make its way back into banks as deposits in current accounts, and therefore will not all create M1 either. What "money" means in different circumstances is a very confusing topic all to itself...

          The short version is, it's bloody complicated. But no, banks don't have a license to print money. They don't get the money they actually do "sort of print" anyway, because everything they do has to have an entry on both sides of their balance sheet. Plus money doesn't quite mean what it ought to mean.

  22. Inachu

    The idea for middle class did not work. Look at USA now.

    Many shopping malls are now dead or closing because of middle class being slaughtered by companies wanting to lower pay and the unemployment rate percent is a lie.

    All jobs since 2000 were not given to Americans.

    America is just a lie. No dream. Companies suck it from you.

    1. I ain't Spartacus Gold badge

      We've had a recession. And that accounts for some empty shops. We've also had a revolution in buying patterns, where lots of people now buy things online. This also accounts for a lot of shops closing. Empty shops are therefore not a usable measure of economic activitiy.

      1. Britt Johnston

        Re: Empty shops are not a usable measure of economic activity.

        There is a core of truth in your postulate, but it does indicate economic efficiency, especially the changes over time.

        As an example where I live, in Basel, in that area of Switzerland every old home is renovated or rebuilt, whereas a few miles away, in France, they use older houses to store hay in, while they crumble into disrepair.

        While this is clearly related to housing policy, lack of land, bubbles, the good old days, etc, it also a measure of how well potential is being turned into reality.

  23. Tim Worstal

    From Twitter, a paper examining that labour response.

    http://www.widerquist.com/karl/Articles--scholarly/Failure2communicate.pdf …

    Not as bad as it was painted to be apparently.

    1. JS001

      From the abstract:

      "The U.S. and Canadian governments conducted five negative income tax experiments between 1968 and 1980"

      1. Tim Worstal

        Yes, and in hte first few paras they make clear that the effect upon the labour response should be the same under either system, negative income tax or ubi.

        1. nemo183

          Bigger problem. It must work.

          It's pretty clear in the direction in which we're heading. The economy is "Uberiszing". Middle management has gone. Systems are dumbed down to make their management by computer easier. The two-tier economy will polarize further, with any benefits going to the top 15-20%, and the rest of the population earning less and less each year.

          And then the first self-driving truck appears, in about 2024/2025.They are already running in test mode. Driving is the number 1 occupation in 22 of the American states. It costs $30k to convert a truck to a self-driving one. Apart from the lost jobs, the roadside economy will go through lack of custom. Once this juggernaut gets rolling, it's going to really motor. Things will change very quickly.

          Enough of this good stuff. Noam Chomsky's film "Requiem for the American dream" - bloody brilliant - and the economist Robert J Gordons' theory of "growth is over", coupled with James Lovelock's view of the future, this is the stuff we're heading for, and that civil servants are worried about.

          Sooner we wake up to this the better, and start planning. We simply don't know the effect robotized systems will have on the scale we're going to see. BMI may be a no-brainer, or just look ridiculous. Time will tell.

          .

  24. codejunky Silver badge

    Hmm

    Basic income- aka the pleasure of paying people to do nothing. The major flaw is already obvious and as Tim points out requires taxing the economy to death (or just to torture if you keep it low enough and restrict its scope over time). But also because everyone has a guaranteed minimum amount of money the prices get to rise assuming that, basically the gov subsidise a price rise which negates the wealth redistribution with the knock on effect of taxing the economy into a slowdown.

    There is a good way to give people more money to spend. You dont take it from them in the first place. And if you want it cheap to administer you could even make it simple!!! Broad but small taxation which allows people the freedom to earn... and to keep it!

    As for the greens offering a small weekly basic amount, they resolve this by removing the costly energy. Because under them only the very rich and privileged will have any. And once they remove cars and planes and anything else they deem 'bad' there will be plenty money in that basic income to buy seeds for our gardens.

    1. JS001

      Re: Hmm

      "Basic income- aka the pleasure of paying people to do nothing. The major flaw is already obvious"

      Better than means-testing or no state support at all.

      "There is a good way to give people more money to spend. You dont take it from them in the first place. "

      How do they earn money without paid work?

      1. codejunky Silver badge

        Re: Hmm

        @ JS001

        "Better than means-testing or no state support at all."

        I guess that depends what your aim is. If it is to leave everyone in a worse state by dragging everyone down then I guess you might see it as better. No support at all is no good either. Having a safety net but for only for times of need is much better.

        "How do they earn money without paid work?"

        Why dont they have paid work? Where are the jobs? Take less tax money and there will be more money for jobs. Instead of taking from the earners to redistribute to everyone in a self destructive attempt.

        1. Squander Two
          Devil

          Re: Hmm

          > Why dont they have paid work? Where are the jobs? Take less tax money and there will be more money for jobs.

          And a pony!

        2. JS001

          Re: Hmm

          "Why dont they have paid work? "

          For example, because of the financial crisis, recession...? Lots of businesses had difficulties or even went bust - difficult for e.g. a retail worker made redundant to walk into another retail job when other retailers are struggling or folding and it's difficult to 'retrain' or 'upskill' for different work if money is tight.

          1. codejunky Silver badge

            Re: Hmm

            @ JS001

            "For example, because of the financial crisis, recession...? Lots of businesses had difficulties or even went bust - difficult for e.g. a retail worker made redundant to walk into another retail job when other retailers are struggling or folding and it's difficult to 'retrain' or 'upskill' for different work if money is tight."

            Very true. So it would be an awful and self defeating idea to bang up tax (slowing growth and damaging the economy by paying people to not work) and instead beneficial to reduce tax to attract investment here. Investment here means that more jobs are created, more jobs, less out of work and we can get over a recession quicker. The alternative is being demonstrated beautifully in Greece and France. Clobbering the employers and giving free money to the potential employee's will only reduce employment.

            1. I ain't Spartacus Gold badge

              Re: Hmm

              codejunky,

              Your position is somewhat absolutist. There will always be some level of unemployment due to people moving between jobs, large numbers of employers going bust in one particular area, recession etc. If we don't maintain a welfare state then some of those people get to spiral into absolute poverty and possibly do annoying things like starving to death. Which, by the way, is also bad for the economy. Plus looks really bad on telly...

              We can see how this lack of benefits is actually even worse for the economy than the deadweight losses of taxation, by looking at what happened in the 1930s. The Depression was eventually cured by huge state intervention. It also has horrible effects on society and individuals. Some balance will therefore always have to be struck, which is why we have elections to decided roughly how we'll do that.

              Finally China is another example of how government intervention can actually help an economy. The Chinese have pretty much nothing in the way of a social safety net. This means that families save a huge amount of their income, in case. This is having 2 side-effects. It means they don't have enough internal demand to stimulate their economy and so they have to rely on exports. And there's too much money available to invest (excess savings) which lowers the cost of interest, and leads to the mis-allocation of capital (mal-investment). In the last boom, lots of that cash was being invested in the West, and was one of the causes that lead to the asset bubbles which so spectacularly popped in 2007/8. Oops. Now lots of that cash has been invested into China, very badly, causing huge excess manufacturing capacity leading to deflation, and a big fat housing bubble, that the Chinese government are desperately trying to deflate without crashing the economy. The other side of the over-spending and over-borrowing that we in the West just indulged in was the over-saving and under-spending of people in Asia - plus the huge surpluses built up by the oil-exporters.

              Some sort of social safety-net, either a government backed insurance scheme or tax-and-welfare system, is an excellent way to allow a modern economy to function more predictably. It also stabilises recessions, by automatically causing government spending to rise, in order to stimulate demand. See Greece for how utterly fucking this up for stupid ideological reasons will turn out to be a disaster. Not that the Greek state has ever functioned properly, but German inspired policy in Greece in order to achieve "moral" rather than economic aims has been a fucking disgrace for which the IMF have admitted they're ashamed, but the European institutions and governments are still claiming the moral high ground. History will not be kind to them.

              1. codejunky Silver badge

                Re: Hmm

                @ I ain't Spartacus

                "Your position is somewhat absolutist. There will always be some level of unemployment due to people moving between jobs, large numbers of employers going bust in one particular area, recession etc. If we don't maintain a welfare state then some of those people get to spiral into absolute poverty and possibly do annoying things like starving to death. Which, by the way, is also bad for the economy. Plus looks really bad on telly..."

                Yes and I have not contested this. A minimum safety net should be available to support someone temporarily, unless it is a permanent severe disability that makes it impossible to work.

                "We can see how this lack of benefits is actually even worse for the economy than the deadweight losses of taxation, by looking at what happened in the 1930s. The Depression was eventually cured by huge state intervention."

                From what little I have heard of the 1930's depression, it was saved not by state intervention but by WW2. Before that was bread lines and one in four out of a job at the same time as high tax and trade protection.

                "Finally China is another example of how government intervention can actually help an economy"

                Reading that entire paragraph it seems to demonstrate how government meddling (obviously their relic from the communist era) is a problem. Poor choice of investment from their gov's which has caused their debt to shoot up to chase growth levels leaving them now trying to deflate a property bubble. This is a major problem for china because their gov must repress their people with a carrot and stick to maintain their position as rulers. Everything you say but the another perspective.

                "It also stabilises recessions, by automatically causing government spending to rise, in order to stimulate demand."

                This bit I kind of disagree with. Upgrading infrastructure is a good idea at this point but slashing tax would be more helpful. In a recession a lot of jobs lost and business failing leaves a hole. Removing the barriers to let people start up new businesses and employ people allows productivity and gives people (world wide) to invest in. The idea of ramping up tax especially for the ideology of tackling the wealthy was demonstrated in France. The people being attacked and stolen from left and the 'moral' people who wanted the state to prop up the economy ran out of other peoples money.

                As for your comments on Germany/Greece, yup. Tbh I want Greece to leave the eurozone in the hope that the house of cards tumble and the euro project is shamed out of existence. But thats because I am what people used to call eurosceptic (until we were proved right). I feel sorry for Greece. They should never have been allowed to join and they were then punished for being the worst offender of the rules that nobody followed.

                1. Anonymous Coward
                  Anonymous Coward

                  Re: Hmm

                  Just how do you think WW2 did anything to help the economy? By producing (and then using up) billions of dollars worth of shells, tanks, aircraft, atomic bombs, guns, bullets, ships etc, etc? Add the cost of rebuilding Europe to that! War is, in itself, pure waste. The only way WW2 could have helped was by providing a colossal Keynesian stimulus.

                  Sorry if seem a bit stroppy, but I had the same argument with a pompous yank a while back. He wanted to say the New Deal did nothing, but didn't want to face the obvious fact that, if that is true, it's because they didn't throw money at it like they did at WW2. It seems the Broken Window Fallacy is still a popular delusion in the US.

                  1. chris 17 Bronze badge

                    Re: Hmm

                    After WW2 Britain had a choice to repair or renew and chose to repair and maintain.

                    Germany had no choice and had to renew. Massive rebuilding projects ensured employment and investment in modern efficient machinery and practices. This propelled Germany into the industrial power house it is today and contributed to the downfall of British manufacturing as it couldn't compete due to its lack of investment (it was good enough before before etc)

                  2. codejunky Silver badge

                    Re: Hmm

                    @AC

                    I do agree that the massive cost to pay for a war is not productive. But the point I made was that the insane tax rate at the time was economically damaging while the war removed peoples focus on that problem. The war didnt save the economy, it saved the population from the depression.

                    War is terrible and expensive, there is no doubt of that. However war is one of the best motivators available of people and innovation. Unfortunately we are at our most creative at our most destructive which has led to massive leaps in technology and skills which have applications throughout the economy and have produced some of the best leaps for business and people. As for WW2 it killed a lot of people, which frees up a lot of job vacancies and so an economy can be more productive and spend less subsidies on people out of work. The US also gained a position of superiority over everyone else at the time which certainly didnt harm their trade position. War does tend to make people pull together and the vacancies for more bodies on the front allowed people to forget about the mismanaged economy.

    2. Duffy Moon

      Re: Hmm

      People are paid to do nothing now! In fact on JSA you can only do nothing (nothing paid anyway).

      As an unemployed person myself, I'd love to do something useful. I can't even take part in a food trial paying me £12 for a few hours work because it'll come out of my benefit. I'd like to do some voluntary work in a wildlife rescue centre, but I can't afford to pay the travel costs to get there.

      It's obvious that the people against the Universal Benefit have never been out of work (lucky them).

  25. nemo183

    Good argument and well aired. Your PS made me laugh - I was determined to track down the originator of a particularly erudite quotation for inclusion in a report. It took the shine off to find it wasn't Kahneman as I thought, but myself.

  26. Dylan Byford
    Pint

    Innovation would increase

    I could foresee a couple of side-effects from this, which would benefit the wider economy in the long run:

    1. More business start-ups

    2. More musicians / writers / directors / actors etc

    Both these areas have a high chance of long-term failure (sorry hopefuls, but it's true and I speak with some experience), with virtually no immediate income. People in these areas are willing to work for virtually nothing (for a time) but they need to be able to eat and put a roof over their heads. The current benefits system wouldn't allow them to this (I think Jarvis Cocker said somewhere that in 80s Britain it was a lot easier, because of the dole). By allowing the successful ones a little longer to get established (through the basic income), would increase the likelihood of more brilliant businesses being established and successful artists being discovered / developing their craft. The longer-term benefits to the economy would be huge.

    1. Ruadh

      Re: Innovation would increase

      I was just trying to word the same post. Yours is better.

      More volunteers / interns too. Both reducing the need for government services and allowing people to develop careers by working for nothing to get started.

      No way to quantify the effect, of course, so it will be ignored.

  27. sisk Silver badge

    Well it's an interesting alternative to the broken approach of raising minimum wage. I'm not sure if it'd work any better, but I do know that the end result of raising the minimum wage is that within 5-10 years you've got more people not making enough to get by. I will note, however, that at least in this area the people who don't work at all would not be much of a minority, if a minority at all.

  28. A Twig

    Bit of a brain fart but a genuine question - could a basic minimum income be deflationary?

    Only those who want to have more, go and work to get more. Thus presumably a chunk of the population who can't be arsed sat there on purely BMI. This would provide a sizeable chunk of people at a pretty fixed point on the S&D curve.

    Outlets catering to these particular demographic could this have the effect of "anchoring" prices, at least making inflation more stable if not actually deflationary?

    1. I ain't Spartacus Gold badge

      I'd have thought it's more likely to be inflationary. Prices can't drop past a certain point - as the companies would go bust. So either certain services would disappear, or those services would have to get more expensive in order to attract their workers to not just sit on their minimum incomes and watch the Jeremy Kyle Show all day.

      This would give an incentive for companies to automate repetitive tasks, where the current minimum wage is cheaper than tooling up with robots. Or at least similar, but less risky, as the capital costs of automation are so high - and take so long to pay a return. So I guess you'd have a mix of some things just no longer being economic, some getting more expensive and some rises in productivity as it becomes economic to automate.

      I'd be amazed if anyone can come up with an economic model that'll predict all that lot...

      1. A Twig

        Good point, didn't thunk too much about the supply side of things, ta.

        1. I ain't Spartacus Gold badge

          There's also going to be a good chance that lots of people might use it to start their own businesses, or do artistic / charitable stuff or work less hours as part-timers. I'd carry on working full time, as there's mroe stuff I'd like to spend on, so hooray for more cash. But I know there's quite a low limit where no amount of extra money would persuade me to bother working. I know people who'd prefer to do something for a couple of days a week, and give the rest of their time to charities. Or their kids.

          Working culture is changing anyway due to globalisation, technology changes, people living longer (and being healthy longer), demographic shifts and people's differing expectations. I don't think we can even predict what these changes will do, let alone something as different as a guaranteed income.

  29. sisk Silver badge

    I'd be amazed if anyone can come up with an economic model that'll predict all that lot...

    Realistically economic models in general suck at accurately predicting disruptive changes. It's those pesky, irrational humans always throwing things off.

  30. kagoolx

    Assumptions

    There are a couple of assumptions that I'd like to question:

    1. I feel this implies that there are infinite jobs available and we just need to incentivise people to do them. I suggest there are actually a surplus of workers and a shortage of jobs. So actually, fewer people working is not such a problem economically. Related, many of the jobs in our economy are zero-sum games, from which there is no "net" benefit. I suggest we don't need to worry so much about motivating people to work harder. One of the benefits of basic income is to allow people more control over what they do - and I believe people may tend towards more meaningful "net benefit" work, when they are less financially forced to take whatever is available.</li>

    2. Similarly, it suggests that once we get everybody over the poverty trap there is a virtuous circle that causes things to get better for everyone. There isn't room for everyone to be doing highly paid jobs - again, there isn't an infinite supply of work at all levels. So i'm not sure about the suggestion that people would all climb higher.

    Perhaps one of the impacts would be an improvement in employment pay and standards at the lower end (as business competes for a workforce which doesn't rely upon them with quite so much desperation) - leading to an increase in the rate of automation (through improved cost/benefit of replacing workers), and therefore even fewer available jobs. The real problem is how we make sure people can live meaningful lives if there isn't paid work available. Basic income both exacerbates this problem and potentially offers part of the solution. I'd posit that another part would be trying to share out the available work somehow, with more people working fewer hours each.

    I realise mine is obviously also a very simplified model, in assuming an entirely fixed amount of available work, but some thoughts to share.

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