Basic Income 2: The Entitling!

As I understand it, Bob Simpson's comments were made in response to a confidential BC government report documenting the effects of the mountain pine beetle epidemic on the forestry industry in the interior of BC.

The discusision of mitigation in which Simpson has been participating seems to be focused on addressing the effects of the epidemic on the industry as a whole.  Simpson suspects that "the government is developing a plan to rebuild the Interior industry without consulting stakeholders." He wants the BC government to "attack the pine beetle fallout in the Interior with the same gusto it's devoting to help the community of Burns Lake where an explosion earlier this year levelled a community sawmill and put 250 people out of work."

In this thread, RTTG promotes a GAI as something that can mitigate the consequences of problems, such as that facing the BC forestry industry, for individual forestry workers, rather than for the industry as a whole.

Of course, BC needs to address both types of problems, don't they.

Seems to me that the first step is for the government to make public their confidential report and that the second step is for the government to insist that any parties who consider themselves stakeholders make public all information they have about the problem.  Transparency!

Boze: I'm talking about security of income when it comes to GAI, but as to small landlords having trouble making big money, yields only fall when the underlying asset is overvalued. When a house with a basement suite in Edmonton is grossing over 2 thousand a month, you can't help but make a profit, unless you were dumb enough to buy it for 400 grand, in which case you now have a property with yields comparable to government savings bonds. That housing is overvalued, something we're seeing slowly correct in terms of flat home prices and apres cette la deluge.

And as to job losses, there are a few solutions: One is that since industrialization, the length of the work-year has been dwindling. We're on about 1800 hours now, and I wouldn't be surprised if up to half our productivity growth was in the form of more time off. Everyone has to remember that leisure is a good.

Two is, yes, increased investments in preventing waste are always an important technology. There is significant economic value in finding a way to eradicate or control the pine beetle, and governments and industry seem at least to get that, probably because there's not too much externality compared to other forms of pollution and disease.

And finally, there's Creative Destruction. We do what we're best at in terms of economic value. If there are too many cooks and they're spoiling the broth, you teach some of the cooks to farm, as it were. But that's disruptive, and yes, without long-term dependable income supports, job losses often mean the end of any meaningful participation in the economy. Part of the advantage of a GAI is that not only does it make it less harmful to, for example, replace cashiers with an automated checkout, from the perspective of the cashiers, but stable income allows low-income people to do something that they aren't often able to do: Invest. You know all those emergency funds that financial advisors tell people to have, to be liquid for three months or six months in case there's a job loss or a house fire or emergency dental surgery? GAI acts as that emergency fund and allows low income people to invest more of their income without fear that an adverse event will mean penury. For a lot of people, being able to set aside ten or twenty thousand dollars early in life means significant improvements in quality of life as time goes on. This is what the right-wing never gets when they talk about an ownership society: You need to actually give people enough stability to take risks with their excess income. GAI means more community coffeeshops and bookstores, more rooftop solar panels, more greenhouses, more small and microbusinesses, more strikes to demand fair wages, when people are empowered to follow the modest dreams they've been nursing for years but have been too financially insecure to pursue.

Guaranteed minimum income: how much would it cost? 

The simplest way to get to a universal basic income would be to pay it to everyone, then recoup the cost, through the tax system, from everyone above the basic level. While conceptually simple, this way of doing things would be almost impossible to implement except as a ‘big bang’, and is also too hard for me to evaluate. Instead, I’m going to look at a program that first raises existing basic incomes above the poverty line, then makes access to the basic income unconditional for those with no other source of income.

Initially, I assume that 20 per cent of the population is receiving a tax-funded basic income (old age pension, unemployment benefits and so on). Of the remaining 20 per cent, I assume that 10 per cent are retired and living on the income from savings (part of the capital share) while the other 10 per cent are dependents of workers, including non-employed spouses, students and so on, or else are getting by somehow in the informal economy. To keep things simple, I’ll treat them all as dependents of workers.

The set up so far means that the average worker earns income equal to average total income per (adult) person, and after tax income equal to 70 per cent of average total income. Allowing for dependents, each person in an employed household gets an average income equal to 60 per cent of average total income. (For the US, these figures are about $60k, $40k and $35k respectively).

The big question is whether current workers will respond by leaving the workforce and relying on the basic income. We’d expect and want this to happen to some extent – the whole idea is to free workers from absolute dependence on wage income. But if the shift is too large, the tax burden will become unsustainable.

How large is too large? Suppose the employment rate falls from 60 per cent to 50 per cent, and that capital income falls in line with labor income, so that a larger benefit cost is being supported by a smaller income. The cost of benefits is now equal to about 15 per cent of total income, an increase of 10 percentage points from the initial position. Again assuming the cost is shared equally between capital and labour, the average tax rate would now be about 40 per cent. Depending on the design of the tax scales and the mix between income and other taxes, the marginal rate for the average worker would probably be around 40 per cent, and with a moderately progressive tax scale, lots of workers would be paying marginal rates above 50 per cent.

Summing up the exercise, I’d say that a universal basic income of the type I’ve sketched out here is economically feasible, but not, in the current environment, politically sustainable. However, while economic feasibility is largely a matter of arithmetic, and therefore resistant to change, political sustainability is more mutable, and depends critically on the distributional questions I’ve elided so far. A shift of 10 per cent of national income away from working households might seem inconceivable, but of course that’s precisely what’s happened in the US over the last twenty or thirty years, except that the beneficiaries have not been the poor but the top 1 per cent. So, if that money were clawed back by the state, it could fund a UBI at no additional cost to the 99 per cent.

 

 

I'm so glad this thread has got back on track. I admit I scrolled through most of it, as it was so off-topic. 

Governments subsidizing corpoarate welfare is simply unsubstainable and can not last. Unfortunately, with Harper having a majority, and with that prick Flaherty as our finance minister, nothing will change unless there is a change of government next time (2015?). Harper believes the tar sands are our ticket to prosperity - and that's just crazy.

Face it, we're doomed, and we have been, for a long time.

The Jan/Feb 2013 issue of LRC contains a letter from Frances Lankin commenting on Hugh Segal's essay "Scrapping Welfare."  In her letter (alas, not available online) Lankin makes three points:

1. The term "GAI" has political baggage, so change it;
2. We will still require employment and integrated social sjpport progreams to help people stabilize lives and move forward;
3. We desperatly need a human capital strategy to be integrated with a jobs and prosperity strategy to address the cruel reality that even having a job and working hard doesn't ensure that you won't live in poverty.