Don’t Make Basic Income Revenue Neutral

Don’t Make Basic Income Revenue Neutral

Add to Reading List
Add to Reading List

Now that the Green Party has a Basic Income in their platform, journalists have begun asking, “How are you going to pay for it?”  The Greens’ proposed weekly £72 payment to every Briton could cost as much as £240 billion, around 10% of GDP. That’s a lot of money. But according to the Citizens’ Income Trust, we can afford it.  In the appendix to their report, they demonstrate that that by eliminating most other government benefits plus the £10,000 tax exemption, a Basic Income can be made revenue neutral.   

Although making a Basic Income Guarantee revenue neutral might mollify pundits, it would be a huge mistake. First of all, for a Basic Income to be politically feasible, it should not make the middle class worse off. Losing the £10,000 tax exemption would force many on middle incomes to pay more tax, even with that £3,744 annual cheque from the government. More fundamentally, making Basic Income revenue neutral ignores its primary purpose, which is to stimulate the economy.

Basic Income can be thought of as a tax cut aimed at those most likely to spend it. Even conservatives understand the stimulative effects of tax cuts. In a world where wages are stagnant and jobs are disappearing, putting money in poor peoples’ pockets is the most efficient means to stimulate demand.  The problem with tax cuts is they go largely to the affluent, who are as likely to save as spend their windfall.  Saving is not stimulative, unlike consuming and investing.  Give money to a millionaire, he will sit on it.  Give money to a pauper, he will spend it straight away. Take less money out of workers’ pay packets, they will spend more, and that additional demand might spark a resurgence of animal spirits among entrepreneurs.

Since the financial crisis, policy makers have mostly used unconventional monetary policy to stimulate demand. The United States government spent $790 billion bailing out the banks and another $3 trillion since then buying bonds, hoping to spark lending. The Bank of England spent more than £200 billion in 2009 alone increasing bank reserves. Quantitative Easing has not been ineffective, but it could be argued the money would have been better spent on fiscal policy.

But a Basic Income could ultimately be much more than just another tool of fiscal policy. Paul Mason recognizes its radical and transformative potential. Ever since the agricultural revolution 10,000 years ago, by the sweat of our brow we have earned our bread.  Mason notes that Basic Income threatens to sever that link between work and consumption.

This is quite shocking. We are trained to despise freeloaders, which is why many working people instinctively object to Basic Income. Mason suggests this attitude may be anachronistic. Our fathers and grandfathers generally worked for one company for their entire lives. Work defined them. They gave their youth to the firm and the firm took care of them in their old age. But that world is long gone. Work and income have become more haphazard. Employment has become precarious. Even the affluent fear for their futures. 

It is about to get worse. Automation continues to kill more and more jobs, including those of skilled “knowledge” workers. Software can do the job of doctors and lawyers better than they do.  Self-driving cars will eliminate millions of lorry and taxi driving jobs.  The FT suggests that even hedge fund managers may become obsolete, to be replaced by software that can monitor more markets more efficiently than can any human. If hedge fund geniuses are as replaceable as bank tellers and typists, it is hard to be optimistic that the jobs of the future will provide secure and rising wages.  As more occupations are automated we will be able to produce more stuff, but we won’t be able to buy it.

During the post-war “golden age”, productivity increases were almost instantaneously transformed into wage increases.  As the economy produced more, workers also had more money in their pockets, enabling them to purchase the stuff they made.

Reagan and Thatcher put an end to those happy days. Real wages stopped rising, and today, most of the benefits of productivity increases are absorbed by corporations and their shareholders.  With wages moribund, only increased levels of debt allow demand, and so the economy, to grow. Demand, not supply, has become the bottleneck of the world economy.

A Basic Income would eliminate poverty and reduce inequality, but those are merely side benefits. The main reason we need it is to create demand.

Few asked about affordability when we went to war in Iraq or when the UK government bailed out RBS. Giving money to banks seems less politically fraught than giving it to poor people. Those of us who support a Basic Income need to remind journalists and politicians that “can we afford it?” is the wrong question. With more and more jobs being automated, our production capability keeps expanding while our need for labour shrinks. Without some sort of subsidy, consumption will inevitably fall and the economy will shrink.

Right now, we need a Basic Income as a fiscal stimulus. But if automation continues to wipe out jobs without creating new ones, we might just need it to survive.  


Keep up to date with the latest thinking on some of the day's biggest issues and get instant access to our members-only features, such as the News DashboardReading ListBookshelf & Newsletter. It's completely free.


Twitter Feed

RT @mybuchshelf: Are book collectors real readers, or just cultural snobs? – via @aeonmag

A collection of some of the best econ books of the year, feat - @ryanavent, @BrankoMilan, @g2parker and more...…

RT @mark4harrison: Blogged: Donald Trump and America's Incomplete Contract with Itself @warwicknewsroom @cage_warwi…

RT @NIESRorg: The weak pound in your pocket: @angusarmstrong8 continues to make waves with his blog post, this time in the @FT https://t.c…

RT @LSEReviewBooks: Review Archive: The Sharing Economy: The End of Employment & the Rise of Crowd-Based Capitalism by Arun Sundararajan ht…