Basic Income: How to Fix a Broken Monetary Transmission Mechanism
September 4, 2015 1:01 AM   Subscribe

FINLAND: New Government Commits to a Basic Income Experiment - "The Finnish government of Juha Sipilä is considering a pilot project that would give everyone of working age a basic income."[1,2,3] (via)
"If more of us valued food and cheer and song above hoarded gold, it would be a merrier world." — J. R. R. Tolkien, Keynesian
So there are a number of reasons why you might support a basic income,† not least of which is the moral case -- What's Your Purpose?* -- but why is it necessary now? Consider a basic income within the context of a pretty, er, basic economic framework...

Quick economics lesson in national income and product accounting: The economy as measured by GDP can be composed of all the consumer spending (or private consumption), business purchases ('investment'), government services (+public investment) and trade with the rest of the world (net exports) -- Y=C+I+G+NX -- done in a year, which also happens to equal all the income people make in a year within a given geographic boundary, GDI. Note that all this works, for the most part, because what's being counted are monetary transactions made commensurable under price theory. That is, apples and oranges can be added up because money (and "prices" can be attributed to stuff). Also note that GDP can be divided into a 'real' component (RGDP) and a 'price' component (P) as measured by the government's best efforts to gauge inflation. So, in a sense, real GDP is actually more "made up" than the 'nominal' GDP (NGDP) from which it's derived. In other words, RGDP = NGDPP, a sampling of price level changes.

All this exposition to set up a simpler, but profound, equation from a monetary economics perspective: MV=PY. In this case Y is RGDP (or quantity of output, estimated) and P is price (estimated); put them together and you're back to NGDP. The other side of the equation is where it gets interesting. All the monetary transactions that take place in an economy -- NGDP -- are equal to the amount of money provided by your friendly neighborhood central bank -- the money supply (M) -- combined with the frequency of all those transactions -- its velocity (V) -- that are conducted through the course of a year, thanks to all your hard work; good job everybody!

So how about giving ourselves a (collective) raise? Crucially, while the money supply can largely be controlled by central banks, its velocity is less determined, especially with interest rates around the world stuck near the 'zero lower bound'. What does velocity depend upon then? To a proximate degree, it's the quality with which the financial system interacts with the real economy. For example, how well have the stewards of capitalism done at allocating and managing capital resources (like your savings, or lack thereof) towards productive endeavours that raise the general welfare? While it may be a bit of a mystery, and by turns economists will wave their hands and point to 'confidence fairies' and 'animal spirits', they can also invoke 'exogenous variables' like population growth/demographics, (geo)politics and the rate of technological change or environmental degradation.

Hopefully you can start to see the outlines of how a basic income might help to remedy the situation. By putting money directly into the hands of its citizens, central banks (or a fiscal authority) could more directly control the velocity of money without having to rely on the vagaries and vicissitudes of the financial system. And moreover, if everyone's basic needs were met (and affordable with the income provided, that is, not too inflationary), the confidence fairies would be dancing. Instead of just for banks and owners of financial assets, a basic income would be a quantitative easing for the people.


Anyway, a basic income is just one of many ways people are thinking about raising velocity and fixing a broken monetary transmission mechanism. Here are some others:
  1. Wage subsidies
  2. 4% inflation
  3. -4% interest rates
  4. Safe asset issuance to finance infrastructure spending
  5. Money-financed fiscal stimulus/gov't expenditure (helicoptor money in general)*
  6. Or business as usual?
On that note and under current circumstances, China -- like Japan (and the US, Eurozone, etc.) -- provides a fascinating case study on the limits of fiscal-monetary policy.

also btw... ---
Robert Anton Wilson, fwiw, was a basic income proponent (reconceptualizing money as biosurvival tickets in Prometheus Rising ;) writing in 1980: "The National Dividend. This was invented by engineer C. H. Douglas and has been revived with some modifications by poet Ezra Pound and designer Buckminster Fuller. The basic idea (although Douglas, Pound, and Fuller differ on the details) is that every citizen should be declared a shareholder in the nation, and should receive dividends on the Gross National Product for the year. Estimates differ as to how much this would be for each citizen, but at the current level of the GNP it is conservative to say that a share would be worth several times as much, per year, as a welfare recipient receives -- at least five times more. Critics complain that this would be inflationary. Supporters of the National Dividend reply that it would only be inflationary if the dividends distributed were more than the GNP; and they are proposing only to issue dividends equal to the GNP."
"No religion or extant philosophy offers the guidance humans will need to fulfil our destiny in the next 200 years. We must improvise." --@azizonomics

"You know what's depressing? The Cthulhu mythos is actually a more accurate depiction of reality than most popular religions." --@Noahpinion
posted by kliuless (24 comments total) 71 users marked this as a favorite
 
"You know what's depressing? The Cthulhu mythos is actually a more accurate depiction of reality than most popular religions economic models."
posted by oneswellfoop at 1:14 AM on September 4, 2015 [9 favorites]


Not yet heard this in the local news media. Do your articles say when it'll start in Finland? Sipila currently more concerned about having enough housing for refugees, which is a good thing, but the debate is overshadowing everything else in the news.
posted by infini at 2:43 AM on September 4, 2015 [2 favorites]


I am very positive to the idea of a basic wage, especially having worked with welfare dependent adults in a Nordic setting where the concept of unqualified labour is beginning to disappear and welfare dependent people are required to take part in almost ritualized activities to receive their benefit which only cause pain. I can't manage all the links, do any of them discuss how the surrounding economy adjusts to a base level of income? It feels natural that prices would change so that it quickly becomes possible for this base rate to not cover basic needs?
posted by Iteki at 2:52 AM on September 4, 2015 [2 favorites]


Prices aren't nearly as responsive to wage increases as we tend to think they are since wages are a much lower component of most prices than people tend to realize.
posted by Pope Guilty at 2:54 AM on September 4, 2015 [4 favorites]


It feels natural that prices would change so that it quickly becomes possible for this base rate to not cover basic needs?

The truth is the vast majority of Western industrialised countries have had flat wages for 30 straight years and are suffering from a crippling lack of demand for the streamlined, intensely efficient businesses they have. A basic income could go a long way towards increasing overall velocity and distribution of income, simply by putting money in the hands of people who will do more with it than immediately sock it away in some kind of investment vehicle in search of ever-diminishing returns.
posted by Happy Dave at 3:12 AM on September 4, 2015 [9 favorites]


If we did this in the US, it would administered by the states, with most of them requiring drug screening, a minimum of part-time employment, and a clean arrest record.
posted by Thorzdad at 4:41 AM on September 4, 2015 [10 favorites]


"While it may be a bit of a mystery, and by turns economists will wave their hands and point to 'confidence fairies' and 'animal spirits'"

I wish that like with astrology and astronomy there were two different terms for economics, depending on whether it's scientific or based on belief. Those who do latter could even have a regular column in the newspaper next to the crossword puzzle, that would be fine, but it would be nice to know whether the economist you're reading is someone who's trying his best to draw scientific conclusions from data and observations, or if it's someone interpreting the will of the market-deity.
posted by Kattullus at 4:55 AM on September 4, 2015 [12 favorites]


If people could just mention in their comments which of the links they're responding to, that would be informative!
posted by Wolfdog at 5:39 AM on September 4, 2015 [3 favorites]


30 Dutch Municipalities show Interest in Experimenting with Basic Income[*]
I feel that this title, and the way this is described in our media too, is misleading. What is meant is that some people who are currently on welfare will now get this welfare without having to go through all the hoops that welfare requires and without having to proof that they really are still looking for jobs even though they have no hope of finding a suitable job. That's all good, and possible a tiny step in the direction of a basic income as the article says, but the most interesting thing about basic income is that it is for everybody. This Dutch initiative seems very unfair for minimum wage workers who have to scrub absolutely gross public toilets full time and now have an income that's way less than someone who has a basic income and starts their own part time freelance business on the side.

The BBC article also mentions this because their first experiments are apparently going to be similar: Even a small-scale experiment would put its participants in an unequal position.
However, Finns may be prepared to waive that principle of equality, if an experiment produces valuable information for society.

I know though that when I was the person scrubbing toilets for less than minimum wage "producing valuable information for society" was definitely not one of the things that I cared about. Maybe if it's a very short and very small scale experiment, but otherwise there is just no way to justify this to people who work hard for minimum wage.
posted by blub at 5:40 AM on September 4, 2015 [3 favorites]


I'm not sure I've ever seen the "free money!" politics of UBI married to the "free money!" economics of MMT before, but it makes sense. UBI would be ridiculously expensive, and if we could just print up a bunch of money without creating inflation or increasing interest rates then there'd be a compelling case for it.
posted by jpe at 6:01 AM on September 4, 2015


I look forward to Finland implementing this successfully and then having most of the Western world ignore its success for decades
posted by mightygodking at 6:55 AM on September 4, 2015 [11 favorites]


It feels natural that

And boom, economics.
posted by Steely-eyed Missile Man at 7:08 AM on September 4, 2015 [3 favorites]


I know I've wrote this previously, but basic income would at least solve one of the problems of income equality, by giving some chance for positive-outcome risk for people who are living month to month.
posted by lmfsilva at 7:47 AM on September 4, 2015 [1 favorite]


This Dutch initiative seems very unfair for minimum wage workers who have to scrub absolutely gross public toilets full time and now have an income that's way less than someone who has a basic income and starts their own part time freelance business on the side.

The good part is that if it's implemented, a basic income would be for everyone, including the minimum wage workers who scrub toilets. It's also entirely possible that the minimum wage workers who scrub toilets might also become the someones who start their own part-time freelance businesses on the side, because having the basic income means that there are other possible survival strategies that don't involve having to scrub toilets for minimum wage. The toilets will still get scrubbed though because according to the supply and demand theory that economists are so fond of, in the absence of a large supply of workers who are forced to accept minimum wage for scrubbing toilets as a survival strategy, the people whose responsibility it is to arrange for the toilet scrubbing will have to offer a pay rate for the job that makes scrubbing toilets worth the effort for the toilet scrubber.
posted by talitha_kumi at 8:09 AM on September 4, 2015 [13 favorites]


I wish that like with astrology and astronomy there were two different terms for economics, depending on whether it's scientific or based on belief.

Well, we do have macroeconomics and microeconomics...
posted by pwnguin at 8:57 AM on September 4, 2015 [2 favorites]


The good part is that if it's implemented, a basic income would be for everyone, including the minimum wage workers who scrub toilets.
Yeah, but that's the thing, I have not read any indication that that is even remotely on the table here in the Netherlands and yet there are all those articles that state that the Netherlands is experimenting with basic income, when all they really mean is "some municipalities are loosening restrictions on welfare for some people".
posted by blub at 9:04 AM on September 4, 2015 [2 favorites]


economics and econology?

And everyone poopooing this.. it's been tested before, it's been tried before, and it's actually a net win for government. Bureaucracy around welfare/unemployment benefits, gone. Hospital visits, down (because people no longer feel compelled to work while sick, making themselves worse and infecting others). Happiness, up. More teenagers staying in school instead of having to get jobs to support families. More parents (esp mothers) staying home with young children.

This is not news. What is news--or, rather, olds--is how many people continue to refuse to listen.

Oh and that whole wages go up = prices go up... wages are flat and yet prices have gone up. Wages have gone down and yet prices have gone up. So...
posted by feckless fecal fear mongering at 9:04 AM on September 4, 2015 [10 favorites]


The toilets will still get scrubbed though because according to the supply and demand theory that economists are so fond of, in the absence of a large supply of workers who are forced to accept minimum wage for scrubbing toilets as a survival strategy, the people whose responsibility it is to arrange for the toilet scrubbing will have to offer a pay rate for the job that makes scrubbing toilets worth the effort for the toilet scrubber

Though we cannot assuming they will have the money to do so. We are talking, presumably, local government bureaucracy, which generally has a set budget to cover all municipal needs. Anyone who has ever lived in a city of any size can point to needs that are, for one reason or another, not met because not enough money.

It's the same thing in San Fran when they jacked up minimum wage. The book stores don't make enough money to pay that kind of wage, so they go out of business.
posted by IndigoJones at 9:15 AM on September 4, 2015


Month to month? More like day to day.

Living on $2 a day in America ...
posted by tilde at 9:15 AM on September 4, 2015 [2 favorites]


Hospital/doctors visits also down because welfare recipients aren't being required to show a doctor's note every time they can't go to some obligatory meeting on pain of losing their income. I think an argument against it here in Sweden is that it would be a "trap" for immigrant women, keeping them in the home environment, SAHMs don't really exist at least in the big cities. But there's a difference between "nearly all women work in Sweden, yay equality" and "it's almost impossible to run a two adult household on one income"; not many people could choose to be homemakers if they wanted to.
posted by Iteki at 9:20 AM on September 4, 2015


It's the same thing in San Fran when they jacked up minimum wage. The book stores don't make enough money to pay that kind of wage, so they go out of business.

You mean, like, one book store? That is apparently successfully finding other ways to raise revenue? Hooray, innovation! That's what you free market guys like, right? Looks like the minimum wage raise spurred it!
posted by Steely-eyed Missile Man at 9:28 AM on September 4, 2015 [15 favorites]


I wish that like with astrology and astronomy there were two different terms for economics, depending on whether it's scientific or based on belief.

the funny thing is that beliefs (and expectations) matter in economics (unlike physics ;) to the point where they can act like magick (in the alan moore sense!) like for example paul krugman -- who i think coined "confidence fairy"? -- has talked half-jokingly about faking an alien invasion to overcome coordination problems and mobilize efforts to get us out our present secular stagnation-B/S recession in the same way that WWII helped us get out of the depression.

the thing is, it's not a stretch to believe that cheney, rumsfeld & co. trumped up the islamic fundamentalist terror threat to feed a military industrial complex that has since spawned such monstrosities as the dept. of homeland security (not to mention the spread of NSA tentacles or the horror show that's still iraq; alas, babylon) oh and which, yea, it helped the US recover from recession, where i guess a trillion or so dollars of blowing stuff up and failing to put them back together does the trick; republican keynesianism. it's not quite conjuring enemies out of whole cloth, but it is pretty evil. what's the term for that? chthonic?
posted by kliuless at 11:00 AM on September 4, 2015


"While it may be a bit of a mystery, and by turns economists will wave their hands and point to 'confidence fairies' and 'animal spirits'"

Personally, I think of those terms as similar to "dark matter" in physics. We've observed some phenomena, we know that "something" causes/influences it, but we don't really understand the variables involved or even what those variables are. Some day we may well find that "dark matter" is actually a combination of a bunch of different particles and the terminology will adapt to this new knowledge. The same thing will, hopefully, happen with "animal spirits". Or maybe some economist will figure out a way to measure it or some proxy that makes sense and we'll be able to put a number to it in a useful way.

Another way to think of it is that "animal spirits" is short-hand for "a bunch of stuff about human behavior that influences economic activity that we don't understand or is just too complicated for us to figure out right now."
posted by VTX at 12:00 PM on September 4, 2015


The problem with a national dividend is that it would be pro-cyclical. The dividend would go up when the economy is doing well, increasing inflation and go down when the economy is doing poorly, making the recession worse. You actually want the reverse, dividends to go down when the economy is doing well and dividends going up when the economy is doing poorly. What this means is that you would want the dividend averaged over the full economic cycle so that you run surpluses when the economy is good and deficits when the economy is bad.

As for quantitative easing for the people, the Federal Reserve could do that themselves. Instead of printing money and giving it to the banks, they could print the same amount of money and instead send checks to the people -- Bernanke's so-called helicopter drop.
posted by JackFlash at 2:31 PM on September 4, 2015 [2 favorites]


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