Basic Income: Replies to Replies

There is one main reply I received, from various sources, to my last post on basic income.

The reply was something like this: ‘You say that BI could be inflationary. But if you implemented BI right now it would stimulate the economy. Most people are too poor to maintain a decent standard of living. If they received a lump sum of cash, they’d spend it. Firms who received the spending would pay down debts, sell off inventory, hire currently unemployed workers, and use up unused capacity. They wouldn’t raise prices. No inflation.’

I agree that if you implemented BI right now that would be the likely result. That’s because we’re way beneath full employment – especially in Europe, but throughout the First World generally. Yes, implementing BI isn’t inflationary when we’re well beneath full employment. Demand-side stimulus in general isn’t inflationary under those conditions. But as the economy recovers and moves nearer to full employment, BI becomes increasingly inflationary.

By ‘full employment’ I mean a situation in which everyone looking for paid work finds paid work. BI could get us to full employment very quickly, if a number of people were happy to just live on their BI.

However you got to full employment – whether by increasing the supply of jobs or reducing the demand for them – doesn’t matter so much. If history is any guide, you’d start to get high inflation before you got to full employment. That’s what happened in the 1970s, when states tried to pursue full employment using relatively indiscriminate ‘pump priming’. Hyman Minsky wrote several essays about why this would lead to inflation before full employment, and proposed a Jobs Guarantee as an inflation-proof alternative. But nobody listened to Minsky. Instead, states switched to the current system of fighting inflation by maintaining unemployment.

There’s no reason to think that BI wouldn’t have the same effects as the 1970s policies: causing inflation (and thus beginning to undermine itself) before getting to full employment – even the sort of full employment where lots of people are happily not working. Thus it doesn’t help the working classes, who are currently treated as cannon fodder in the war against inflation. And it doesn’t stop policymakers from being forced to choose between uncontrolled inflation or involuntary unemployment plus miserably low, sub-subsistence wages. Essentially the BI policy is to choose inflation, which is precisely why policymakers are bound to ignore it.

The Job Guarantee gets around the whole dilemma. With the Job Guarantee, you can have full employment and a control on inflation. Firms will still be able to undercut demands for higher wages by hiring out of a labour buffer stock. But the labour buffer stock won’t be unemployed. It’ll be composed of people doing public works at a living wage, people who can’t work and have to be looked after by the state, and people who choose not to work. None of these count as unemployed.

Unlike the current system, the Job Guarantee would protect workers. True, the ones on the bottom are limited in their power to bid up wages, lest they be replaced by cheaper workers hired out of the buffer stock. But nor can their employers pay them less than a living wage, or else they can just go and join the buffer stock. It’s not perfect but it’s a hell of a lot better than what we have.

IT ISN’T WORKFARE (I seem to keep having to say that). It just gives people whom the private sector has thrown out of work the CHOICE of working in the public sector instead, for a fair living wage. If they’d rather live on unemployment benefits they can do so. How big those benefits are will depend on what society deems fair, but so would the guaranteed Basic Income in any real-life scheme. On the other hand, the people who preferred to be employed by the state rather than dependent on it would always have that option. They could maintain their skills, their independence, and their employability, and they’d be allowed to leave the programme as soon as they found a preferable job. I know what I would choose, and I know I’d appreciate at least being given the option.

Needless to say, people who couldn’t work would be amply provided for. With lots of people working in the Job Guarantee programme (at least when times were tough and the private sector was laying off lots of people), providing public services to those in need of them would be easier than it is now.

IT DOESN’T MEAN A BLOATED PUBLIC SECTOR (I seem to keep having to say that as well). The Job Guarantee programme would be as big or as small as ‘the market’ wanted it to be. If businesses were willing to hire up all available workers and pay them a fair wage, nobody would be on the Job Guarantee programme. But if businesses left perfectly willing labourers unemployed, the government would hire them to do public works, rather than paying them a subsistence wage and then making them jump through bureaucratic hoops and apply for private sector jobs that aren’t there.

The government could afford to pay all the workers on the guarantee programme by just printing the money. This wouldn’t be inflationary since the Job Guarantee system contains its own built-in anti-inflationary mechanism. So far as I know, it is the only system for fiscal stimulus of which this can be said.

I just don’t see how, as a policy idea, Basic Income even compares. The Job Guarantee isn’t as philosophically sexy. It doesn’t provoke us to ponder deep questions about the true value of work and the deep ethics of monetary rewards. On the other hand, it would work. That should matter to you if you believe that public policy is about actually helping people and not about mere intellectual indulgence.


2 thoughts on “Basic Income: Replies to Replies

  1. NeilW

    Very simply Basic Income cannot work in any society with humans in it. Just like ‘Free Markets’.

    Because of the nature of what humans actually are – which of course the intellectual left deny much as the intellectual right deny the reality of oligarchy and anarchists deny the rise of the ‘big man’.

    The pragmatist sees all these and engineers something that will actually work in society – a Job Guarantee.

    Of course everybody likes a bung and everybody loves the idea of just getting an income without any requirement to do anything in return.

    However that is the wrong question to asses the scheme. The correct viewpoint is from those that have to do the socially necessary work.

    So you’re doing socially necessary work – say digging Fatbergs out of sewers for 40 hours a week – for which you now receive a lower wage (due to the basic income) and have to pay a marginal tax rate of at least 45% (due to the basic income destroying half the auto-stabilisers). Are you prepared to accept that others have chosen to ‘express themselves’ on the basic income, often by staying in bed until 2pm, while you toil?

    The majority of people say no to that, and vote accordingly.

    1. axdouglas Post author

      Yep. I do sometimes feel like a lot of these Basic Income people, who assume that we’d have all the stuff we need without anyone having to work for a living, ought to spend some time working a food-packaging factory or roofing houses in the sun. Or digging fatbergs out of sewers! I can hardly imagine. Oh, I know the robots are just around the corner, but who knows – once they’re smart enough to do all that maybe they’ll start demanding a Basic Income as well.


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