There has been some recent discussion on Lib Dem Voice and elsewhere on the idea of a Basic Income for all. The social benefits we already receive when we are unable to find work, or are incapable of working due to being too sick, or too old, are examples of a basic income guarantee, albeit an inadequate basic income, in operation.
It has been a while since any progressive political party has seriously promoted the idea of a guaranteed income from working but the idea is nothing new and doesn’t have to be workfare in disguise. Both types of schemes will meet the same objections from the political right with questions like “Who is going to pay”? If we play their game and agree that everything will be “fully funded” we’ll simply be shifting existing money from one group to another. Aggregate demand will remain unchanged and so the underlying macroeconomic problems of our economy will remain unresolved. On the other hand, if we don’t play along we’ll be dismissed as potentially fiscally profligate by wanting to pay out money for nothing.
They will have a point. No-one of any progressive inclination is advocating the removal of financial life support from those who genuinely need it; but, if we hand out too many ‘freebie’ payments, either through the tax system or just by giving everyone an old fashioned cheque the government could create too much stimulus in the economy and create inflationary pressure. The Australian government tried something similar after the Global Financial Crash. It did work, but it was a sign of desperation and panic in exceptional circumstances. If we only have a limited supply of bread and we pay out more money for people to buy more bread all we’ll achieve is a rise in the price of bread. But if we employ more people to bake more bread, even if the initial start-up money for the employment is just created, as we know governments can just create money by Quantitative Easing, then the effect may not be inflationary.
It is probably better to leave the production of bread to the private sector. It does seem more than capable of meeting our needs. The private sector isn’t so good at housing, health and education though, so there would be plenty of scope for offering government sponsored employment opportunities there. It is worth remembering that the UK government doesn’t create pounds by spending them into the economy because it needs to get those pounds back from us in taxation. It creates those pounds, and then gives us a tax bill designated in pounds so that we will work for these now desirable and valuable pounds, and so be able to pay that tax bill. That’s quite a different motivation.
The real economy runs on the labour power of us all. Ultimately, we can do ourselves a favour, and solve more than a few social problems at the same time, by not wasting the talents and the labour power of those who wish to provide it.
* Peter Martin is not a LibDem party member but has voted LibDem in previous elections.
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6 Comments
Of course, if the price of bread goes up, more people will decide to become bakers anyway.
“If we only have a limited supply of bread and we pay out more money for people to buy more bread all we’ll achieve is a rise in the price of bread.”
Seems to be what happens in the housing market….
There were some links which don’t seem to have come through in this posting.
I particularly wanted to reference the US pre-war “Works Progress Administration”. Anyone who is thinking “it will never work” might like to take a look at this:
https://en.wikipedia.org/wiki/Works_Progress_Administration
An interesting idea that merits some deliberation.
Given that we don’t have enough money to do this across the board it would be possible perhaps to start with the 16 to 21 year olds. They need to get experience of work at the earliest opportunity to set them on the way to a reasonable life for them and give them some of the skills for their future. If it worked and more money was available it could be extended. If it did not I would not like to be the person to close it down so it would need to be thoroughly researched before it started.
@David Garlick
Yes I agree it would be useful to start with young people. Generally speaking I would say that the government should only provide jobs which are for the public purpose. So that businesses could not just expect to have their employees paid for by someone else.
An exception could be made for young people if they were receiving meaningful training as part of a apprenticeship scheme. But, there would have to be safeguards against misuse of public money. We seen that happen before with the YTS in the eighties.
It is well-worth looking at the Green Party proposal for Basic Income, which is their Party policy but did not make it into their 2015 manifesto in the end. Google on “green party” “basic income” 2015 and you should find the pdf as the first entry.
Their big problem was that even to provide an income equal to the JSA for people below state pension age and equal to the full state pension for those over state pension age requires considerable increases in taxation (e.g. 10p on the standard rate of income tax and 12p NI with no upper limit, as well as removing the personal allowance). There are also problems with the poorest having to pay high rates of tax (although one could argue that they do so already through withdrawal of benefits).
The Citizen’s Income Trust http://www.citizensincome.org/ is also a good source of information as they have done a good deal of modelling of the economic consequences.