Why Basic Income Should Be Lib Dem Policy

Over the last 70 years, an inexorable long-term structural change has taken place in the economy.

Source: ONS, defining ‘labour income’= wages + self-employed earnings

 

It’s very clear that aggregate ‘labour income’ (=wages + self-employed earnings) has declined compared to consumer expenditure, with a turning point in 1995, such that

  1. From 1948 to 1995, labour income exceeded consumer expenditure.
  2. From 1995 to 2016, consumer expenditure now increasingly exceeds labour income.

By 2016, labour income only funded 86% of consumer expenditure. 14% of consumer expenditure was funded by unearned income. This trend is structural, long-term, and inevitable. Its most likely cause is the increased productivity of technology. Unearned income now accounts for 22% of household income.

Source: ONS

 

Over the last 20 years, the share of welfare benefits in unearned household income has declined, whilst the share of dividend income has increased, with obvious implications for inequality.

Source: ONS

 

We have to accept that the economy and people’s well-being now requires an increasing component of unearned income.

The problem is that

  1. If we allow the current trend for this unearned income to come from increased dividend income in the economy, then this benefits only shareholders. The share of welfare benefits reduces. Inequality rises.
  2. If this is achieved by increased state pensions and benefits, public sector deficit rises.
  3. This, in turn, leads to counterproductive austerity policy, where we are currently stuck.
  4. If it’s achieved by increased consumer credit, then we get default and crisis, as in 2007 and looming again now in 2017.

A radical alternative is needed. This requires a challenge to the assumption of financial orthodoxy that deficit is not permissible in the long run. The following graphs show that

  1. The UK economy has operated a deficit for 20 of the last 23 years.
  2. All G7 economies, with the exception of Canada, and occasionally Germany, also operate regular deficits.

Source: ONS

 

Source: OECD

 

Such persistent deficit, despite vigorous policy to eradicate it, suggests its inevitability. In a thought experiment of a totally automated economy, a machine plugged into earth produces all goods and services with zero wages. The output is distributed to consumers by annually reissued vouchers. These vouchers represent a deficit of 100% of GDP. The nuanced claim from this is that in advanced technology economies, unearned income becomes an essential part of consumer demand, and financial deficit becomes inevitable. As the above data shows, both these results are true in contemporary economic reality.

The ongoing economic crisis is real. The only resolution is a basic income, ie an unconditional income paid to all citizens, as a new form of unearned income. It’s better than other benefits, because it avoids the unemployment and poverty traps when other benefits are withdrawn in employment. It helps counter the current social injustice of extreme inequality. And it’s much cheaper to administer. It would be funded by a deficit which does not link the issue of money to the sale of government bonds, but simply accepts the deficit being written off annually. Radical maybe, but intellectually defensible, practically implementable, socially fair, and economically necessary.

* Geoff Crocker is a professional economist writing on technology at www.philosophyoftechnology.com; a contributor to Basic Income Earth Network, www.basicincome.org; and runs ‘The Case for Basic Income’ at www.ubi.org.

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50 Comments

  • Peter Martin 24th Oct '17 - 1:38pm

    Why not just offer some guaranteed work instead? That way the Government isn’t handing out money to those who do not need it. The Govt, and society, is also getting back something in return. The hourly rate would set a floor below which no other employer could fall. The work would essentially be for the public purpose. Every council would have a list of jobs that need doing.

    This wouldn’t be workfare.

    “Such persistent deficit, despite vigorous policy to eradicate it, suggests its inevitability”

    Of course it does. There’s no mystery. The Government creates and spends money into the economy. It get some of it back in taxation. It can’t get back more than it has created in the first place. That’s just not arithmetically possible!

  • It’s not socially fair if it replaces a system based on need. It’s not socially fair if it’s ‘simple to administer’ because people’s needs are complex. Welfare should be simple to access and use but it certainly shouldn’t be simple to administer because that more than likely means it is not sufficiently supporting people. Surely if technology can do anything it is to help us better manage complexity?

    The author of this isn’t addressing the real problems with the current welfare system or taking account of the many and varied unintended consequences of unraveling it. The system needs reform and more money – not revolution. How would a basic income allow us to maintain supported and sheltered housing for people with mental health needs for example? Presumably it would need a separate funding stream? How would that work? How does it support people with children? Do pensioners get the same as single parents? What about people with long term health conditions? etc. etc.

    Yes we need to find ways of supporting more insecure work – the answer to that isn’t a flat payment designed to service an economic theory rather than people’s actual needs.

  • The fundamental issue here is how we distribute the proceeds of future growth in an economy where most of that growth will be generated by a few high tech industries and /or by the next generation of automation. Left to the market we will have increased polarisation of wealth as the few with the right skills prosper. A basic income of say, 5k, which people will be able to top up through work will have several beneficial and, dare I say it, liberal consequences.
    First of all it will liberate people to follow their interests – it is easier to start a business if you KNOW that at least you will have a few hundred pounds coming in to put food on the table. Secondly, it avoids the need to force even higher minimum wage requirements on employers, some (and note I say SOME) will genuinely struggle to pay. Thirdly, it will take millions out of means tested benefits, with huge admin savings for government and finally, it will NOT go to people who do not need it, because it will be funded out of higher marginal tax rates, so higher earners will pay it all back (and more !).
    Disapointed that the party seems slow to warm to this idea. It looks like we will be the last party to realise that students loans suck (yes, even slower than the Tories) and we are trailing out feet on universal basic income policy as well.

  • @CQ.
    Red herring. Basic income has nothing to do with funding for housing, mental health services, or all the other services you mention. Yes, it would require a separate funding stream and how is that a problem. A basic wage does NOT mean you dismantle the whole of the welfare state. Some will require extra assistance and that will still happen.
    The problem is that without a basic guaranteed income, so many of us will see our incomes eroded that the state will buckle under the administrative strain of dealing with the mass of claimants . At that point, why not just give everyone a basic sum of cash, with top ups for those with special requirements ?

  • Nice, Geoff. Though I support a shake-up on this scale, I doubt you’d ever realistically sell it to the electorate, and looking at where LibDem target seats are and the party’s weakened state, it seems pretty risky when when you have to start expanding on the ins and outs of the proposals (I’m thinking of a recent IPSOS Mori poll on the subject). The only radical welfare reform I could think of ever getting by the public (and at a stretch) is perhaps the NIT, only because its price tag could be significantly smaller and silly things like its name not implying entitlement as strongly.

    Not to mention, Vince Cable has said publicly more or less that it would be utterly disastrous. So getting anything like this as policy would have to wait until (most likely) after the next election unless you want to have a leader that has claimed on video that one of the party’s potential major policies is cruel and would supposedly make many people worse off.

  • This would be funny if it wasn’t so tragic. The very graph the author chooses to show hoe deficits go down as well as up shows only one where the deficit to gdp is worsening.
    Clue – it’s the green line.
    And this is the one proposing Santa Claus economics.
    Why didn’t the author read the graph before drawing conclusions?
    There is no plausible recovery path for the UK economy to pay for this.

  • I think a Citizens Basic Income should be party policy and I advocate setting it at the Income Tax Personal Allowance rate currently £11500 = £44.23 a week (£2300 a year) and I would increase National Insurance to 12% over £45,000 to pay for those who receive no income or benefit. All benefits would be reduced by this amount as well as the Personal Allowance being abolished.

    @ Chris Cory

    I do not object to a Basic Income of £5,000 (£96.15 per week) but think it would be difficult to introduce it at that level. Do you have any idea what changes to Income Tax would be necessary to fund it?

    Geoff Crocker is advocating a Basic Income without raising the money to pay for it. He doesn’t address how this would not be inflationary assuming the government is not going to tax production by robots and automation. If we assumed that we would give every working age adult an extra £20 a week without reducing benefits or tax it this would cost (42.7 x 20 x 52) £44 billion. I think for the current year the deficit was planned to be £58 billion.

    @ Peter Martin

    A Basic Income of £44.23 or even £96.15 would not mean that there would be no need for the government to be the employer of last resort for the unemployed and the long term ill or disabled who want to take up the offer. National Living Wage is £7.50 – 30 hours work would provide £225 a week minus tax and NI (£72) making £153 a week better off or £124.13 if they were only receiving Jobseekers Allowance and the Basic Income was set at my level of £44.23.

  • William Fowler 24th Oct '17 - 4:52pm

    It is a great idea but only if you get your mind around the idea that the long term unemployed would have to do a few hours work a day to get back to the same level of income as they had on benefits, plus a big boost in funds to the NHS so that they can have psychiatric help when they find that their hard work is actually being taxed. Any other option bankrupts the country or causes the clever to leave because tax rates are then too high.

  • David Evershed 24th Oct '17 - 5:47pm

    Private pensions are deferred earnings and I would argue should be included as earnings. There are tax incentives to defer earnings through private pension schemes and these have become more prevalent over the last twenty years.

    Also in recent times for tax and national insurance reasons many self employed people have set up their own companies and pay themselves via dividends. Such dividends should also be considered earnings.

    Once adjusting for items such as those above I wonder if this would bring labour income into line with consumption.

  • Laurence Cox 24th Oct '17 - 5:56pm

    @ Chris Cory

    See the comments below my review of Richard Murphy’s “The Joy of Tax”

    https://www.libdemvoice.org/review-of-the-joy-of-tax-by-richard-murphy-53361.html

  • Geoff,

    I think you make a good case for a basic income, but the level of funding by money creation versue the amount funded by gilt issuance needs thinking through.

    You note that if excess consumer spending is achieved by increased consumer credit, then we get default and crisis, as in 2007 and looming again now in 2017. But you do not address the consequences for the purchasing power of money of inflating the money supply. If the basic income buys less and less goods and services as time goes by, it becomes self-defeating.

    In a growing economy, the government can contunually run a modest deficit and still maintain debt to GDP at a constant ratio. Persistent higher deficits will gradually increase the debt to GDP ratio over time; and consequently the proportion of government spending that is absorbed by debt services costs.

    Sterling is a fully convertible currency. If the government operates a policy of continuously depreciating the purchasing power of the currency, then there is a strong incentive for individuals and businessess to convert sterling to more stable stores of value – perhapas US dollars or Euros. In some countries where high inflation has taken hold following an economic meltdown the dollar becomes the de facto (if not de jure) currency.

    The $/£ exchange rate was $4.03 until 1949 when it was was devalued to $2.80, then to $2.40 in 1967. Free floating since 1971, the exchange rate reached a high of $2.44 at the end of 1980 and a low of $1.05 in Feb 1985. Sterling had recovered to $2.11 by Aug 2007, but has been on a steady decline in the past decade. Today it’s $1.31.

  • There is a significant omission from the derived data presented in the graphs and pie chart in this article. That is land rent is not shown. This is what should be used to support the basic income for all.

  • Geoff,
    “I derive one simple interpretation”
    I regret that is the nature of economists. They seek only the magic bullet with which they can save the world.
    Their trivial solutions have to be wrapped, though, in the most arcane sophistry to convince the Muggles that they know some High Priestly secrets the ordinary folk can’t understand.
    ‘Tis a pity because a lot strike me as intelligent and if they were ever to roll up their sleeves and leave their studies they might offer some real help in a UK economic situation which (as your own graph shows) is uniquely deteriorating.

  • Ed Shepherd 25th Oct '17 - 8:40am

    There is not enough paying work available and there has not been for decades. There might be even less in the future. Large numbers of the UK population are working in low paying jobs with no prospects of improvement. Drastic hcanges are needed in the way in which people obtain the goods and services they need. Basic income is definitely an idea that needs to be considered urgently. Sadly, discussion of it always brings out the pew-renters.

  • There are plenty of jobs which need to be done, such as in care homes etc but not enough people want to do them because of the low pay. If everyone were to be given a basic income who would want to do these jobs unless pay was raised to very high levels ?
    As long as wage subsidies are given then employers will not need to pay a living wage. Taking ever larger amounts of tax from investors will deter people from investing their money in useful activities.
    People in the UK still enjoy a very high standard of living compared to most people on this planet. No doubt they would like a higher standard but that would be at the expense of the poor in other countries. It is not right to encourage people in Western countries to believe they should be wealthier than everyone else.

  • @ Geoff Crocker
    “Michael BG, my proposal is that basic income would be deficit funded which would not be inflationary if money emission remains limited to output GDP”

    Please can you explain what you mean this?

    Are you talking about financing the increased deficit or whole deficit by increasing the money supply? Do you mean gross output? How would you limit the increase of the money supply or deficit to the gross output for the current year?

  • No Geoff. I spent my life in factories creating wealth not in a study pontificating about it. If there exists a school of practical, useful economists I would be grateful to be directed to it but my standards are high. The usual sophists are of no value.

  • Geoff – your first graph is exceptionally interesting but the small vertical scale blunts its impact. If it were redone to show the DIFFERENCE between the two curves re-based as a percentage of GDP it would, I think, have far greater impact. Is that possible for a later post?

    The story I think it tells is this: through the 1950s and 60s incomes rose steadily and ahead of living costs so people lived well. This was the ‘Butskellite’ era when both main parties broadly followed (less so for the Tories, more so for Labour) a Labour-influenced view of how to run the country and the evidence is that it worked – at least to a point. I am not a Labour supporter but I DO think they had grasped PART of the answer.

    Unsurprisingly, incomes went wobbly after the first oil crisis in late 1973 going sideways for several years. This was when the flaws in the Labour approach started to show and also when the Tories became more aggressively radical culminating in Thatcher’s election in 1979.

    In 1980 North Sea oil taxes started flowing and transformed government finances but it despite that the gap between income and living costs eroded steadily, finally going negative when oil & gas production started to taper from the mid 1990s.

    Thereafter the gap has grown ever larger leading to a desperate state of affairs for many while increasing financialisation has led to growing (but ‘empty’ like ’empty’ calories) GDP figures and quite extraordinary riches for a handful. It hasn’t and isn’t creating sustainable wealth for the nation as a whole. In short, this is a Ponzi scheme and WILL end badly.

    The conclusion I draw is that the neoliberal-influenced approach that’s dominated politics since Thatcher (and, yes, that includes the LD side of the Coalition) works very well for a tiny minority but ONLY at the expense of the great majority. Its advocates make aggressive claims for their economic and business virtue but that is merely a cover-story; look behind the curtain and the wizard is a wimp.

    Of course, all the above are just summary data. If it could be done separately for, say, the poorest 10% and the richest 10%, then I think heads would explode. Does the data exist to make that possible?

  • “[The trend for labour income to fall below consumer expenditure] is structural, long-term, and inevitable. Its most likely cause is the increased productivity of technology.”

    I disagree and suggest it’s down to complex and multifactorial causes. Crops won’t thrive if they are deficient in key nutrients (phosphate, nitrate or potash etc.); similarly the economy needs many ‘ingredients’ to work properly.

    Put like that it’s pretty obvious we’re getting it wrong in a whole range of areas, for example:

    TRAINING: it’s notoriously difficult to find skilled workers. That’s a huge bottleneck yet the government approach is to just throw money at the problem and hope some sticks.

    COMPETITION: for 40 years governments have promoted ‘competition’ yet in many industries concentration has increased leading to oligopoly and that is costing us dearly. Hence retail gross margins are far higher than in the supposedly less competitive 1960s.

    DEREGULATION: a neoliberal theme yet what it really means is DIFFERENT regulation tilted in favour of spivs and a race to the bottom. That’s how much of the banking sector went rogue and blew up.

    TAX: has been progressively reworked to facilitate ‘economic rent’ while lightly taxing capital gains and profit. The tax burden has been gradually shifted onto value added (VAT) and jobs (NI) both of which should be as lightly taxed as possible. It’s no wonder the economy is stuttering.

    INVESTMENT: government investment commits large sums while locking in cost structures for years to come. So if it’s not right we’re just throwing money away. Yet PR concerns have become the real driver while standards of appraisal have been allowed to degenerate; we now routinely get these decisions badly wrong. HS2 and Hinckley Point are particularly bad examples. As long as this remains the case any attempt to boost the economy with infrastructure spending will actually make things worse.

    In short, that labour income doesn’t pay the bills for a growing number is simply because the economy has been very badly run for many years and that’s been in ways that have little to do with traditional LD policy concerns. Or, to put it another way, we’re missing the point as far as voters are concerned.

  • Stiglitz in his book, the ‘ Price of Inequality’ and in his paper’ New Theoretical Perspectives on the Distribution of Income and Wealth Among Individuals’ makes a number of crucial points, not least that a large fraction of the increase in wealth is an increase in the value of urban land, not in the amount of capital goods. https://www.salon.com/2015/01/02/joseph_stiglitz_thomas_piketty_gets_income_inequality_wrong_partner/

    It is the exponential growth in the level of economic rents derived from the exploitation of natural resources and monopoly rents generally that increases wealth of a few. It’s that distinction between wealth and capital that is critical.
    Increases in the value of land and other assets, is very closely linked with the credit system. The explosion in credit in recent years has not gone into increasing the stock in the property and financial markets.
    ” If more of the savings of the economy leads to an increase in the value of land rather than the stock of capital goods, then worker productivity won’t go up. Wages won’t go up. So some of what is going on is that we haven’t been doing the kind of investment that we should be doing.
    …the other part that’s probably more important is that when you deregulate, you allow more lending against collateral. Then those who have the assets that can be used for collateral see those assets go up in price, like land. And so those who hold wealth become wealthier. The workers, who have no wealth, don’t benefit from that expansion. So the link is that credit affects land prices and fixed asset prices, and those go disproportionately to the rich. And that is a major part of the increase in the wealth.
    How can we prevent inequality from getting worse?
    ” I divide it into two parts: what can we do to reduce inequality of before-tax and transfers income, and what can we do to improve the after-tax and transfers income. The first part is things like higher minimum wages, stronger unions, better education, and stronger enforcement of anti-trust laws and corporate governance laws. Those are the kinds of things that are likely to improve the before-tax and transfers income. The second part is addressing things like capital gains taxes, the preferential treatment that mainly benefits people at the very top, and better redistributive policies. Those would help the after-tax and transfers income become more equal.”

  • Geoff,

    this essay by Stiglitz is a good critique of the marginal productivity theory as an explanation for the sharp rise in income and wealth inequality in recent decades marginal productivity theory http://evonomics.com/joseph-stiglitz-inequality-unearned-income/

    He points to rent seeking behaviour and its impact of aggregate demand as the source of the problem.

    Keynes thought inequality was necessary as Capitalists provided the savings to fund investment in productive capital that in turn would generate greater productivity and higher wages. However, when much of the surplus value created in the productive economy is captured by the imposition of economic rents, the virtuous cycle of savings; investment; capital accumulation; increased productivity; higher wages and higher levels of demand envisaged by Keynes cannot be realised.

  • The arithmetic of basic income is very simple.

    Step 1: What % of average income per head is a reasonable basic income. Let’s say 30%. This 30% is the share of national income that must be spent on basic income.

    Step 2: Add the share of national income taken by everything else that is publicly funded: education, health, defence etc. Let’s say roughly 25% of national income.

    Step 3: Add the two together to get the necessary tax take. In this example, 55%.

    Step 4: The current tax take as a percentage of GDP in the UK is 32.5%. The implied necessary tax increase is roughly 20 percentage points of GDP. (This is somewhat exaggerated because the basic income would presumably replace the personal income tax allowance.)

    You either end up with a pitifully low basic income or an impossibly high tax take. John Kay goes through it in more detail: https://www.johnkay.com/2017/04/05/basics-basic-income/

    Perhaps in the future robots really will take all the jobs and basic income will become a credible proposition. For now it’s a quick route to political suicide. The Conservatives would simply call it an enormous tax hike and they’d be correct.

    Re arguments basic income can be funded by deficits, or by printing money, or by taxing land – why not make a straightforward case for those revenue sources? If it’s really possible to generate all this revenue painlessly, we could fund the NHS properly or slash taxes for lower earners or pay for a thousand other popular priorities. Why hide the tax proposals behind a particular kind of utopian spending scheme?

  • Dean Crofts 26th Oct '17 - 7:51am

    “It would be funded by a deficit which does not link the issue of money to the sale of government bonds, but simply accepts the deficit being written off annually.”

    So what system is going to support deficits being written off ? There is no magic money tree. I am sure the IMF or WBO would have a lot to say regarding writing off annual deficits.

    Universal Income sounds appealing however no one I have read has stated how they would fund it without increasing taxes by a significant margin, and currently it would labour wages that fund this.

    Why do we not look at what is happening regarding distribution of money. The article states that dividends are playing more and more a part in peoples spending. This comes down to unearned wealth increasing therefore we need radical tax policy change from taxing income earners to taxing people with unearned wealth , including property or land values. If we want to be serious as a party in re distribution then it is unearned wealth not earnings that we need to look at.

    Also if anyone thinks individuals can live on £44 per week ( a proposed starting point of UBI – after paying for elec, gas, water and in some areas council tax – and reducing benefits from £73.10 then try it!

  • “The article states that dividends are playing more and more a part in peoples spending.”

    But only, I think, for a tiny percentage of people. I suspect dividends are thin on the ground outside the wealthier areas.

  • @ Geoff Crocker

    You say I’m using a “simple accounting view of the economy” but I’m not even doing that. I’m just adding up the spending commitments that you propose and pointing out they are much larger than the current tax burden.

    You assert there is no need to raise taxes: the government should just borrow by issuing money. But that’s a tax on anyone who already has money, otherwise known as an inflation tax. This isn’t new or heterodox: it’s the financing mechanism employed by Weimar Germany. The fact G7 economies ran deficits after the financial crisis has nothing to do with it.

    If you want to argue for an inflation tax, or argue it somehow won’t generate inflation, that’s fine. But it really confuses debate to dress it up as a basic income proposal.

  • @ Geoff Crocker
    “I’m simply saying that total funded aggregate demand in the economy must equal output GDP each year to be neither inflationary nor recessionary. Consumption must be funded to equal production.”

    Keynesian theory aims to increase aggregate demand to increase production, but Keynes recognised that there may come a point where aggregate demand cannot move production and this can be at levels lower than the full employment level. If aggregate demand is increased above the NAIRU (the non-accelerating inflation rate of unemployment) then inflation is likely to arise. In the Keynesian model consumption only equals production in a closed economy. In our economy it does not have too as people can save or spend on imports and some of the production can be exported, then there is government spending and taxation.

    You seem to be saying you would fund the increased deficit by creating money, but monetary theory states that when production cannot be increased inflation will result. There are other ways that this can increase inflation but I want you to state how you would stop this type of inflation getting out of control. You keep using the term “output GDP” I Googled it and couldn’t find a definition so what do you mean by it. I have suggested you mean “gross output” which is more than the normal GDP but you haven’t responded. Please define “output GDP” and how you would ensure that the money supply equalled this and explain how savings, imports and exports fit into your scheme?

    @ Dean Croft
    “Universal Income sounds appealing however no one I have read has stated how they would fund it without increasing taxes by a significant margin, …
    “Also if anyone thinks individuals can live on £44 per week … and reducing benefits from £73.10 then try it!”

    Does this mean that you recognise a Basic Income of £44.23 is affordable and doesn’t increase taxation significantly?

    I don’t understand how anyone can live on £73.10 a week, so a Basic Income of £44.23 is not enough to live on. I think it is important to get the principle agreed and a Basic Income introduced, just like the Liberal government did with the Old Age Pension – at 5 shillings a week (£13 a year), while average wages were £70 a year (http://www.parliament.uk/business/publications/research/olympic-britain/incomes-and-poverty/cheaper-in-those-days/).

  • @ Geoff Crocker

    I can’t express my disappointment with your response. I favour a Basic Income and I am concerned about the impact of automation and robots on the world of work. I had hoped you were suggesting a practical solution to this. I am not against some inflation in the system and even some wage inflation. You could have posted an utopian ideal where imports equal exports and everything is produced by robots who are owned by the state and produce whatever the population wants to consume and what is needed to trade for imports. However you gave the impression you were suggesting a practical solution to the problems caused by future automation and increased use of robots. This practical solution would need to be able to deal with the producers of consumer goods wanting payment for their goods which would hold its value and the need to provide enough money every year for the population to purchase the goods being produced. To be not able to state how your solution would work without causing massive inflation does invalidate your suggestion as a rational proposal.

  • Geoff,
    I think Keynes argument was that investment need not equal savings, since investment is a function of the expected rate of return as well as the interest rate.  An increase in saving may lower the interest rate and provide an incentive for investment to rise, but if the expected rate of return is low investment will not rise in proportion to saving.  Consequently, the level of aggregate demand will fall, and the insufficient demand will cause an equilibrium with less than full employment.
    Consumption is largely dependent on income, because as income increases people are willing and able to consume more. Furthermore, increased investment leads to increased income (the“expenditure multiplier”). Keynes argued that consumption will always be less than income and will always move in the same direction. A change in income will create a change in consumption and investment. An increase in investment results in an increase in income; because of people’s propensity to consume, they will not save all their money. Instead they will spend some fraction of it, putting part of the increased income back into the economy. In this way a small increase in investment has a larger  cumulative effect on income. The increased income leads to more consumption, which will raise GDP. Overall, Keynes argued that changes in spending (investment and/or consumption) cause more than proportionate changes in GDP(The Keynesian multiplier effect).

  • @ Geoff Crocker

    Thank you for responding again and providing some more clarity. It would seem that if the extra money in the system was small this could be enough to keep inflation below 2% and provide growth of 3%. Would this mean that the amount calculated would be able to be increased while keeping control of the money supply to keep inflation within the region of 2%? I don’t think so. The extra money in the system will, once production can’t be increased, increase inflation. While the government debt is written off, the actual extra money is still circulating. The only way to control inflation is to control how much extra money is created every year. When the deficit is funded by debt at least the money is not being created it is circulating.

  • @ Geoff Crocker

    You write about writing off the deficit or part of it. I assume you don’t really mean that the government would borrow the money and then tell those who purchased some bonds that they will not redeem them. If you did mean this then no one would buy any bonds the following year. I assume you must mean that you will finance this part of the deficit by creating the money. It would be useful if you can confirm my assumptions are correct so I can try to discover how your idea cannot be inflationary.

    Do you reject the idea that having a huge deficit can be inflationary?

    Do you reject MV = PT?

    Do you accept that the multiplier exists and is positive in the UK?

    If the government had given everyone the sum which was borrowed as consumer credit between 2001 and 2007 (financed by increasing the money supply) unless it had also banned consumer credit there would still have been some consumer credit and the money supply would have been increased by more than it was.

  • @ Geoff Crocker

    Thank you for making it clear that you accept normal economic theories. As you accept Keynesian economics, do you accept that it is possible for a government to increase government spending and for this to cause inflation?

    Assuming you do. You would need to work out what the maximum output GDP the UK can produce, work out what the multiplier is and then calculate how much to set the Basic Income at so when the multiplier effect has taken place the economy reaches its maximum, and put in place restrictive consumer credit controls. If any of the calculations are wrong then there could be inflationary pressure. If the economy cannot reach the maximum output GDP there could be inflationary pressure. How would you ensure that this inflationary pressure was kept under control?

  • nvelope2003 28th Oct '17 - 9:20pm

    Instead of giving people money to do nothing why not use any spare cash to pay state employees a decent wage so that they will be willing to do those difficult jobs that remain unfilled ? People have seen quite enough of clever ideas which end up costing billions and only cause another economic or financial crisis.

  • Geoff,

    unfortunately my institution does not have a subscription to degrutyer, so I could not access your paper, nuch as I woud like to.

    I was referencing Keynes argument that investment was a function of expected return and not directly related to the level of either savings or aggregate demand. The Ketnesian argument around full employment is very much based on priming the pump to release “animal spirits” and reinvigoate private sector investment that creates full employment and the higher wages that go with it.

    The earlier point that Stiglitz makes is not that demand in the form of consumer spending is deficient; but that firms are not utilising retained profits for spending on employment inducing capital investments. Rather they are .heavily engaged in rent seeking investments in land and related financial assets.

    A basic income does not address this problem whereby any redistribution is simply recaptuted in the form of higher returns from economic rents to landowners, mortgage financiers and the owners of intellectual capital.

    That is why I have argued previously that a basic income should be underpinned by a Land Value Tax applied to economic rents. The state can create money and/or run any level of deficit it wants, without fear of inflationary pressure, if the money is utilised to acquire land and the proceeds of sales reinvested by sellers in financial assets that generate taxable income.. It is only when the government or sellers of land begin to spend into the economy on labour, materials and equipment that real resource constraints enter into the equation.

  • @ Geoff Crocker

    I am disappointed with your last response. I am quite keen on your idea, if you can address the problems I identify. I am not sure Keynes identified that his policies could cause inflation. However, my point was do you accept that pursuing Keynesian policies to increase aggregate demand to provide full employment can cause inflation? Do you accept that if consumer credit cannot be controlled under your scheme this can cause inflation? If you accept both how would your scheme need to be controlled to ensure that inflation does not run away as it has in the past.

  • Hello.
    I am Japanese.
    I am writing this sentence by machine translation.
    There is a question I’d like to ask.

    I think that the income of the all consumers is the sum of labor income and capital income.
    Even if labor income decreases due to mechanization, if the capital income increases, does the income of the all consumers be sufficient?

  • @ Geoff Crocker @Michael BG

    I think the opinion of Michael BG is correct.
    I think that “output GDP” that Geoff says about is normal GDP. I think that it means “real GDP”.
    However, money equivalent to real GDP has already been issued. Therefore, in order to issue more money, I think that it is necessary to calculate the potential output GDP (maximal output GDP).
    I think that only the gap between potential GDP and real GDP can be distribute to the people.

  • Hello Geoff.
    You say as follow.

    “In a thought experiment of a totally automated economy, a machine plugged into earth produces all goods and services with zero wages.”

    In this regard, I think as follows.
     
    GDP is the sum of added value.
    Value added is expressed in price.
    The price is the sum of wage and monetary profit.

    When machines are to make all of GDP, wage pay to people are no longer necessary. And monetary profit pay to people are no longer necessary too. Because the machine makes all of added value.

    Therefore, When machines are to make all of GDP, the price will be zero. Therefore, the basic income is no longer necessary.

  • Hello Jeoff.
    In your theory, how is calculate the amount of basic income?
    Please teach me how to calculate it.

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