Should We Get a Basic Income

Basic Income To understand why the concept of basic income would not work, it is necessary to understand the meaning of money and how it has value. Money has value because of two things: 1) confidence—as in the confidence that is placed in the currency by those who use it, and 2) the fact that it represents a store of worth—for example, if a person works ten hours on a roof, he expects to be compensated.

He could theoretically be compensated with wheat, or milk, or beef, or gas, or some other goods or even services in exchange; but to facilitate the exchange and the agreement between the hirer and the laborer, money is introduced. Money thus acts as a store of wealth: the laborer who works on the roof for ten hours agrees to be compensated by x amount of dollars or euros or pounds or renminbi or whatever currency the two agree upon.

Money is an easy way to settle exchange and eliminate the need for bartering. In the old days, money was represented physically by coins—gold, silver, copper—these metals have been commonly used throughout time and societies all over the world as money. The reason these metals were used as money was that they were commonly believed to retain their value over time.

Unlike today’s fiat currencies, which can literally be printed up by the world’s central banks at any moment in time, metals like gold and silver required a great deal of man hours, labor and energy to mine and forge into coins. Why is this important to know? The point of this illustration is to show that in order for money to be useful, it must retain its value over time.

If a nation decided to use loose leaf sheets of paper as its currency, it would quickly lose the public’s confidence as such sheets can easily be created and distributed amongst the public. The more sheets there were to go around, the less value they would have. Gold and silver are believed to hold their value over time because they cannot be acquired without an exchange of labor and energy. Money it could be said represents energy.

The amount of energy that one puts into one’s work should be commensurate with the amount of energy that is stored in the money that is received in return for one’s work. That is the fundamental nature of money. Money makes it easier for people to exchange their energy.

If, however, a society decides that people should receive a basic income for free—i.e., for nothing—not for any exchange of labor or energy, it corrupts the system and concept of money to the core. If a basic income is granted to all, it does two things: 1) first, it dilutes the value of money already in supply; 2) second, it gives the false impression that the money given to the public for free has value.

Since no exchange of energy or labor or an alternate form of value was made but rather the basic income was simply generated out of thin air and supplied to the public, it has no real value.

Of course, the proponents or supports of the concept of basic income know that—which is why they point to two methods of supplying basic income that does not follow in the footpaths of central banks like the Federal Reserve, the Bank of England (BOE), the European Central Bank (ECB), and so on, all of which have printed up trillions in their own currencies to prop up markets since the Great Economic Crisis of 2008.

What this means is that since the Great Economic Crisis, which has defined the past decade in terms of how monetary policy is conducted, the great central banks—the Fed, the ECB, the BOE—have engaged in a strategic policy of quantitative easing (QE), designed to send “trillions of euros [dollars, and pounds] into the financial system” (Van Lerven, 2016, p. 237).

While QE tends to prop up market prices, the goal of the policy is to jumpstart the economy—much like the concept of basic income is meant to do.

The more money people have, the more likely they are to spend, right? That is why CEOs like Elon Musk and Mark Zuckerberg support the concept of basic income—it is populist and it puts more money in the pockets of people who will then likely spend it frivolously (perhaps not on electric cars or ad space from Facebook, but the idea is that they will stimulate the economy and help grow a country’s GDP) (Schiller, 2017).

The problem with this is that it makes a number of assumptions about the consuming habits of people—habits that are based on past consuming habits of prior generations, which are no guarantee of how a thrifty generation that has suffered through the collapse of credit will respond to being given free money.

Moreover, the one guarantee of “free” fiat money (money printed by central banks rather than taken from taxes collected by the government or obtained through the sale of debt—i.e., Treasuries), is that it will result in currency devaluation (Haitsma, Unalmis & de Haan, 2016). How? The injection of liquidity into the market leads to an increase in the supply of the currency. A rapid increase in the supply of money leads to inflation.

The more money that is pumped into a system, the less value it has: it is the basic principle of supply and demand. This can be seen today: the central banks have added trillions into the marketplace in an effort to stimulate the global economy; there is debate about whether the economy has truly been stimulated—but one thing that cannot be debated is the fact that inflation has occurred: asset prices have risen across the board since 2008, when QE was launched.

In fact, this phenomenon happens anytime credit is expanded: the more access to money the public has, the higher prices move. That is how supply and demand works. One can look at housing, medicine, education, equities, bonds, or precious metals: everything has gone up in recent decades because of QE and the credit expansion that preceded it. Basic income would do the exact same thing to prices were the money for basic income to be printed up out of thin air by central banks.

QE did not really stimulate the economy as Van Lerven (2016) points out. Perhaps basic income would? Not if it is printed out of thin air like the trillions used for QE. Perhaps basic income would work, then, if the money provided to the public came from the public itself—or from the sale of debt (i.e., the state monetized debt and sold it in return for money which it would then give to the public in the form of basic income).

As Schiller (2017) notes, assuming a basic income of $1,000 per month for every adult, “to pay for the $1,000-a-month scenario would see additional taxes on the top 1% of earners of 35% and those in the top quarter of 12%.

The alternative would be simply to add to the public deficit, or, more likely, shift public spending around.” The last option (shifting public spending around) is unlikely to happen since anytime the government thinks about cutting subsidies from its budget, there is a large outcry from the public (as well as from businesses that rely on these subsidies). The second option would be a possibility—but who would buy the debt? If the central banks are the buyers, then the outcome is inflation.

If other nations are the buyers, one would have to explain why they would like to buy more debt from the U.S. when they are already in the stages of preparing to dump Treasuries so as to get away from the USD. This option is not to be considered very practical—especially when the world is already at a global tipping point in terms of debt, as in the world has never ever held more debt on its books than now (Curran, 2018).

Adding to the already staggeringly high global debt, at this point in the game, would be madness—and those with a sense of how crushing debt can become when interest rates rise know exactly this. And, it should be noted, that that is exactly what is happening: interest rates are rising.

The London Interbank Offered Rate (LIBOR) and the Federal Funds Rate are both on the rise, which means that servicing the mountain of debt on the global accounting books is going to become increasingly more difficult (the higher rates go, the more one holding the debt has to pay in interest on that debt—which means the more debt one has the harder it is to do other things—like pay for superfluous goods sold by Elon Musk or Mark Zuckerberg).

Thus, this option is not practical either—paying for basic income via the sale of debt is simply not a feasible solution—not at a time when global debt is at record highs and interest rates are rising. That leave the option of taxing the public. This will not work.

Taxing the wealthiest individuals so that the poorer individuals have a basic income might seem like a nice, philanthropic idea that the world’s wealthiest would love to contribute to—but the reality is that the world’s wealthiest do not really like to pay taxes. One need only ask President Trump about that: he has stated it in public numerous times.

Besides, if one is going to take from the rich and give to the poor, one might as well simply just institute a system of distributionism—because that is essentially what basic income would be in that case: redistributing the excess amounts of wealth obtained by the 1% and spreading it around among the 99%. This idea has been around for some time too, but the reality is that most members of the 1% are not going to be fond of this idea.

They like holding onto their wealth and using it to get even more wealth. They like being the 1%. They might dole out a little here and there, but for the most part they are not interested in evening up the score. With great wealth comes great power: they know that, and few people with power decide to give it away just like that. Lear did so—and the poor old man ended up in the fields without shelter, despised by those he thought he could rely upon. If.