Switzerland and Guaranteed Income--Would it work here?

[jennypenny]

Print Less but Transfer More: Why Central Banks Should Give Money Directly to the People

small excerpt ...

MAKE IT RAIN

Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.

Such an approach would represent the first significant innovation in monetary policy since the inception of central banking, yet it would not be a radical departure from the status quo. Most citizens already trust their central banks to manipulate interest rates. And rate changes are just as redistributive as cash transfers. When interest rates go down, for example, those borrowing at adjustable rates end up benefiting, whereas those who save -- and thus depend more on interest income -- lose out.


Here's a short video with Blyth outlining his plan. http://finance.yahoo.com/news/the-case- ... UyODhfMQ--

I think he's making two big assumptions. First, that the Fed isn't political; and second, that people trust the Fed, or at least more than they trust politicians.

There's a Seeking Alpha article today that discusses this. IIRC, she said this idea showed that the Fed was down to its last bullet, or something like that.

[jacob]

The Fed has the dual mandate to keep prices stable, that is, match the money supply to the supply of economically available claims, that is, goods and labor, AND to keep everybody employed, that is, match the demand for labor to the supply of capital assets.

That's a tough problem to solve given their limited number of monetary tools.

I think the reason the central banks traditionally have given banks money (in the form of loans) is due to the belief that banks are the best as allocating capital claims (money) locally. Practically speaking, this turned out not to be the case. The housing bubble showed that banks were one of the worst ways of allocating capital.

That is not to say that given people money directly is any better. Remember the dual mandate. If everybody suddenly received $10000 without a corresponding increased availability of labor and goods, what would happen to prices in the short run? What would happen in the long run? I think we can assume that 10k is approximately nothing compared to the capital assets required to employ a person, so it would not increase the amount of capital assets and therefore not the labor demand. In other words, prices would go up.

A faster way to figure this out is to realize that if money is handed directly to consumers, the result of this something-for-nothing exercise is consumer inflation---a disconnect between goods and prices. Conversely, if money is handed directly to banks, the result of the same something-for-nothing exercise is asset inflation---a disconnect between securities and prices.

Before the politically motivated blowback starts, I realize that not everybody benefits equally under monetary policy. I have little interest in promoting policies either way because agents in a sufficiently complex system can always find a way around either policy. For example, ERE---being complex---benefited greatly from QE... but would also have benefited greatly from free consumer money. The only difference would be in terms of when one started relative to the change in policy.

From a systems theoretic perspective, only changes tend to matter in the short term. Of course in the long term, any misallocation is very damaging.

[GandK]

Y Combinator, the Silicon Valley organization known for its elite accelerator program, has put out a call for someone to lead a study on basic income here in the US, and is going to fund it themselves:

Basic Income

No word yet on how to apply to become a test subject.

[GandK]

Robert Reich's post this week on Why We’ll Need a Universal Basic Income.

[Dragline]

We basically already do that in the US with HUD housing and SNAP cards. But then we put all kinds of restrictions on who can get them and restrict them from making "too much" money. So it ends up just creating a lot of perverse incentives and incongruous outcomes. Once you insert notions of morality into redistribution, it ends up being a quagmire of arguing about who is more worthy than someone else. The practical solution for people who don't qualify for standard welfare benefits in the US has been to get qualified for social security disability and get health care through that. It's become a cottage industry: http://www.forbes.com/sites/theapotheca ... 4993891f54

Many states, particularly the poorest and most nominally "conservative", have caught on and have offices designed to help people apply so that they can direct more federal money to their state. Here's an example: http://www.mdrs.ms.gov/Disability/Pages/default.aspx

"Impact in Mississippi

. . . The economic benefit from the SSA Disability program has a significant impact on the state as well as the individuals with disabilities by providing monthly benefits. These monthly benefits provide economic freedom to the citizens with disabilities and their families. This program is an integral part of the economic fabric of our state. In addition to the financial impact, a secondary benefit of the disability program is the access provided to health coverage via Medicare and Medicaid.

There are 160,251 Social Security Disability beneficiaries in the state of Mississippi. The average Social Security Disability payment is $969 per month. The sum total of the disability payments is $155,327,000. There are 71,776 SSI recipients in the state. The average monthly benefit for the SSI recipient is $506 per month. The total number of disability beneficiaries in Mississippi is 232,027 (based on SSA data)."

Note that this state has less than 3 million people living in it. Looks like these bennies really are "an integral part of the economic fabric of [that] state." And they call themselves "conservative" and small government. What bullshit and hypocrisy.

Again, its all goofy and artificial. If you are poor, your best strategy is to go become really obese and get diabetes so you can qualify.

Finally,the population in the US will not keep growing unless there is immigration. It will decline, because fertility rates are below the replacement rate and continue to decline on average YOY. The population will continue to get older, though, so the labor participation rate will decline regardless.

[ducknalddon]

To reiterate, I think handing out cash is dumb, but handing out basic necessities I have less of a problem with, especially if it incentivizes working to get cash so that you can buy luxury goods. That is apparently a very strong motivator.

I don't know about the US but certainly in the UK any additional income from the state would mostly end up in the pockets of landlords.

[Ego]

To reiterate, I think handing out cash is dumb, but handing out basic necessities I have less of a problem with, especially if it incentivizes working to get cash so that you can buy luxury goods. That is apparently a very strong motivator.

Homeless is absolutely exploding in my city. The numbers are astounding. The dirty secret of homelessness is that most do not want to get off the streets because they have a small income (usually SSDI) and would rather live outside for free, allowing them to spend their money on their drug of choice. Any "program" requires moving toward sobriety.

The cash income enables the problem.

[BRUTE]

redistribution is a zero-sum game. the sum is not enough to provide meaningful basic income - dividing the federal budget ($3.7T) by population (324M) yields approximately $11,500/human/year. meaning if every American lived like jacob, it would be possible, but then there wouldn't be any roads, police, or fire service.

humans need to play a few more positive-sum games before basic income will work.

[jacob]

@brute - US GDP is ~12T, so there's room to raise taxes. Redistribution in a complex system is not necessarily zero-sum. It can be positive-sum, e.g. less money is spent on aquariums of rotting sharks and more is spent on kindergartens. It can be negative-sum, e.g. less money is spent on books and more money is spent on beer.

[BRUTE]

that's only valid if jacob values kindergartens more than rotting sharks, and books more than beer. the majority of the population likely holds opposite values.

[jacob]

I meant *-sum in terms of the size of the economy.

[BRUTE]

wouldn't that be completely independent of what the money is being spent on?

[jacob]

Consumption and Investment counts for the same in GDP (or personal budgeting), investment increases the size of the economy (more GDP next year or more to spend in your budget next year) while consumption does not. How people personally value consumption vis-a-vis investment does not affect the resulting size.

[BRUTE]

oh, so the GDP would increase over the years, yea ok. brute thought jacob meant right now. so investing money is playing the positive-sum game like brute mentioned. who would've thought

brute thinks most of the pro-BI humans haven't done the math and think that it's easily possible to finance a useful amount without either cutting anything substantial or raising taxes. they're wrong, but they're also not the type that likes facts.