Basic Income

In the late 60's and early 1970's there emerged a political object variously called things like a “basic income” or a “social dividend.” It was a notion that serious people treated seriously. The idea was elegant and simple: replace the morass of “means tested welfare” with a periodic grant of direct deposit cash to every citizen. This would eliminate both the massive and inefficient welfare state bureaucracy and the most painful edge of poverty. Nobel Prize winning economists came out in support. Martin Luther King, jr. wrote a book. Presidential candidates and politicians from all over the political spectrum supported it.

Then it dropped profoundly off of the political radar, joining things like gay marriage and marijuana legalization as fanciful thinking. I don’t know, maybe the Reagan Revolution had something to do with it? In any event, in the past few years, the notion has seen a renaissance. It has its own subreddit with 22,000 subscribers. It is the subject of more and more press. It is the darling of the techno-illuminati who correctly see it as a way to remove the fear of innovation and enable everyone to benefit from our movement into Abundance.

The idea is still far from mainstream, but it will be part of the zeitgeist before too long. And I believe that it is a key design element of a new monetary system.

One of the biggest challenges to a basic income is practical: how do we implement one in the current political and economic environment? There has been a lot of effort put into modeling different ways to structure taxes or rearchitect the welfare state to provide a basic income. But if we take seriously the power of creating and living within our own monetary system, then this problem resolves itself nicely.

In the Bitcoin system, money is created through an esoteric (and increasingly power intensive) algorithmic “mining” process. Run mining software and you “discover” new coins. In our current US dollar system, money is created through “bank issued debt”. Run a bank and you have the magic power to create new money in the form of loans. In an older system based on gold, money was created by digging it out of the dirt.

In our proposed new monetary system, money will be created by depositing it into the account of every citizen. This is simple and elegant. In fact, there already exists at least one cryptocurrency system that does it. It is a very powerful move. By anchoring basic income in the fundamental mechanics of how money is created, you simultaneously make a more robust and healthy monetary system and anchor a principal mechanism of Abundance deep in the bedrock of your social architecture.

Why would a monetary system based on basic income be more robust than our current approach (or older approaches based on something like gold)? Because money is a kind of sensemaking appratus that is effective (smart) precisely because (and largely to the degree that) it is decentralized.

Economies will always orient themselves around the centers of money creation and money will always benefit from concentration. If money is created by banks, then those kinds of economic entities that are most able to “get close” to banks and get access to their loans (e.g., finance, real estate, insurance and large corporations) will tend to hypertrophy and the money will concentrate into those channels. But if you structure your monetary system so that money is created at each and every individual in the economy, then you will have a system that is getting enough signal from everyone to really make the best sense of the world and, therefore, the best decisions.

I have heard two common critiques of the basic income that I would like to quickly address here:

“A basic income would be inflationary. If you give money to people, this will simply cause prices to rise in response to the increase in the money supply and, therefore, ameliorate the intent of the income.”

This could be true, but only if the new money created by the basic income resulted in an increase in the quantity (and/or velocity) of the money supply faster than the growth of the actual economy. If the economy grows faster than the new money creation (and velocity), you could actually have deflation. The real challenge, then is a standard challenge in any monetary system: how to elegantly balance the money supply with the growth of wealth in the economy so as to maintain stable and predictable prices?

There are many ways to elegantly avoid inflation that I won’t discuss here (but I do have a personal favorite). My suggestion would be to examine combining a differential geometric index number-based inflation algorithm with demurrage. This would allow you to precisely measure realtime price inflation and then to elegantly exit an appropriate amount of money out of the system on a pro-rata basis. If prices start to rise, the demurrage rate ticks up and some fraction of the overall money supply evaporates. Quite similar really to a steam release valve in a steam engine. An approach like this could provide a completely transparent and highly efficient path to long term price stability that requires little to no human intervention.

“If you give people enough money to survive without having to work, then they won’t work.”

This is my favorite objection because it is so easily addressed: precisely! Lets take a look back at The Coming Great Transition: we are all going to be unemployed; we don’t need everyone anymore; the obsolescence of the carrot and the stick.

Taking the opportunity of setting people free from having to work is the fundamental challenge and opportunity of the society of Abundance. The reality of 50, 60, 70% unemployment is coming round the mountain one way or another — a basic income can help make that a happy event rather than a tragedy. Of course, it doesn’t answer the question of what will people do when they are free? But that is a much deeper and more interesting question.

Now, of course, “dirty jobs” won’t go away all at once — but in an economy where everyone can choose not to do them, we might expect two wonderful results:

a) They will start being priced efficiently. Who really creates more value in the world, the jokers at JP Morgan who manipulate high finance, or the lady who comes in at night to clean all of the bathrooms and hallways? Well, we currently live in an economy where the bankers get paid millions while the hard-working cleaning lady gets to work two jobs in order to barely scrape by. In an economy where she gets a basic income, JP Morgan has a choice: either pay her enough to make it worth her while, or clean their own damn toilets.

b) And precisely because these dirty jobs will be priced efficiently, there will suddenly be a significant profit incentive for entrepreneurs to replace them. Lets say cleaning ladies go from making $20k a year to making $50k a year. This is a 2.5X increase in the size of the potential “cleaning robot” market. The whole point of a money system is to identify where people can contribute value to a society. Efficient pricing means a smarter economy.

Finally, I have run against two problems with a basic income that I would love to see be resolved:

1. What is the right amount for a basic income to be? It seems like there are two boundary conditions. On the one hand, an effective basic income needs to provide enough resource to remove people from fear. On the other hand, it cannot be so high that it fundamentally distort market functions.

2. How do we deal with national income inequality? A basic income of $3000 per year would be an incredibly empowering grant — even a windfall — throughout most of the developing world. But it would be nearly useless in the developed world. On the other hand, a basic income of $20,000 a year might be sustainable (efficient, effective) in the United States, but would clearly destroy the market signal on a global basis.