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Basic Income Guarantee: It’s Coming!

By Shlomo Maital  

 basic-income

     President-elect Trump promised many things in his election campaign. One of his promises was to restore the lost jobs of steelmakers in Pennsylvania and coal miners in West Virginia. Many doubt that this can be done. U.S. workers are more costly, and less productive, than those in other countries, in steel and in mining. If Trump protects them with high tariffs, other countries will retaliate, and everyone will lose as trade declines.

     America, Europe and virtually all nations have to face a hard fact. Many jobs are being destroyed, not by trade, but by technology. Robots will be able to do half of all existing jobs in a decade or two, according to research by Oxford University experts.   What then do we do about it?

     Switzerland and Finland have already held referendums on paying a cash grant to all citizens, as a kind of living wage. If the economy cannot provide jobs for people, then it must give them enough income to live on. There is no choice.

       Writing in the New York Times, Nov. 14 (“Handouts with a twist”), leading behavioral economist Robert H. Frank offers a concise analysis.

       Historically, social welfare legislation arose only when countries landed in deep hot water. For example, American social security was signed into law by President Franklin Roosevelt in 1935, at the depths of the Great Depression, with millions jobless and suffering. Unemployment insurance in the United States originated in Wisconsin in 1932 and quickly spread to state governments, for the same reason (unemployment at its worst was 25% in the U.S.). People were starving.

       Will it take a similar crisis to countries to enact the cash grant plan?

       Frank recalls that right-wing (Republican) economist Milton Friedman, a Nobel laureate in 1976, advocated a negative income tax, basically an income guarantee.   Friedman advocated a grant of $25,000 for a family of four, just above the poverty line. Frank proposes just such a grant, combined with “subminimum wages for performing useful public sector tasks”.

     This is simply an adequate social safety net. The U.S., and many countries, lack one at present. The result is immense suffering, especially for children of poor families. This is directly responsible for Trump’s election.

     But Frank is very practical. “Policies we adopt must be palatable to voters in the middle – the people who make significant sacrifices to earn the incomes we tax, to pay for social welfare programs.”   These voters would react angrily at the polls to efforts to pay money to able-bodied people who do not work. These are Trump voters.

     Frank thinks such cash grants, if they are small enough and combined with public service, could pass. The question is, will they be implemented before a deep crisis, or during and after?

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Freedom? Or Security?  Do We Have to Choose?

By Shlomo Maital    

Freedom Security  

  A Pew Global Attitudes survey asked this question, a few years ago:

   Which is more important?

     Freedom to pursue life’s goals without state interference, or

    State guarantees that nobody is in need.

  The results:  58 % of Americans chose freedom; only 35 % chose security. 

  In Britain it was the opposite.  Some 55% chose state guarantees, and 38 % chose freedom.  In Germany, France and Spain, 62 % chose state guarantees.

  Here, in a nutshell, we have the reason why America has a great deal of entrepreneurial energy, and enormous social and economic inequality.  And why Europe has a terrible dearth of entrepreneurial energy, and strong infrastructure and social safety nets. 

    In his New York Times column, Roger Cohen even goes so far as to blame America’s obesity on the choice of ‘freedom’.  Taxing sugar-laden drinks would never fly in America.  Raising gas taxes is a non-starter, even though the U.S. highways are crumbling. 

    Benjamin Franklin, that creative entrepreneurial American who invented public libraries and many other things,  spoke up for freedom, in 1776.  At the time, he was right.  America’s democracy had just been born.  As a new-born baby, it needed strengthening.

   But today?  My question is —   Are “freedom” and “social safety net”  really, necessarily, perforce  “Either-Or” choices?   Must we choose?    Are there examples of nations that have both?

    Take Denmark, a very well off, prosperous European nation, wisely not part of the Euro block,   which has very high taxation,  superb social safety net and security, and a great deal of innovation and entrepreneurship.  If entrepreneurs truly seek to create value, rather than become billionaires, they will not be deterred by high rates of taxation that generate revenues to support the safety net.  If the wealthy earn 8 per cent on their wealth after-tax, park their money in tax havens,  while the middle class barely earns 1 or 2 per cent,  is it not reasonable to allow the middle class access to the same privileges, the same 8%?

    No, “freedom” and “social safety net” are not either/or. They are only if we believe they are.  Freedom and social safety net CAN BE both/and.   That is how it should be.  Now, the question, is, how do Europeans gain more entrepreneurial freedom without ruining their safety net, and how do Americans get a proper safety net without ruining their entrepreneurial energy.  It’s NOT that difficult!

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
August 2019
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