Some readers are very enthusiastic about the idea of a basic income guarantee.
Be careful what you wish for.
An important article in Vice discuses why Silicon Valley’s elite, which is dominated by libertarian thinking, has become keen about providing a minimum level of income to everyone.
The purported reason is to allow their favored class, “creatives,” have a greater ability to support themselves while they are coming up with the Next Big Thing. From the article:
One might not expect such enthusiasm for no-strings-attached money in a room full of libertarian-leaning investors. But for entrepreneurial sorts like these, welfare doesn’t necessarily require a welfare state. One of the attendees at the Singularity meeting was HowStuffWorks.com founder Marshall Brain, who had outlined his vision for basic income in a novella published on his website called Manna. The book tells the story of a man who loses his fast-food job to software, only to find salvation in a basic-income utopia carved out of the Australian Outback by a visionary startup CEO. There, basic income means people have the free time to tinker with the kinds of projects that might be worthy of venture capital, creating the society of rogue entrepreneurs that tech culture has in mind. Waldman refers to basic income as “VC for the people.”
In other words, the idea is to have the government act as a first-line incubator. Notice that the government does a lot of that already by funding health care and military research, as well as the national labs like Sandia. And as readers pointed out yesterday, private companies also used to fund a tremendous amount of basic research, with Bell Labs and Xerox Parc once the pride of their corporate parents, and later shuttered or considerably cut back when they came to be perceived as corporate luxuries.
And another big contributor to the risk of going out on your own is the weak labor market. It used to be that if you were a college graduate and took a year off to develop an idea, you could get a job again. You’d probably pay a cost for the career interruption but you wouldn’t be at risk of survival.
But who wants to be an entrepreneur? Seriously. If you can hold a job with any stability and you don’t mind the work and get on with your boss and co-workers, it’s a vastly better deal than running your own show. Now admittedly, situations like that are increasingly scarce. But being in business for yourself is almost a roll-back for the whole rationale of advanced economies: that of specialization. In a larger organization, the really good sales guy can mainly do sales, plus the unavoidable internal politics and bureaucratic tasks. The accountant can mainly do accounting, and so on.
By contrast, starting a business requires lots of skills, including selling, negotiating, having common sense about priorities, being able to size up potential backers and employees, being able to budget and manage funds. It’s a drag if you are really good at one particular thing to have to do all that other stuff, even if you are capable of it. Partnering up is one way of addressing that issue, but my observation across a very large sample of friends and colleagues is that it is remarkably hard to make partnerships work.
The payoff curve for entrepreneurship looks a lot like that of lines of employment that most parents would tell their kids to avoid: acting, playing sports, writing novels. Remember, 90% of all new businesses fail within three years. And like J.K. Rowling, A-list Hollywood stars, and football pros, the lure of the huge payoffs at the top end masks the steep falloff after that.
Admittedly, Silicon Valley has spawned a lot more fabulously and moderately wealthy than the entertainment industry, but the idea that a certain class of people might have more success in creating ventures with income guarantees is a stretch. The world has been awash in angels chasing people with promising tech ideas; they are even being courted at colleges. So this looks like a means to get the government to subsidize private sector activity that is not in any apparent need of subsidies.
And here is the real objective, to shrink government. Again from Vice:
Chris Hawkins, a 30-year-old investor who made his money building software that automates office work, credits Manna as an influence. On his company’s website he has taken to blogging about basic income, which he looks to as a bureaucracy killer. “Shut down government programs as you fund redistribution,” he told me. Mothball public housing, food assistance, Medicaid, and the rest, and replace them with a single check. It turns out that the tech investors promoting basic income, by and large, aren’t proposing to fund the payouts themselves; they’d prefer that the needy foot the bill for everyone else.
“The cost has to come from somewhere,” Hawkins explained, “and I think the most logical place to take it from is government-provided services.”
This kind of reasoning has started to find a constituency in Washington. The Cato Institute, Charles Koch’s think tank for corporate-friendly libertarianism, published a series of essays last August debating the pros and cons of basic income. That same week, an article appeared in the Atlantic making a “conservative case for a guaranteed basic income.” It suggested that basic income is actually a logical extension of Paul Ryan’s scheme to replace federal welfare programs with cash grants to states—the Republican Party’s latest bid to crown itself “the party of ideas.” Basic income is still not quite yet speakable in the halls of power, but Republicans may be bringing it closer than they realize…
If we were to fund basic income only by gutting existing welfare, and not by taxing the rich, it would do the opposite of fixing inequality; money once reserved for the poor would end up going to those who need it less. Instead of being a formidable bulwark against poverty, a poorly funded basic-income program could produce a vast underclass more dependent on whoever cuts the checks
I promised readers a write-up of a historical example of a nation-wide, two generation long basic income guarantee program this week, but you might not get the long-form treatment till next week. Without giving too much of the story away, its main results were to drive wages lower, since employers treated the income guarantee as a reason to pay workers less. Instead of having just WalMart and other employers who rely on government programs to bring inadequate wage rates up to a survival level, that type of corporate welfare would be extended and institutionalized. And another result was a widening of the gulf between the rich and poor, with the lower orders pauperized and deskilled and the rich and merchant classes regarding them with contempt. When this system was dismantled, the new laws put in place were draconian and turned large swathes of the public that had depended on support into beggars.
As Lambert points out, a basic income guarantee simply subsidizes consumption. It does not allow for democratic influence over the labor market. If you think any income guarantee level, even if it starts out as adequate, will remain so for any length of time, I have a bridge I’d like to sell you. Just look at how Social Security, which can easily have any long-term funding issues fixed with relatively minor tweaks like raising the cap on income subject to tax, is instead being stealthily gutted with ruses like chained CPI.
Ironically, the feature we often decry about indirect subsidies or housing programs, like food stamps or Medicare or subsidies for housing for the poor, that they too often do more for the corporate beneficiaries than their intended recipients, provides them with political support outside the sections of society that believe in social safety nets. Straight up transfers are much more vulnerable to being slashed quickly, as opposed to being reformulated over time to increase the looting-to-service-content ratio.
What the remnants of the American middle class fail to realize is how rapidly the gears of unfettered capitalism can grind down entire sections of society. As Karl Polanyi wrote in his The Great Transformation of early industrial England:
It was deemed an established fact that the masses were being sweated and starved by the callous exploiters of their helplessness; that enclosures had deprived country folk of their homes and plots, and thrown them into labor markets created by Poor Law reform and that the authenticated tragedies of the small children who were sometimes worked to death in mines and factories offered ghastly proof of the destitution of the masses….
Actually, a social calamity is primarily a cultural phenomenon not an economic phenomenon that can be measured by income figures and population statistics. Cultural catastrophes involving broad strata of the common people cannot be frequent; but neither are cataclysmic events like the Industrial Revolution – an economic earthquake which transformed within less than half a century vast masses of the inhabitants of the English countryside from settled folk into shiftless migrants. But if such destructive landslides are exceptional in the history of classes, they are a common occurrence in the sphere of cultural contact between different races. Intrinsically, the conditions are the same. The difference is mainly that a social class forms part of a society inhabiting the same geographical area, while cultural contact occurs usually between societies settled in different geographic regions. In both cases the contact may have a devastating effect on the weaker part. Not economic exploitation, which is often assumed, but the disintegration of the cultural environment of the victim is then the cause of the degradation. The economic process may, naturally, supply the vehicle of the destruction, and almost invariably economic inferiority will make the weaker yield, but the immediate cause of his undoing is not for that reason economic’ it lies in the lethal injury to the institutions in which his social existence is embedded. The result is a loss of self-respect and standards, whether the unit is a people or a class, whether the process springs from a so-called culture conflict or from a change in the position of a class within the confines of society….
The condition of some native tribes in modern Africa carries an unmistakable resemblance to that of the English laboring classes in the early nineteenth century…The description recalls the portrait Robert Owen drew of his own working people….telling them to their faces, cooly and objectively as a social researcher might record the facts, why they had become the degraded rabble that they were, and the true cause of their degradation could not be more aptly described than by their existing in a “cultural vacuum” – the term used by anthropologists to describe the cause of cultural debasement of some of the various black tribes in Africa under the influence of contact with white civilization.
Think of the core assumptions of what it means to be middle class in America, or the variants in other advanced economies. Among the beliefs were that education and hard work would be rewarded, that you had defensible property rights and could deal safely with merchants if you took reasonable precautions. If you attained a modest level of success, which included ownership of a home (except in Germany where by policy rentals have been kept affordable), you could also carve out a measure of security and form lasting social bonds in your community, and that local government was generally responsive to the needs of the community (yes, some corruption was inevitable, but it would not rise to the level of doing meaningful damage).
Readers can no doubt improve on this list, but you can see where I am going. When you hear Elizabeth Warren say how she is fighting for middle class families, some of her patter sounds anachronistic. That’s a sign that some of what she is trying to restore is irretrievably gone. For instance, she may succeed in stopping specific tricks and traps, but she can’t stand in the way of one-sided contracts that put consumers (notice, not “citizens”) in “heads you lose, tails I win” deals. And we can already see signs of deep dislocation in the widespread use of prescription medication, both anti-depressants, as well as performance-enhancing drugs like Adderall.
And the erosion of trust, in having good odds of getting a payoff from self-development and hard work, of being treated fairly at the workplace and in commercial dealings, is far more corrosive than you imagine. As Cathy O’Neil pointed out:
I’ve long thought that the “marshmallow” experiment is nearly universally misunderstood: kids wait for the marshmallow for exactly as long as it makes sense to them to wait. If they’ve been brought up in an environment where delayed gratification pays off, and where the rules don’t change in the meantime, and where they trust a complete stranger to tell them the truth, they wait, and otherwise they don’t – why would they? But since the researchers grew up in places where it made sense to go to grad school, and where they respect authority and authority is watching out for them, and where the rules once explained didn’t change, they never think about those assumptions. They just conclude that these kids have no will power.
With the gap between the super rich and everyone else only getting larger and larger, it’s a safe bet that corruption will be an even bigger growth industry than it has been in the last ten years and that the victimization of the lower orders will rise in lockstep. And the loss of trust and the loss of community have stripped many people of the faith and networks that would enable them to fight back, or at least considerably delay the march of what some choose to call progress.