by Serban V.C. Enache.

@SerbanVCEnache http://serbanvcenache.blogspot.co.uk

As Corbyn’s Labour grapple to establish an economic identity. Serban V.C. Enache outlines the main tenets and disputes between Universal Basic Income and Job Guarentee schemes, shedding an informed light on which option may be favourable to Corbyn and McDonnell’s economic strategy in 2020.

Labour Shadow Chancellor John McDonnell has hinted at including Universal Basic Income in Labour’s 2020 Manifesto

I see some folks engaging in sermons like “People without jobs are not free”, and “Work is a blessing.” The UBI supporters believe that toil is a curse. It’s a big difference between these two words (work & toil). However, nobody is against people doing work, serving each other, opening up firms, hiring people etc. The UBI doesn’t hinder people from going out to work. Those who like volunteer work will have more freedom to do it. Those working minimum wage jobs & working long hours, who shoulder a lot of physical & psychological stress, are going to have their situation augmented. It increases labor’s bargaining power. Money velocity will be raised at healthier levels. Even if say 10% of the workforce decide to become “bums”, the technology level (and its productivity) is more than enough to cover them. People operating manufacturing plants, computers, health services… these people won’t be content to stay at home, doing nothing on the UBI. The UBI (which doesn’t make you rich) needs to be viewed not as a Government handout, but as a social dividend – the result of society’s gains in technological progress & productivity.

And this idea that if somehow you introduce UBI & it creates bad effects to the economy that Government won’t be able to get rid of it is nonsensical. Look what they did to Greece. Look throughout the Periphery and see what neoliberal politicians have done. They cut pensions. They increased VAT. They increased income taxes. They increased the retirement age. They privatized public assets and laid off workers. They cut social safety net programs. Why? Because government deficit & debt levels went over arbitrarily defined ratios. A completely natural symptom of private debt deflation, households seeking to deleverage – and they can only deleverage if either the foreign sector or the government sector increases its debt (or both). The simplest, safest, and quickest solution is for the government to operate with higher negative equity in the downturn.

Now, I would like to point out the empirical results of Dauphin Canada, in which a UBI experiment was carried out. Economist Evelyn Forget of University of Manitoba conducted an analysis of the Dauphin experiment in 2009 which was published in 2011.The paper is titled The Town With No Poverty.

“MINCOME, a Canadian Guaranteed Annual Income (GAI) field experiment ran in the province of Manitoba between 1974 and 1979, and ended with no final report and no analysis of data from the saturation site. This essay uses a quasi-experimental design and routinely collected health administration data to revisit outcomes for the saturation site. We found a significant reduction in hospitalization, especially for admissions related to mental health and to accidents and injuries, relative to the matched comparison group. Physician contacts for mental health diagnoses fell relative to the comparison group. A greater proportion of high school students continued on to grade 12. We found no increase in fertility, no increase in family dissolution rates and no improvement in birth outcomes. Our results document the value of health administration data for historical analysis, and demonstrate that a relatively modest GAI can improve population health suggesting the possibility of health system savings.”

For those who claim that the UBI has a built-in inflation mechanism because of its design, I haven’t found in the articles I read about the UBI a single paragraph that talked about indexing the UBI with inflation. I would like to touch on minimum wages now. Norway, Switzerland, Denmark, Iceland don’t have a minimum wage, but they have good social safety nets (money velocity at the bottom).

The Job Guarantee, which I support, has a conundrum. If we don’t want it to compete with private sector jobs, then it must provide jobs that the private sector is not interested in carrying out; but if the JG pays a higher wage than the minimum wage, it WILL destabilize private sector employers. And I’m not concerned about big companies who can cover the costs, but I am concerned about small businesses and cooperatives not being able to. I am much more in favor of payroll tax rebates. I favor minimum wage increases too, but I prefer that be left in the hands of the local governments & be accompanied by reductions in fiscal drag. It’s easy to get lost in the macro picture & not care about the micro one; but that means ignoring a lot of people.

Realistically speaking, someone who might, under a UBI, just sit at home and refuse to work. How is he inflationary? And someone who goes to the JG and obtains the same paycheck for, say, reading to the blind (a very noble activity) is not inflationary? Or easing inflationary pressures? Answer, they’re not. The CPI stays the same. Someone who just sits at home, not bothering anybody doesn’t make the CPI rise. Someone reading for the blind, clearing out garbage, or building swings for kids in the JG is not making the CPI rise, or fall either. People say the JG is a price anchor. They say it’s a better price anchor than the NAIRU (the non-accelerating inflation rate of the unemployed), which is a deliberate policy of keeping a certain % of the population in a state of permanent & involuntary unemployment in order to keep the economy from ever reaching full capacity. Unless you’re putting people in the JG to produce things like food, fuel, and electricity, the JG is NOT a real price anchor. And if you do put people to produce such things, then the JG is actively competing with private sector employers – which is counter to the official aim of the program, so say its authors.

Disagreement around potential Inflationary effects remain a prominent aspect of the debate

Those who sermonize that the UBI is guaranteed to be “inflationary & dangerous” start from an invalid premise. The value of the currency needs to be understood on average (i.e. the average amount of labor power being commanded by a unit of the currency, economy-wide), not at the margin – like these people insist. A lot of productive activity occurs outside the workforce and a lot of unproductive activity occurs within it. But by the marginalist logic on currency value, there should already be hyperinflation because some people are getting an income outside of a job. Measured at the margin, the value of the currency is already zero. Now, if the UBI as a policy proposal gains momentum, let it pass into law. If it’s bad for society/the economy, lower the guarantee or abrogate the program. And like I stated earlier, this CAN be done.

If people are really scared of inflation & afraid that the UBI will make output very inelastic, let’s tackle the beast’s many hearts. Abolish patents. Regulate the banking sector on the asset side to serve, not sabotage public purpose. Cease taxing labor & man-made goods. Focus on taxing land & capital gains. Invest today in education, in the creation of capital goods, and in the implementation of eco-friendlier technologies to replace antiquated ones in order to have a future worth living in. Our children won’t be burdened with higher taxes, instead they’ll be burdened with a poorer economy, with a less bright society, and with a far more decayed environment if we don’t act in the present to bring about a better future.

In short, I am in favor of experimentation. That creed which is against experimentation (in this case, experimenting with the UBI alone) is not a creed worth following. That’s my opinion. I am not an economist. I’m not an academician. I’m just a pleb from Romania. A famous person (J.M. Keynes) said that when the facts change, I change my opinion. If the empirical results (on a nation-wide scale) will prove me wrong, then I will change my opinion regarding the UBI. I fear, however, that some of its opponents are so stubborn that even if the UBI will prove to have positive or neutral effects, they will still sing their song of venom towards it. So pass it into law, and we’ll see what the dice read.

If you wish to contribute a similar piece covering contemporary economic and political events or left wing politics in general. Please contact James Clark at: @jclarkpolecon jclark.jc96@gmail.com

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