Why a Basic Income will Eventually be Needed

Sometimes an entire region can have an economy dependent on one industry; and sometimes an entire town can be born of a single employer. And if the biggest job creator leaves town, so do most of the jobs. What happens to all those unemployed workers who were left behind? What happens after a factory closes (one that may have employed half the town) when the company's production is moved overseas for cheaper labor? Who would be left to spend money at the local grocer, the gas station, the barber shop or at the local tavern? How do all those unemployed workers sustain themselves if no other employers move to town and rehire them? An entire town that was born of a single employer can also die because of a single employer.

Some people call this creative destruction — creating excessive wealth for a few by destroying sustainable wealth for the many. That's why a Basic Income will eventually be needed. According to data from the Bureau of Labor Statistics, from the first quarter of 2001 to the end of 2012, the U.S. has lost 64,037 manufacturing facilities. It's no secret as to what happened to all these American jobs.

There are two (of many) debates currently raging between economists right now. One is about quantitative easing and its effect on inflation and the labor market, and the other is about the possibly of a Basic Income proposed by a few Libertarians (and others) to replace our social safety nets (aka "welfare programs").

The biggest connection between these two unseemingly related debates is consumer spending. Can you imagine what the U.S. economy would look like today without any government spending at all — which is made possible by taxation, with the bulk of the revenues going to Defense and Social Security?

From the Center on Budget and Policy Priorities (March 2014):

"In fiscal year 2013, the federal government spent $3.5 trillion, amounting to 21 percent of the national Gross Domestic Product, or the total value of goods and services that a country produces in a year. Of that $3.5 trillion, nearly $2.8 trillion was financed by federal revenues."

In a recent post titled "Libertarian Fantasies", Paul Krugman takes issue with a piece titled: "Has the 'Libertarian Moment' Finally Arrived?". Krugman also refers to two other posts titled: "No, America Is Not Turning Libertarian" and "The Pragmatic Libertarian Case for a Basic Income Doesn't Add Up" (Editor's note: I recommend that you read all of the aforementioned articles to get a general understanding of the debate.)

Here are some blurbs from Krugman's recent post:

"As opposed to surveys conducted by libertarians seeking to boost their own profile — young Americans are actually much more pro-government than their elders. They [young Americans] may look relatively kindly on anti-war libertarians, but they really don't support the [Libertarian] policy agenda."

"When it comes to substance, libertarians are living in a fantasy world. Often that's quite literally true: Paul Ryan thinks that we're living in an Ayn Rand novel. More to the point, however, the libertarian vision of the society we actually have bears little resemblance to reality."

"The cost of bureaucracy is in general vastly overestimated. Compensation of workers [for those that administer our government program] accounts for only around 6 percent of non-defense federal spending, and only a fraction of that compensation goes to people you could reasonably call bureaucrats."

"Libertarianism is a crusade against problems we don't have, or at least not to the extent the libertarians want to imagine. Nowhere is this better illustrated than in the case of monetary policy, where many libertarians are determined to stop the Fed from irresponsible money-printing, which is not, in fact, something it's doing."

* It's also worth noting that some people such as John Stossel on Fox News (and other Libertarians) promote Bitcoins as a way to avoid federal taxes — which currently funds 21 percent of the national Gross Domestic Product.

Printing Money: Simply put, the Fed prints money because the top 0.1% and large American corporations hoard their profits, rather than paying better wages to their employees and reinvesting in America. (See this speech by the billionaire job creator Nick Hanauer: Beyond the Dreams of Avarice.)

Because so many American companies offshore jobs, when American businesses do invest (such as for upgrades and expansions), too many times they have to purchase equipment that is manufactured overseas — and/or they'll offshore more jobs when hiring additional employees — and/or use contract manufactures in Asia, such as Nike and Apple have been doing for many years (whose products will be reclassified as U.S. GDP, rather than as imports, to artificiality boost our GDP stats and artificially lower our trade deficit.)

So U.S. investment goes overseas, shrinking our money supply (M-1), because the money isn't being properly and fairly re-circulated throughout our own economy (just like a lot of our currency also goes to foreign drug kingpins and oil cartels — just like our troops, who are stationed overseas and spend their paychecks in those local economies, just like direct foreign aid — or when we are forced to buy goods that are manufactured in foreign countries, further raising our trade deficit.)

When the Fed "prints money", they are creating digital dollars out of thin air — and this is what the "inflation debate" is currently about (devaluing the dollar, raising prices and stifling job creation.) That money goes from our central bank (the Fed) to commercial banks at 0% interest. The commercial banks, when they don't invest in other ventures, buy U.S. Treasury bonds. The yield on 10-year U.S. Treasury notes briefly dropped below 2.4% for the first time this year...but it's still more than 0%. The commercial banks can make profits (and pay themselves bonuses) on the backs of taxpayers for doing absolutely nothing but for moving digital dollars from one account to another. (See this post about quantitative easing on this subject.)

And then there's also the bank bail out: There are many people (both Progressives and Libertarians alike, and even a few Republicans) who feel that that money would have been much better spent by giving underwater mortgage holders some debt relief, such as by refinancing their homes at much lower interest rates, rather than giving away a huge financial bonanza to the big banks without any strings attached.

But with quantitative easing, this is one of the few areas where some people greatly disagree with Krugman: The billions we gave to the commercial banks did not "trickle down" to create jobs for Americans, but only fattened the profits of the banks — and at the consumers' expense with the cost of commodities, goods and services (e.g. price manipulation and interest rate manipulation, not to mention credit default swaps and sub-prime mortgages.) And why can't consumers go to the Fed window for the same 0% loans for their college tuitions, cars and homes?

Here's another recent post addressing the aforementioned posts titled: "Basic Income is good because it's basic"

"By endorsing Basic Income, libertarians are walking right into a trap. As things stand, the fragmentation of our redistribution programs makes it easier for the anti-redistributionists to punch holes in the safety net. If the fragmented system were replaced with one universal, high-profile program, the result would be a huge political gift to redistributionists. Libertarians will eventually realize this, and their tentative support for Basic Income will vanish. But pro-redistribution liberals should not be so quick to dismiss the idea just because it came out of the mouths of their opponents in a moment of confusion."

A Basic Income might not be so far fetched as we was once imagined it might be. With the exponential use offshoring, automation, robots and computers (etc.), there just might not be enough jobs in the future for everyone to earn a living in the aftermath of the Technological/Information Age — unlike after the birth of the Industrial Age with the inventions of steam engines and the internal combustion engine. How will people subsist if they have nothing to do — or if no one to pay them for doing anything? The decline in the labor force participation rate and the population-to-employment ratio has been steadily declining for years, as has the number of people NOT in the labor force has also greatly increased (that's how the unemployment rate has been going down). We've had 11 million more people NOT in the labor force just since the end of the recession in June 2009. And a further decline in the labor force has been predicted well into the future by the Fed, the Bureau of Labor Statistic and many economists.

Today the U.S. already has millions of people who want a job and an income, but have neither. Add to that, more immigration. If America's corporations (and the top 0.1%) won't provide enough jobs and/or pay living wages, they might have to instead be taxed for a Basic Income for all those they left behind with their "creative destruction". Today's "captains of industry" (aka "business leaders" aka "job creators") have moved the U.S. economy away from Stakeholder Capitalism to Shareholder Capitalism.

Here is an interesting article by Robert Reich (August 9, 2014) that makes note of this shift in corporate governance over the last several decades: "The Rebirth of Stakeholder Capitalism?" (In the old days, what was good for the company may have also been good for the employee — but not anymore.)

Krugman: "We may be witnessing the beginning of a return to a form of capitalism that was taken for granted in America sixty years ago. Then, most CEOs assumed they were responsible for all their stakeholders. What changed? In the 1980s, corporate raiders began mounting unfriendly takeovers of companies that could deliver higher returns to their shareholders — if they abandoned their other stakeholders."

Shareholders and Stakeholders Defined:

A "shareholder" (or stockholder) is an individual or institution (including a corporation) that legally owns a share of stock in a public or private corporation. As an example: One can own one stock in IBM just as Goldman Sachs can hold one million shares of IBM --- and both are "shareholders" and considered part-owners of the company. Of course, Goldman Sachs (as an institutional investor and much larger shareholder) could also have one of their own corporate directors sitting on the other company's board of directors (as many do), and will have much more influence in how the company is managed and what to pay their CEOs, directors and employees — and what to pay their shareholders in the form of dividends on their stocks (if dividends are offered by the company).

A "stakeholder", on the other hand, is a person or group of people that can also be affected by the company's actions and governance. Stakeholders can also be shareholders (owners), but other stakeholders can be the company's employees, managers and directors, creditors, branches of government (and its agencies), suppliers, labor unions, and the community at large from which the business draws its resources, such as workers and infrastructure. They all have a "stake" in the company, but don't legally own a "share".

One of the great urban myths in American business history is that the head of GM once said, "What's good for General Motors is good for America." That was when the whole country once had a "stake" in GM. Nowadays it seems, taxpayers take all the risks, but rarely share in the rewards. If a company succeeds, the owners benefit. If it fails, the taxpayers take the hit. (Google "crony capitalism" and "corporate welfare" for some other examples.)

President-elect Dwight D. Eisenhower's decision to tap former GM President and CEO Charles E. Wilson (aka Engine Charlie) for Secretary of Defense in late 1952 shocked Washington. GM was one of the largest suppliers to the Defense Department, so many lawmakers called on Wilson to shed his GM shares (so there would be no conflict of interest, no appearance of impropriety, and that no decisions he made while in office would appear unethical or illegal related to his GM stock.)

In a closed hearing on Jan. 15, 1953, Wilson defended his investments in GM (and his own integrity) by saying he never could have risen to the top of GM if he had been crooked. Senator Robert Hendrickson (R-N.J.) asked whether, given his investments in GM, if he could make a decision that would hurt the company. Wilson's actual reply was:

"I cannot conceive of one, because for years I thought what was good for our country was good for General Motors and vice versa. The difference did not exist. Our company is too big. It goes with the welfare of the country." (That was then, this is now. In 1953 GM had more employees than the populations of Delaware and Nevada combined. In 2009 taxpayers bailed them out, and the workers took a hit. Last April Reuters reported that the taxpayers also lost $11.5 billion on that deal. And this year GM had as many as 26 million recalls.)

Today, American corporations have no real sense of "community" to this country — they are now "global" multi-national corporations — they have no borders or a sense of duty or patriotism to America Many shareholders are foreign institutional investors, and by proxy, participate in our elections because our Supreme Court said, "Corporations are people my friend." Today, the American corporation's sole purpose is profits for shareholders --- foreign and domestic (which include the CEOs and other company executives with stock-option grants). And may the stakeholders be damned. That's why the U.S. may eventually need a Basic Income for all its citizens.

Asia was once the new "emerging market", but in the near future Africa may well be. And just like in 1492, America may once again be a new emerging market after all the jobs are gone and we are reduced to working for next to nothing so that the corporate shareholders can obtain a maximum return on their investments. In the mean time, ordinary Americans will need a Basic Income, just to survive.

Remember the hoarding? From the Conversable Economist:

"It's easy enough to hypothesize explanations as to why so many large-denomination bills are in circulation, but the truth is that we don't really know the answer. It probably has something to do with the extent of tax evasion or illegal transactions, or a need for secrecy, or a a fear of other wealth being expropriated. Adding up the value of the large-denomination bills in the U.S., Europe, and Japan, the total is in the neighborhood of $3 trillion. I find it hard to avoid the conclusion that there are some extraordinarily large stashes of cash, in the form of large bills, scattered around the world..."

* The links in this post (and the ones below) are just a handful in the most recent discussion on the subject of a Basic Income --- there may be hundreds. But consider this: Just the mere fact that so many serious people are seriously discussing the possibility of a Basic Income tells us that something is seriously wrong with our present economy. After all, currently 50% of the global wealth is held by just 1% of the world's population.

Other Posts on the Pros and Cons of a Basic Income

• The Atlantic (August 2014) The Conservative Case for a Guaranteed Basic Income: Creating a wage floor is an effective way to fight poverty --- and it would reduce government spending and intrusion.
• Basic Income News (August 2014) Giving everyone a basic income would work for the same reasons Social Security does.
• Washington Post (July 2014) The most conservative way to fight poverty is to send everyone a government check.
• The Week (July 2014) Progressives' hot new poverty-fighting idea has just one basic problem: Science
• VOX (July 2014) A guaranteed income for every American would eliminate poverty, and it wouldn't destroy the economy.
• Pacific Standard (July 2014) Universal Basic Income: Something We Can All Agree on?
• Salon (March 2014) Five reasons to consider a no-strings-attached, basic income for all Americans
• PBS (April 2014) How a basic income in the U.S. could increase global poverty: Liberal economist is against the basic income because she thinks people need those specific federal programs.