Comment by Suncho
9 years ago
Hi Sam,
I hope you're ready for a wall of text. Had to break this into multiple posts...
I have several comments about what you're proposing, to the extent that I understand it.
> I think that every adult US citizen should get an annual share of the US GDP.
Right of the bat, you're starting with GDP, which is an inherently flawed measure of economic output. Namely, it gets imports and exports backwards. If you want to distribute incomes to people, it would be useful for the amount of the incomes to somehow line up roughly with the amount of stuff they'd able to buy with those incomes. The higher the potential imports, the more people can potentially buy.
As a thought experiment, we can imagine that foreign countries are analogous to firms that don't use any labor to produce what they produce. The output of the firms, of course, adds to total GDP. And the output of the countries subtracts from total GDP. This is despite the fact that the two are the same thing.
I've written a blog post about this: http://www.suncho.com/blog/20170616_gdp_is_wrong.html
> I believe that owning something like a share in America would align all of us in making the country as successful as possible
No. It wouldn't. The problem here is that you run into the tragedy of the commons. Everyone receives the benefit whether they happen to be contributing or not. This creates an incentive not to contribute because you're going to receive the benefit anyway. This is why communism doesn't work.
The good news is that we by and large don't need most people to contribute. So an incentive not to contribute might not be such a bad thing.
> the better the country does, the better everyone does
Yes. But the good news is that you really don't need to incentivize people to be involved in making the country successful. The innovations of the few can benefit the many.
> give more people a fair shot at achieving the life they want.
The idea that people should have to "achieve" the life they want is a little silly. We have to resources to give everyone an amazing life without them having to work for it. We're operating way below our productive capacity.
There's a Buckminster Fuller quote that I really like:
"We must do away with the absolutely specious notion that everybody has to earn a living. It is a fact today that one in ten thousand of us can make a technological breakthrough capable of supporting all the rest."
Figuring out how to embrace joblessness as a positive force for humanity is probably the most important social challenge we currently face.
I also wrote a blog post about this: http://www.suncho.com/blog/20150326_morality.html
> And we all work together to create the system that generates so much prosperity.
As I've said, we really don't need everyone to be working together. Furthermore, even if you really want people to be working together, your plan to doesn't incentivize us to do that.
> I believe that a new social contract like what I’m suggesting here--where we agree to a floor and no ceiling--would lead to a huge increase in US prosperity and keep us in the global lead.
When we distribute money to people (e.g. through a basic income), there's always going to be an amount that's optimal for social prosperity. I agree with you that it would be a mistake to put a cap on the amount of the basic income that's below what's socially optimal. I cringe every time someone says that the basic income should be exactly equal to the amount that pays for everyone's basic needs.
But it would also be a mistake to put a floor on the basic income that's above what's socially optimal. That being said, I think we have enough available resources that the optimal amount of basic income would be well above what most of the "basic needs" people are calling for.
> Countries that concentrate wealth in a small number of families do worse over the long term--if we don’t take a radical step toward a fair, inclusive system, we will not be the leading country in the world for much longer. This would harm all Americans more than most realize.
I mostly agree. If we flatten out the aggregate demand curve by providing an evenly distributed income to everyone, then that increases quantities demanded of many of the things we produce and allows us to scale up production. This gives more people more access to more wealth.
> Today, the fundamental input to wealth generation isn’t farmland, but money and ideas--you really do need money to make money.
Hmm. Sort of. Even today there are resources we use that are factors of production that aren't farmland, but that are analogous to farmland. And we still have farmland, of course. Technological improvement allows us to use such resources more and more efficiently with time. Our overall productive capacity increases with time. We also have financial resources and we can certainly make money out of money.
But then another important factor is demand. We're not going to generate (i.e. produce) wealth if nobody's going to buy it. Our technology can improve all it wants, and our productive capacity can go through the roof. If people don't have the incomes to pay for all this stuff, it won't matter.
As far as ideas go, I'm not sure how important they are. Ideas are a dime a dozen. There are no new ideas on the face of the planet (except of course for my ideas, which are unique and special). Execution on ideas can be great. Innovation can be great. But as long as we're constrained by demand, none of that is going to help. Demand is our bottleneck. By focusing attention elsewhere, we're prematurely optimizing a part of the code that isn't going improve performance.
> American Equity would also cushion the transition from the jobs of today to the jobs of tomorrow.
Huh? Are you saying that if everyone had an income it would give them the freedom to work on things that are actually going to matter?
> Automation holds the promise of creating more abundance than we ever dreamed possible, but it’s going to significantly change how we think about work.
It depends on us significantly changing how we think about work.
> If everyone benefits more directly from economic growth, then it will be easier to move faster toward this better world.
Yes.
> The default case for automation is to concentrate wealth (and therefore power) in a tiny number of hands.
Yes. If we rely on wages for people's incomes and production is constrained by consumer spending levels, then the result of automation is necessarily a reduction the amount of wealth we produce. And the people who do have access the the wealth are the ones who somehow still have sufficient incomes to purchase it.
> America has repeatedly found ways to challenge this sort of concentration, and we need to do so again.
Yes. But it's been pretty ugly so far. A lot of it involves contorting the labor market in an attempt to get somewhere close providing people with sufficient incomes through wages. I hope we can do better in the future.
Part 2 of my feedback:
> The joint-stock company was one of the most important inventions in human history. It allowed us to align a lot of people in pursuit of a common goal and accomplish things no individual could. Obviously, the US is not a company, but I think a similar model can work for the US as well as it does for companies.
If the joint-stock company actually depended on their shareholders in order to be successful, then you'd have the same problem with the tragedy of the commons. But it doesn't. The shareholders and the workers at the company are different but overlapping sets of people.
What the joint-stock company really did was it allowed you to bet on the success of the company. And it allowed you speculate by betting on the price of the stock, which wasn't always the same thing. Unless you have a really high stake in the company, if you think the stock price is going to drop, the incentive isn't to improve the company. It's to sell the stock.
Your plan feels like it's trying to achieve something different.
> A proposal like this obviously requires a lot of new funding [1] to do at large scale
Depends what you mean by "new funding." There's no reason (except politcal) why we can't fund people's incomes by running higher government deficits.
> [1] It’s time to update our tax system for the way wealth works in the modern world--for example, taxing capital and labor at the same rates.
I'm not sure how useful it is to think of taxation as a way to fund spending. The amount of money the government should spend for optimal benefit to the economy has very little to do with the amount of money they take in through taxes. If you can deficit spend without causing inflation, then you should do it. Taxation just makes things more complicated.
Taxation is useful if you actively need to remove money from the economy to combat inflationary pressure or to conserve resources. But as far as inflationary pressure goes, the Fed still has a ton of room to raise interest rates and shrink the private financial sector, which is where most of our money flow comes from these days anyway.
The private debt that we rely on is also very unstable. It consists of a brittle web of interconnected debt obligations that grows more fragile with time as it builds up. So a deficit-funded basic income can help stabilize the economy and prevent 2008 from happening again. You're replacing unstable money backed by private debt with stable money backed by government debt. The decision to deficit spend is not a choice between debt or no debt. It's a choice between public debt or private debt.
And if you're distributing the new money to everyone evenly, instead of people with money getting more money to spend on stuff they already buy, people without money are getting more money tospend on new stuff. This creates an incentive for producers to produce more rather than to raise prices. Because of this effect, a deficit-funded basic income might not cause very much inflationary pressure in the first place.
> And we should consider eventually replacing some of our current aid programs, which distort incentives and are needlessly complicated and inefficient, with something like this.
Sure. But I think you can introduce the basic income first. Then, we might eventually realize that some of these other programs have become entirely pointless.
> Of course this won’t solve all our problems--we still need serious reform in areas such as housing, education, and healthcare. Without policies that address the cost of living crisis, any sort of redistribution will be far less effective than it otherwise could be.
I'm not so sure about that. A basic income would allow people to live in cheaper places because they don't need to be as close to jobs. That, in itself, can take pressure off housing prices. But it's because housing prices in currently-expensive areas won't really matter as much anymore. It will become far more okay not to live there.
The biggest problem with education is that it's too tied to the labor market. If people don't have to worry about educating themselves in a very specific and restricted way just in order to survive, then that takes the pressure off tuition prices. If people are free to eductate themselves by exploring on their own, following their natural curiosity, and making use of free online resources (which are only getting better and better), then that takes demand away from colleges.
As far as healthcare goes... hmm. Yeah. Healtchare is a problem. I have a lot to say about healtchare, but I won't say it here because this post is already way too long.
> but I think we could start very small--a few hundred dollars per citizen per year--and ramp it up to a long-term target of 10-20% of GDP per year when the GDP per capita doubles.
I like the idea of gradually ramping up a basic income. You'd just keep ramping it up until the additional increases stop providing additional benefit to society. And, of course, as technology improves, the optimal amount of the basic income would increase.
However, we really need to let go of tying it to GDP. Even if we had a more sane metric of economic output than GDP, the basic income necessarily changes the level of economic output. As people get more money, we will produce more stuff for them to buy.
> I have no delusions about the challenges of such a program. There would be difficult consequences for things like immigration policy that will need a lot of discussion.
Immigration is really interesting, at least with respect to a basic income. Because if we opened up immigration and provided all the immigrants with basic income, that would provide a huge boost in demand. Plus we'd have more human minds living right here in America. And the human mind is, of course, the most valuable resource. Basic income plus open immigration is a very powerful combination.
> We’d also need to figure out rules about transferability and borrowing against this equity.
Yeah... This equity thing doesn't really make that much sense. Straight up cash would be a lot simpler.
> And we’d need to set it up in a way that does not exacerbate short-term thinking or favor unsustainable growth.
Yup. This brings us back to resource conservation again. We can achieve resource conservation by taxing the use of those resources we want to conserve.
> However, as the economy grows, we could imagine a world in which every American would have their basic needs guaranteed. Absolute poverty would be eliminated, and we would no longer motivate people through the fear of not being able to eat.
Yes.
> In addition to being the obviously right thing to do, eliminating poverty will increase productivity.
Yes. It would increase productivity primarily by giving people more money to spend, which would induce more production. It might also reduce the total amount of labor we employ. More production and less labor means more labor productivity. But I don't think that labor productivity should be a goal in itself. Higher productivity is merely a consequence of achieving production while also using less labor.
> American Equity would create a society that I believe would work much better than what we have today. It would free Americans to work on what they really care about, improve social cohesion,
Replace "American Equity" with deficit-funded basic income and I'm sold.
> and incentivize everyone to think about ways to grow the whole pie.
Nope. Not this part (for reasons stated above).
So there's your feedback. I hope this was helpful.
Cheers!