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Economics & Finance

How Universal Basic Income Could Save Capitalism

How Universal Basic Income Could Save Capitalism

A viable democratic social system must not allow a “winner takes all” approach.


Long before Covid-19 hit, faith in capitalism was faltering. The global recession of 2008 highlighted the growing gulf between the haves and the have-nots in developed economies. Soon after, the rise of China’s state-managed economy challenged the hegemony of unconstrained free markets.

In the United States, the surging pandemic has sent inequality into overdrive. American billionaires have grown 20 percent richer, as unemployment has soared to record levels. It remains to be seen just how much of this cognitive dissonance the system can sustain before spinning into total chaos.

How did we get here? My new book, On Capitalism and Inequality: Progress and Poverty Revisited, traces our troubled moment to a series of actions and decisions spanning nearly 50 years. The history is too involved to summarise here – I provide a condensed description in this INSEAD Knowledge podcast devoted to my book. Suffice it to say that starting in the 1970s, the more benign aspects of capitalism – honest competition, a free market held accountable to human needs, a bracing element of entrepreneurial risk – retreated as Wall Street speculation came to the fore, heavily weighted in favour of those who already had a firmly planted stake in the system.

Dr Jekyll capitalism, for all its flaws, tended to reward hard work, talent and gumption. The Mr Hyde variety could be likened to a cutthroat game of poker from which most of us have been excluded through sheer financial force. Today’s capitalist economy coddles the card sharks at the top, allowing them to walk away with the vast majority of their winnings untaxed and, when they lose, using taxpayer-funded bailouts to make them whole. As more and more resources end up in the hands of a few, the game itself (i.e. capitalism) is in danger of becoming a formality, a pretext for oligarchy, if social unrest does not end it first.

More money in the system

The way to keep the game going is to put more money into the system. This can be done in several ways. One way is to tax the rich, as almost all social democrats still advocate. The problem is that (surprisingly to the advocates) taxing the rich is both unpopular and ineffective.

The next option for injecting more money into the game is to borrow and/or “print money” (economists call it “quantitative easing” or QE) and hope that the increased consumption resulting from lower interest rates will generate enough economic growth to compensate for the inflationary effect. This gimmick worked in the US for a few years, even though the banks that got the money did not use it to increase lending to small businesses. Instead the benefits of QE went to the hedge funds and private equity funds, so most of the benefits went to the rich after all.

It is time to consider another way of getting money into the system, without funnelling it directly through the banks to the wealthy. It is an old idea, called the negative income tax (Friedman) or Universal Basic Income (UBI). Among the many versions of redistributive tax that have been proposed, in the past, one that keeps popping up in the discussion, is the single tax (impôt unique) on land. Such a tax has been proposed over the centuries by many luminaries – in the 17th century by Baruch Spinoza and John Locke; in the 18th century by the French physiocrats; and more recently by Henry George in the 19th century. George’s basic argument was that wealth produced by work should be owned by the worker, whereas wealth from land ownership should be allocated equally to all, as a source of universal income. His tax on land was proportional to the area of land involved (i.e. wealth), not income.

Four reasons for UBI

Guy Standing, who has been ploughing this academic field for 30 years, says that there are three basic reasons for embarking on a UBI program. The first is what he calls “social justice”. This means recognition that everyone living now, no matter their degree of personal economic success, owes most of it to those who came before. Today’s billionaires did not create most of their wealth, they only acquired it.

Standing’s second reason is that people – regardless of income – should be free to make their own decisions in regard to money, free of arbitrary conditionality and coercion from hierarchical “superiors” or faceless functionaries. 

Standing’s third reason is the need to provide basic security, as a human right, harking back to Thomas Paine. I agree with that argument, notwithstanding the fact that some undeserving people will be modestly rewarded, at something close to subsistence level, for not working. That is the price of progress.

I also think there is a fourth reason: national security. I think UBI is the only practical way of reversing the current trend toward extreme economic inequality. If this trend continues much longer, the social and political consequences will be not only very bad, but irreversible.

Need more reasons for UBI? In my view, there is also a compelling moral justification. Milton Friedman’s view of capitalism (refuted only very recently by the Business Roundtable) was famously that the primary obligation of corporations was to increase shareholder value. Perhaps one could say the same of societies. As we are all “shareholders” in the public good, we are entitled to our dividends – our portion of the general prosperity. That’s one way of thinking about UBI.

How to pay for it

My proposal is an amount of the order of $1000 per month in the US, to be given unconditionally by the government to every citizen. Most liberals assume that the extra cost of UBI must be paid for by taxing the rich. Since that seems to be politically impossible, UBI is regarded as a kind of pipe dream, not a serious political proposition. However, there are other possible sources of funding.

I would start by imposing a new excise tax on carbon emissions, to be paid by primary producers and importers of hydrocarbons and products with embodied carbon (like plastics or Portland cement). The excise tax rates could be set to provide annual government revenue of US$1 trillion, mostly from carbon emissions, while also cutting those emissions by at least 10 percent. This could bring motor fuel costs in the US up to European levels. The excise tax rate would have to rise as emissions decline to keep the revenue stream more or less constant.

No doubt the higher excise taxes on fuel would be resisted fiercely, as “regressive”, if introduced on their own. But as part of a package, where most drivers also receive a supplementary income (the UBI) most low-paid workers would be better off, not worse off. Only the rich, with fleets of limousines and private jets, would pay more.

I propose another excise tax: an electromagnetic frequency spectrum tax, or internet tax. It should also be targeted to bring in annual revenues of the order of US$1 trillion. When a telecommunication company uses a part of the electromagnetic spectrum – a frequency band – for profit, nobody else can use that frequency band. The auctioning of rights to use the electromagnetic spectrum is an effective type of economic rent tax. The internet is a public resource, and use of it needs to be allocated fairly by charging realistic prices for its use.

Finally, I would introduce a value added tax (VAT) in the US, explicitly to cut and replace personal income taxes for the middle class. This would be effectively a tax on consumption. As with the carbon tax, it would be felt the least by those with a low income and the most by big spenders.

The impact of UBI

The economic impact of the UBI together with the three tax changes in the US would be roughly as follows. First, bank deposits from UBI would increase significantly. Experience says that low-income beneficiaries would first pay off their high-cost credit card loans and student loans (though maybe not all at once). Money left over after that would be spent on household goods and services, although some of those goods and services would cost more thanks to indirect carbon and EM spectrum taxes. Private debt would fall, but overall the government debt might increase equally, perhaps by US$500 billion per annum.

UBI would actually cut some existing government costs, both for targeted welfare services that would become redundant, and even for prisons and police. Higher personal incomes available to spend on goods and services would also generate more tax revenues for the government. It is unclear how much would be added to the current intake, probably less than the net cost of the UBI. But the net deficit at the end of the day might be quite small or even non-existent.

To be sure, this is guesswork. More extensive and rigorous analyses need to be done, and I would eagerly volunteer to participate in them. But we can say with a reasonable degree of certainty that UBI is the most feasible way to restore mass credibility to capitalism, and there are at least a few promising avenues for implementation. In my view, that is a solid enough foundation to build upon.

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Stephen Stillwell

18/10/2022, 04.00 am

Can you construct logical or moral argument against establishing Capitalism to provide Universal Basic Income?

Can't save a non-existent thing.

For capitalism to exist we need an ethical global human labor futures market, currently not. Currently the only commodity market where a third-party sells options to purchase a commodity they don't own without express informed consent, compensation, or knowledge of rightful owners. Each human being on the planet.

Including each human being on the planet equally in a globally standard process of money creation affects an otherwise cost free global basic income by paying a reduced and fixed global cost of money creation to humanity instead of Wealth. For no good reason...

States assert ownership of access to human labor, license that ownership to Central Bankers who sell options to purchase human labor to their friends as State currency, collecting and keeping our rightful option fees as interest on money creation loans. About $300 trillion by WEF estimate the friends of Central Bankers have bought and traded for global sovereign debt, and are now having States force humanity to make the payments on all money for Wealth with our taxes in debt service, along with a bonus to finance human activity at their whim.

Not moral, ethical, or capitalist. A capitalist global human labor futures market is affected with a rule of inclusion for international banking regulation that achieves stated goals and no one has suggested logical or moral argument against adopting:

'All sovereign debt, money creation, shall be financed with equal quantum Shares of global fiat credit, held in trust with local deposit banks, administered by local fiduciaries and actuaries exclusively for secure sovereign investment at a fixed and sustainable rate, that may be claimed by each adult human being on the planet as part of an actual local social contract.'

A fixed value Share establishes a fixed per Capita maximum potential global money supply for stability and infinite scalability. A value of €1,000,000 equivalent is conservative valuation of average individual lifetime economic production, a reasonable, sufficient capitalization of the global human labor futures market. Further fixing the sovereign rate at 1,25% per annum establishes a stable, sustainable, regenerative, inclusive, abundant, and ethical global economic system with mathematical certainty.

All money will then have the precise convenience value of using 1,25% per annum options to purchase human labor instead of barter, mathematically distinct from money created at any other rate. The value of a self referential mathematical function can't be affected by fluctuations in the cost or valuation of any other thing. We'll know regardless what currency is in hand, it was created for secure investment and someone somewhere is paying 1,25% per annum on it we each share equally.

For a significantly reduced and fixed global cost paid to humanity, we get an otherwise cost free global basic income without new infrastructure or administration, and ideal money; a fixed unit of cost for planning, stable store of value for saving, with voluntary global acceptance for maximum utility, and nothing else. Economics acquires a fixed unit of measure and may begin making scientific observations. Money loses its coercive property.

When existing global sovereign debt is repaid with new fixed value money, Wealth will have that $300 trillion to save or reinvest in something else, with over €6 quadrillion of 1,25% per annum credit readily available locally, globally, for secure investment with local fiduciary oversight. All human needs can be sustainably financed locally, globally, without any of Wealth's accumulation. Including climate change mitigation.

Local social contracts can be written to describe any ideology, so adopting the rule has no direct affect on any existing governmental or political structures, as they can be included in local social contracts.

So you know, if you didn't.


Fred Foldvary

15/08/2020, 12.45 am

Capitalism is the market distorted by government intervention, and is not worth saving. A value added tax imposes yet another intervention and takes away the basic income.


Anonymous User

12/08/2020, 08.30 pm

Negative Income Tax and Universal Basic Income aren't the very same thing.

For a comparison, please see "Basic Income: A Radical Proposal for a Free Society and a Sane Economy" [van Parijs, Vanderborght, 2017]

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