A Universal Basic Income is not a Solution to Ameliorating Poverty

I had a conversation the other day with respect to a universal basic income. I disagreed with the concept of a basic income, universal or otherwise. However, despite some framing and language differences I think we were more or less of the same opinion that work is intrinsic to our identities and it was capable to redefine ideas of productive work.

Often a Universal Basic Income is argued; would be used to assist with ameliorating poverty and provide a ‘security’ for all within a society.

The first step to grasping why I happen to think that idea isn’t sound is to start with an understanding of the monetary system.

The monetary system

In any non-monetary based society (that is a society without money) unemployment or employment doesn’t exist. They are structured and organised differently.

However, in a monetary based society, taxation is the coercive mechanism used to create a demand for a governments currency. And from that we organise and structure our societies. (More on that detail later) There have been different monetary systems used in the past from a gold standard, the Bretton-Woods system (a fixed exchanged rate) and to what we use today which are fiat currencies. Fiat currencies are categorised as deriving their ‘value’ by decree and they float against other currencies. Governments promise nothing in return for their own currency except the redemption of tax liabilities.

First let’s back peddle a little.

-Framing 1-
We are taught that our governments
a. tax
b. borrow
c. print (hopefully this post can help you dispel myths about ‘printing money‘)
in order to spend an deliver public services.

However under an MMT lens we can dismiss that framing as untrue.

Framing 2
We know intrinsically a currency issuing government spends via an appropriation bill. Once that bill has been passed by parliament the treasury department uses a computer to mark up the size of the relevant account – and any taxes or debt issuance is done so after the fact. So it is Government spending that gives us the ability to pay our taxes. I wrote in detail the process of how that works here and here) or you can purchase the textbook Macroeconomics where I learned this stuff.

Framing 2 can be a difficult concept to wrap your head around at first. Often people experience cognitive dissonance where their brains can’t process what is being said. It is something to do with the way we perceive abstract ideas and the metaphors we use to understand complex and abstract systems. I learned a lot reading ‘Metaphors We Live By’ by George Lakoff and Mark Johnston.

Rethinking the purpose of taxation

In my post The Story of Money (and podcast interview) I described how the order of sequence for a monetary system to be established was that first an authority needed to establish a liability, it then needed to spend and then it can collect the tax! That is exactly what British Colonisers did to the native population of Malawi.

….imposition of a Sh.3 annual hut tax over the whole colony in 1896. This was a high figure for the northern areas. And undoubtedly stimulated further labor migration [to find work paying shillings]. In the south of Malawi, however, Africans preferred to meet the tax by [selling products]. Southern [European] planters therefore were short of labor and pressed for an even higher tax. As a result the tax was raised in 1901 to Sh.6, with a Sh.3 remission for those who could prove they had worked for a European for at least one month. This ‘labor tax’ had an immediate effect. The labor market in the south became flooded… Taxation, then, if it were high enough…could force men into wage earning

Taxation as a method of forcing out laborers but it did not distinguish between the various sources of the cash. Most Africans who could simply sold produce or livestock [to Europeans at administered prices] in order to pay the tax. But where Africans were poor in items to sell, or were distant from markets, taxation could produce laborers

Stichter, Sharon. Migrant Laborers. Cambridge U. Press, 1985. p26 – 28

So we can now begin to grasp the purpose of taxation or specifically a tax liability isn’t a funding mechanism – it is a coercive tool that is used to create unemployment and thus spending creates employment. Delivering an unconditional income to a recipient undermines the coercive mechanism.

Monetary systems existed before capitalism and in different systems of social organisation but under capitalism it can be argued that a tax liability (as well as parliamentary acts that undermined people’s subsistence) has been forced onto populations for the purposes of preserving a desperate group as a means to suppress wages and thus increase profits.

Work is intrinsic to our identities

Part of the reasons I dismiss a UBI or even basic incomes for people willing and able to work; is that the literature is clear on the effects of unemployment.

When we try to formulate the psychological effects of unemployment, we lose the full, poignant, emotional feeling that this word brings to people.

Eisenberg, P., & Lazarsfeld, P. F. (1938). The psychological effects of unemployment. Psychological Bulletin, 35(6), 358–390. https://doi.org/10.1037/h0063426

The cited journal article above is from the 1930’s – the study went on to show the affects of unemployment weren’t just on the individuals unemployed but their families as well. It showed children in unemployed households to far much lower that students in employed family households.

One of the effects of unemployment on personality is shown in school work. Busemann and Bahr (13) found that in an elementary school in the poor district of Breslau the children of the unemployed fall from an average grade of 2.80 to 3.15 (1—very good, 5—failing). This bad effect is found more frequently in children of unemployed who previously had good marks than in those who had average and inferior grades. The decline sets in immediately after loss of work, and is to be explained by the lowering of the standards of living. In a better controlled study by Busemann and Harders (14), in which 473 children of unemployed parents were compared with 1,154 children of employed, it was found that there appeared without exception a decrease in the average grades of the former group.

Eisenberg, P., & Lazarsfeld, P. F. (1938). The psychological effects of unemployment. Psychological Bulletin, 35(6), 358–390. https://doi.org/10.1037/h0063426

The inverse of the negative effects of unemployment is the positive effects of employment. When we meet people we usually ask, ‘what do you do?’, it defines part of our self identity, your occupation places you within a community, you form social networks as part of it. That doesn’t mean there are not bad jobs.

A goal of any progressive movement should be about redefining work. It was a goal of the early labour movements that fought for public works to generate jobs.

A Universal Basic Income acts as a subsidy to low paid work

As stated above, under capitalism a tax liability has been forced onto populations for the purposes of preserving a desperate group as a means to suppress wages and thus increase profits. Myths around deficits needing to be borrowed, government debt needing to be paid back exist for the purposes of demonising government expenditure as ‘irresponsible’ and ensuring a pool of unemployed and underemployed workers.

A basic income is a concession that full employment (that is enough hours of work for all that demand it) is no longer possible. It does nothing to ameliorate exploitative labour (and in fact could ensure it remains and grows) It also ignores the struggle that labour movements made for a right to work.

The right to work is a suppressed history of western labour movements. Were you aware in 1848 under the second French Revolution the socialist won a program that guaranteed every Parisian worker a job? In the early 20th century UK unemployment insurance was a concession to a ‘Right to Work’ bill that was tabled in Parliament and in 1919 the Australian state of Queensland and the Labor Party had a bill defeated The Unemployed Workers bill that was to place the full resources of the State and Local Government in the hands of a council dedicated to the elimination of unemployment. It led to unemployment insurance. I wrote about those events in The Right to Work and Advocating a Right to Work

It was this push for guaranteed employment that led to full employment polices of western democracies. The Australian 1945 tax white paper (which is a riveting read) stated

This policy for full employment will maintain such a pressure of demand on resources that for the economy as a whole there will be a tendency towards a shortage of men instead of a shortage of jobs.

If we excuse the gendered terminology and the male ‘bread winner’ model of the era; we know it is possible to guarantee decent employment to every individual that desires work.

Societies need to include Ideas about reciprocity

I find it a great irony that lots of unionists and progressives will understand billionaires and multi-millionaires live off the labour of others through earning unearned income but will advocate for those unwilling and able to work to receive a passive income.

If we are to except public provisioning of healthcare, education, essential utilities, housing, commitments to mitigating climate change et cetera I think it is only responsible those that are able contribute to building and maintaining our communities.

I concept I use to help frame that is that if I was on a farm stay with my family and friends that required us to be completely self sufficient – I wouldn’t tolerate someone refusing to work but still expecting the goods from everyone else’s labour.

Everyone is expected to contribute within their ability. Obviously we make provision for children, the elderly and those who through sickness or disability can not contribute – but certainly as a collective I don’t think we should tolerate people choosing not to make a contribution.

A basic income does not provide an alternative to unemployment

Within economics there is a concept economist use called the natural accelerating inflation rate of unemployment (NAIRU) It is justification used that at all times we need to maintain some ‘natural’ level of unemployment to avoid inflation. You can see that political dynamic play out today as central banks call for higher unemployment.

Basic incomes do not dismiss the concept of NAIRU and maintain that unemployed buffer stock that acts as wage suppression.

As a society we also ignore that our governments can always choose the level of unemployment. As an issuer of a currency it can always purchase idle labour.


My oppositions to basic incomes take on several points

  1. It undermines the tax liability whose purpose is to create unemployed to employ
  2. A basic income concedes full employment is no longer possible (and ignores the labour history that fought for guaranteed work)
  3. The effects of unemployment are well known and impact on the well-being of the individual and those around them
  4. It provides a form of subsidy to low paid work (and offers no public option employment alternative)
  5. Work is intrinsic to forming our sense of self
  6. Our societies should be built on the idea of reciprocity. If you except public goods and services then you should contribute within your abilities.
  7. A universal basic income does nothing to redistribute income from the top to the bottom.
  8. An unemployment buffer stock still remains. (And plays within the NAIRU framing)

There are better options available to us than providing subsistence income to people. We can expand public sector employment. We should be breaking free of mythology that our governments can not employ the unemployed. We should be breaking free of narratives that the unemployed are lazy or should accept any shitty job. And we can do that by offering decent public alternatives to employment.

I’ve wrote about an alternative to the NAIRU in my post Modern Monetary Theory and The Job Guarantee. Alternate options to the NAIRU are beyond the scope of this post but I’d note I advocate for Job Guarantee and it would be a mechanism to help us redefine ideas of productive work!

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