Minimal Consumption Entitlement: 01

This post will introduce a concept that I have often briefly mentioned in my replies on other blogs. The idea is both heretical and somewhat hard to imagine, for most people.

I will start by defining my starting point, which are the ideas of Hyman Minsky. He believed that boom and bust cycles were an inherent feature of capitalism. Google the concept of a “Minsky moment”, if you are interested. His most heretical ideas were however two concepts, one of which has already become reality. He believed that the government should become the lender and employer of last resort if a bust paralyses confidence in the private sector. Underlying these ideas is one unspoken concept, namely economies can suffer crises of confidences so severe that it is not possible for the “free market” to reboot the system. Essentially if people lose confidence in the system they will stop participating in it crippling any attempts to re-equilibrate and causing a further wave of bad faith until the system becomes inoperable.

While a simpler system like an Egyptian or Roman level civilization can recover, more complex systems cannot recover if damaged beyond a certain level. Consider the effects of a nationwide electrical grid failure for two months. If you believe that everything will just “come back”, you are dreaming. Similarly cardiogenic shock lasting more than a few minutes will have a lasting effect of the person. Even if you could bring most organs back, the brain would not survive more than a few minutes of total hypoxia, at room temperature.

Which brings us to the whole business of what makes our economy function.. It is the flow of money, rather than the amount of money per se that makes the world go around. Now there are those who believe that only zero sum money, like gold, can survive over the long run. However we no longer live in a zero sum world, indeed every phase of the industrial revolution has made the world less zero sum and more productive than the last, and as Keynes famously said “in the long term we are all dead”.

The high and ever increasing productivity of our world creates some unique problems, not experienced by previous generations. You see, for most of human history productivity was so low that people who consumed but did not produce were rightly considered parasites. However we now live in a world where a fraction of the population can provide all the necessities and luxuries for everyone else. The real question then is: how can the rest of the population pay to buy these products and services. Part of the solution lies in price deflation, I am writing this on a 200$ iPhone, a concept that would have considered almost laughable a decade ago.

However this does not still solve the major problem:

How can you employ most of the people who do not perform any obviously important function?

Some might suggest eugenic genocide, but the problem still remains. A smaller population makes many people with previously useful jobs redundant, as high productivity removes the necessity for most people to work. The logical conclusion would be one human who could produce everything, but had nobody to sell it to. Don’t laugh, it may not be ultimately necessary for humans to do anything to produce everything.

The other option is paying people to consume.

I can immediately see your main objections to this idea, so let me go through them.

1. How do you motivate anybody to work?

A: The answer to this is quite simple. Pay people to work beyond their minimum consumption entitlement. So a person with a job makes x + y, instead of just x. He/ she is free to use ‘ y ‘ any way they see fit, including not spending it.

2. How do you stop this free money from being used for anything other than consumption?

A: In the old days, this was hard to enforce. But interac cards and income tax departments make it possible to track how people use their money. Plus it would be helpful if the true purpose of the free money was explained to it’s recipients.

3. Why should the “undeserving poor” receive free money?

A: Because you are only one job loss or innovation away from losing your fortune and importance for good. In any case, most high earners in society are rentier parasites.

4. How can you motivate people to innovate?

A: Easy! A stable life makes it more easier for people to develop truly revolutionary ideas and concepts. The big jumps in human innovation never came from micro managed projects with job instability. A decent and stable existence might actually help us innovate and dream further than is now possible. Scarcity encourages survivalism over speculative thinking, guess which one leads to big innovations.

5. How do you stop the “masses” from voting more stuff for themselves?

A: This one is easier than you think. Since more demand creates more jobs for producers, I fail to see the problem. Of course, we have to abandon old ideas about money supply, that originated in a gold standard based world.

6. What about inflation?

A: Technology will cause product/ service price deflation. Let me ask you a counter question:

Who does inflation hurt? Does more harm come from deflationary job and income loss or from inflationary destruction of savings? Inflation merely increases the numbers on a price tag, deflation causes misery and deprivation. Miserable and desperate people start looking for and supporting egomaniacal dictators. Read some history!

In any case, fiat money created by a stable government is far less inflationary than debt based money created by banksters. I will explain that concept in another post.

Stay tuned for my next part of this series, hopefully answering some of your feedback to this article. The next part is now up: Minimal Consumption Entitlement: 02

  1. Alkibiades
    January 30, 2010 at 8:22 pm

    TANSTAAFL!
    ____
    Their job is to buy the crap you make or provide.

  2. January 31, 2010 at 1:59 am

    And the money they use to buy the crap you make or provide is given to them by the government, taken from the providers as taxes.

    So essentially, the productive give money to the non-productive, otherwise there will be no employment, businesses, factories, corporations with no demand to supply. Otherwise the whole economy implodes because their is so much innovation and productivity that few are necessary to produce without giving out freebies to the non-productive to keep it all going.

    I’m I understanding the premise correctly?
    __
    Yep.

  3. January 31, 2010 at 2:00 am

    Correction: “Am I understanding the premise correctly?”

  4. January 31, 2010 at 2:10 am

    This seems to be what is holding western economies up, as manufacturing is mostly overseas in China etc, making businesses and corporations more profitable and having simultaniously less demand due to less local employment in manufacturing. These corporations cannot sell their brand name, first world priced goods to most of the chinese factory workers, so who buys their products?

  5. January 31, 2010 at 2:35 am

    Advocatus Diaboli said in: Money is not Wealth:01

    “But zero sum behavior has only logical conclusion- a poverty ridden, malfunctional world where death is often a better fate than living. People get what they work towards, even if they don’t like the results.”

    So, essentially some form of socialism in a modern technological society is necessary for the good of the rich and poor alike?
    ___
    Bingo!

  6. tehag
    January 31, 2010 at 4:24 am

    I think such a society is worth the attempt. I don’t think it’s socialism.

    Will people who receive the guaranteed annual income receive more once they’ve foolishly spent every penny in a few days, weeks or months? That is, will non-rational spending become a crime?

    The tracking idea won’t stop people from trading the cards for other services nor stop people from losing them. What will be the laws against illegal use of someone else’s card? Is it similar to bank robbery in its seriousness or similar to stealing someone’s stocking-stuffer gift card?

    The psychological effect of the admission that ‘money is promises about the future’ is unknown. Instead of suddenly ordering a total conversion to fiat money, its evolution from our current system (where money is computer bits) might be superior.

    The guaranteed annual income will not be equally distributed. The first excuses for people who need a higher minimum will be disability, a justifiable one. Classes of people who feel their own superiority isn’t recognized will press for a larger minimum. More and more increases for special classes of people may be added until the unequal distribution causes resentment. (Your essay partially anticipated the economic effect, not the psychological ones. The new rich will be the parasites with the best social connections to politicians, who themselves will be the maximally rich.)

    Having acquired a large fortune through productivity or by connection to political office, can the producer or parasite leave that fortune to his heirs?

    Will most government services be abolished because people can now pay for them with their government subsidy? Will roads, schools, and perhaps fire departments and police departments be funded by subscription instead of taxes?

    There are several SF stories that have assumed such a world ( “The Marching Morons,” “The Beautiful and the Sublime,” Star Trek, “ARM”). Discuss their assumptions and flaws. In “The Marching Morons,” the producers have come to hate the non-productive. In “The Beautiful and the Sublime” the masses are depicted as no longer understanding why invention and science occur. In “ARM” people resent having non-productive lives filled with meaningless ritual. In Star Trek, well… ordinary people are rarely shown and the productive are flawlessly devoted to the state: I think that’s called ‘hell.’
    ________
    Is a system that has a few abusers other than banksters and other rentier classes any worser than what we live in?

  7. tehag
    February 1, 2010 at 10:22 am

    “Is a system that has a few abusers other than banksters and other rentier classes any worser than what we live in?”

    I haven’t counted the number of parasites in the current society. I certainly haven’t counted the number in an imaginary society.

    So: despite the various depictions in fiction (that is, in other people’s imaginations) of similar societies to the one you propose, do you believe it is viable given human psychology, and if so, where do these others error or succeed?

    Remember: aside from a few details I agree with you. I thought Nixon’s negative income tax was a good idea, too. And think such a society may be close to inevitable once robots produce more.

  8. February 2, 2010 at 7:18 am

    Hey, I read a lot of blogs on a daily basis and for the most part, people lack substance but, I just wanted to make a quick comment to say GREAT blog!…..I”ll be checking in on a regularly now….Keep up the good work! 🙂

    Robert Shumake Fifth Third

  9. February 17, 2010 at 10:05 am

    I’m finally starting to see more and more people realize this: a major dose of redistribution is necessary for a modern, high-productivity economy to thrive.

    See for instance Steve Randy Waldmann’s reliably brilliant insights:

    http://www.interfluidity.com/v2/171.html

    Martin Ford:

    http://econfuture.wordpress.com/

    Some of my two cents:

    http://www.asymptosis.com/why-prosperity-requires-a-welfare-state.html

    http://www.asymptosis.com/socialism-and-prosperity.html

  10. February 17, 2010 at 10:10 am

    I would add:

    While I think giving $10,000 a year (or whatever amount) to each citizen is potentially the most efficient approach (economically and administratively), we already have a system in place that is perhaps more efficient, and certainly easier to expand: the Earned Income Tax Credit.

    Run don’t walk to read the last chapter (“Which Way Forward?”) of Lane Kenworthy’s Egalitarian Capitalism.
    ____________________________________
    It is just cheaper to pay 36k/yr to every adult. High enough to replace a job but not high enough to discourage them from making more. Have you read the rest of my articles on ‘Minimal Consumption Entitlement’?

  11. February 17, 2010 at 10:03 pm

    >It is just cheaper to pay 36k/yr to every adult.

    Show me the numbers. You may well be right. I’m dying to know. But without some at least basic arithmetic figuring out the costs relative to GDP , tax levels, or whatever, and an at least rought model that predicts incentives/results (again, see Kenworthy), it’s bloody hard to know.

    >High enough to replace a job but not high enough to discourage them from making more.

    I so agree, but based only on my fond surmises. And I don’t believe in my fond surmises-I’m constantly questioning them–unless there’s some kind of data-based evidence (not just logical argument) to back them up. Because humans are stunningly good at deluding themselves with logical arguments (cf. Reaganomics). To quote some blogger I came across recently, can’t remember who, “From the inside, ideology always looks like common sense.”

    >Have you read the rest of my articles on ‘Minimal Consumption Entitlement’?

    No, just went and read the rest. Good stuff! Based on logic and argument alone, I so profoundly agree with you. Well reasoned and argued. Have you been reading my mind? (Or my blog? Or Martin Ford’s, or Steve Randy Waldman’s [who has said in an interview that he learned everything he knows about economics from other people’s blogs, and who outlinks voraciously]?) I notice you just started this thread a couple of weeks ago, and others have been banging their spoons on the highchair on this subject for some time. I don’t see any outlinks from the thread anywhere. What’s with that?

    Which is all to say, damn good stuff. More, more! Give me some data to back it up, and join the conversation.
    ________
    I have been posting this idea on other blogs for the last two years. I started my own blog recently (Dec 09) after I had decided that it was worth pursuing.

    A MCE amount should be equal to an income just below the median, otherwise it will become welfare not real consumption.

  12. February 17, 2010 at 10:18 pm

    p.s. Is it significant that you, Martin Ford, and I all choose the same WordPress template?

    Curious, huh. I noticed that too. I chose this template because it was clean but stylish.

  13. JW Johnston
    February 20, 2010 at 2:31 pm

    I linked over from your comment in Martin Ford’s blog. Your MCE proposal is very interesting. Your perspective about “paying people to consume” seems novel, surprisingly compelling, and very similar to Ford’s position. I’m not aware of others having put it quite that way, e.g., Marshall Brain, the Triple Revolution folks, James Albus, Robert Anton Wilson, … (Have you read Wilson’s 1980 essay The RICH Economy? You seem like you could be channeling him.)

    For something like you propose to work, additional automation must be readily available. If all adults were offered the $36K stipend tomorrow, many would quit their jobs immediately (as noted in the comment by “recently divorced”). Current business owners could not compensate quickly enough–replacing millions of crop harvesters, fast food workers, housekeepers, sanitation workers, etc. There would be massive immediate upward pressure on wages on the most undesirable jobs, which would drive production costs way up, and most businesses out of business. Thus, minimally, some kind of phase in is needed. I’m reminded of a line from the RICH Economy: offer “a $100,000 reward to any worker who can design a machine that will replace him or her, and all others doing the same work.” Need that first before allowing everyone to go on the dole.

    One other criticism: I think you have diluted you main MCE proposal by including too many things that seem extraneous, e.g., drug legalization, guillotining people, euthanasia, law enforcement being unnecessary. I suspect that will turn many potentially-receptive folks off from your message. Are those really necessary?
    —-
    It could be implemented gradually by starting with people who have lost their jobs and are older, and gradually extended as necessary. Salary will not go up as much as you think because you can sleep, screw and get high for only so long before getting bored.

    Human boredom with the easy life due to MCE will keep wages down.. it will be easy to find people who are willing to work for less because they are bored.

    Drug legalization is necessary since many people on MCE will have lots of free time. So there will be lots of vacations, games, sex, drugs.. etc. In any case, most of law enforcement is parasitic in nature.

    Euthanasia is something we as a civilization will have to come to grips with, MCE or not. Why pay 20k/ day to a greedy doctor+hospital to keep a 90 year old with multiple organ failure alive? Unless we can control aging, euthanasia will have to addressed.

  14. Michael Giove
    September 14, 2010 at 5:20 pm

    What if everyone who is unemployed receives a decent income from the government only if they attend an online school set up by the government for 8 hours a day and based on science, medicine, engineering, business, and entrepreneurship. The schooling can be made challenging enough to encourage some people to work instead. In ten years we will have an army of highly educated PHD holders with good ideas.
    —-

    The idea is that people have to do nothing beyond spending to live a lower middle class lifestyle.

  15. Adam
    September 15, 2010 at 12:42 pm

    I don’t know; 36k would mean half our GDP was going to this:
    http://www.wolframalpha.com/input/?i=%28%28Number+of+adults+in+the+united+states%29+*+36000%29+%3E+GDP+of+United+States
    —-

    But most jobs are already useless, and even worse- counterproductive.

    That would be a really radical shift… I can’t imagine what a society like that would look like.
    —-

    Yes, living in cities was also a big shift for hunter-gatherers.

    I still think wage pressure would skyrocket. Even if you’re bored, how bored do you have to be to take a job at McDonalds? I’ve done low-end food work, and staring at a wall for 8 hours is preferable.
    —-

    You could drink, dope, fuck and travel as much as you want..

    • Adam
      September 15, 2010 at 1:24 pm

      Oh sure. Just I don’t know why, in that situation, anybody would take a miserable job like retail, fast-food, or factory work. Boredom’s enough to get me to work on a lot of things, but I don’t think I could ever be bored enough to stand in front of a grease pit and serve fries all day.

  16. meofio
    October 6, 2013 at 10:01 pm

    This can work for resource-rich thinly populated country like US, canada or Australia. Whichever country implement this policy will become too attractive to billions of third worlders. And I doubt there is enough resources to support 10 billion people living an American-style lower-middle class lifestyle. This can probably work if human population is reduced by 70%

  17. meofio
    October 6, 2013 at 10:04 pm

    While some consider this socialism, it is perhaps the ultimate stage of consumer capitalism.

  1. January 31, 2010 at 3:27 pm
  2. June 24, 2010 at 9:56 pm
  3. September 14, 2010 at 2:47 am
  4. March 17, 2016 at 11:41 am

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