Archive for January 31, 2010

Minimal Consumption Entitlement: 02

January 31, 2010 8 comments

In the first part of this series I put forth a somewhat heretical concept, namely paying people to consume. A similar (but more primitive version of this) concept called ‘negative income tax’ was put forth in the Nixon presidency, but failed for two reasons- whites believed blacks (and ‘others’) were undeserving and money was still mostly physical, not electronic.

However things have changed since then. Today education, ‘good work ethic’, skill or competence do not ensure even whites a decent stable job, unlike the late 1960s-early 1970s. This phenomenon is often blamed on immigration, affirmative action and outsourcing but that is not the case for a simple but overlooked reason: technological changes have made many older jobs redundant, therefore the bulk of the poorly employed would still have the same shitty jobs even if they could stop ‘others’ from taking their jobs.

The real problem is that technology, in the last 30 years, has destroyed more well paying jobs than it has created.

However most of the economy of “rich” countries is based on high levels of internal consumption by average people, a situation with no real precedent in human history. For most of human history trade was mostly local, and most long distance trade was for a couple of essentials for the masses and luxuries for the rich. The majority of people had an existence that was barely above subsistence.

Paying money has been linked to jobs, because less productive civilizations could not afford many free riders. However today high productivity makes it necessary to have unproductive people who consume and support the productive. How can the jobless (and moneyless) still keep previously productive people gainfully employed? Any attempt to optimize this system via job cuts (in reality income cuts) causes a deflationary spiral that is much steeper than before because of high productivity.

The productive cannot exist without consumers in a system characterized by high productivity.

To put it bluntly..

We have to separate the idea of having a job with having a decent income.

While we should pay people with jobs more, those without jobs must make enough to keep a certain level of demand (and employment for those who still have jobs). Example: A person with a job can afford a BMW/ Lexus/ Porsche while the jobless can only afford to buy a Corolla. So both have cars, but the productive have much more luxurious cars than those who are jobless. It maintains the incentive to work and move up, without killing aggregate demand.

While I have a lot more to say about this subject in future posts, let me quickly discuss some of my ideas on implementing it.

It is my opinion that human beings have both ‘good’ and ‘bad’ sides. However these sides are merely different approaches to solve a problem, and are not inherently problematic. The problems arise not as a result of our sides but the context and possibilities in different eras. A society that encourages the ‘bad’ sides can muddle around upto a horse,  gunpowder and sail-ship civilization, and stay there for some time. Retaining those attitudes and further technological progress gives you ww1 and ww2. You see, such levels of technology require a different mindset to handle them without destroying each other in genocidal wars. Pre ww1 and ww2 attitudes led us into those wars. The world we live in today is far more constrained to act like in previous eras, precisely because we all have so much to lose in any significant war. However that does not mean that the ape mind won’t regain control, especially if people feel desperate and some group cracks. If that happens, the living will envy the dead in a manner that was never possible even thirty years ago.

Even if we do not reach that depth, a serious systemic defect in our system could cause enough bad faith to cause the system to come apart. Complex systems do not fail in predictable manners nor are they reproducibly rebootable.Simply put, many of our old ideas and attitudes are both outdated by technology and carry massive downside risks.

I have however no delusions that such a change will be easy or voluntary. It took ww1 to convince europeans that their old ways were dead, it took the great depression to discredit a lot of old fashioned morality and economics, and it took ww2 to get many nations to see the light. In each case, only a lot of suffering and mass casualties caused by adhering to old fashioned ideologies convinced the survivors that their “natural leaders” were out of it.

I do not think that any system can be made perfect, foolproof or impossible to abuse. The key is creating something that is less fucked up than what we now have. Moreover any system that does not consider human behavioral characteristics is doomed to fail.

So let us start with a blueprint of how to implement such a system:

1. The MCE should be paid in monthly installments, with month-to-month carryovers to buy big ticket items. However no year-to-year carryovers should be allowed.

2. The MCE cannot be used to pay any debts or invest in anything, no exceptions. It is meant for consumption, and that is all.

3. The reasons behind paying the MCE should be made very clear and transparent to everybody. It is not welfare, just a way to keep civilization working and progressing.

4. To implement the MCE properly, we require government paid education, healthcare and disability coverage (and legalized drugs).

5. You have to pay every adult, irrespective of whether they have a job or not. Their job earnings, if any, are extra. Therefore people are still motivated to work and improve their lifestyle.

6. The MCE should never be adjusted for the number of kids a person has… I repeat NEVER. The idea is to pay enough for a single person to live well OR a single person + 1 kid to live OK.

The idea is that it will be advantageous for people to form families to raise two-three kids, as opposed to getting a bigger check from the government.

7. Eliminate alimony and child support! If the government pays you enough to live a middle class level lifestyle and raise a kid nicely, you have no business asking your ex- for any money.

8. Misuse, stealing or abuse of any cards by others will be treated like any other felony. In any case the ID will be on multiple cards, so losing one won’t have any dire consequences.

9. Only you can accesses the money in your MCE account, even your spouse has to ask you to withdraw it for her. No joint MCE accounts!

10. The MCE cannot exist unless it pays every adult equally, and any basic inequality will kill the system. What you make above the MCE is your own business..

11. To keep things fair, extremely high progressive estate taxes are necessary. If you are billionaire, philanthropy is a good idea as very little (maybe 10-20 million equivalent) of it will reach your kids after your death.

Hereditary aristocracies do not lead to progressive societies.

12. The basic utilities such as sewage, water, electricity, hospitals, fire departments etc will be paid through taxes + user fees. So will education and comprehensive health coverage.

The MCE will support buying stuff like buying clothes, gadgets, cars, houses, vacations, restaurants, vacations etc.

13. Since the MCE is good enough for a middle class level lifestyle, we can eliminate large conventional pensions. The idea is to pay people enough to consume at a lower middle class level from adulthood to death.

14. It is extremely important that any such system is accompanied by the ability to fire governmental employees more easily. In any case, the ones without jobs will still have a decent lifestyle.

15.To keep people work ready, have job sharing schemes where the otherwise unemployed can still work a little and keep their skills and make some extra money.

More in another post, which is now up: Minimal Consumption Entitlement: 03