Wednesday, March 16, 2016

Basic Income

On several posts I've made allusions to the likelihood that technology will eventually make earning a living extremely difficult, but I haven't said much about how this problem could be resolved. Fortunately, there have been people thinking about this for quite some time, and I suspect that some form of basic income may eventually come to be used in all developed countries, because there may be no better alternatives. At present, basic income is being discussed seriously in Europe, where Switzerland is holding a referendum on it this June. Worldwide, there is discussion of the topic, with supporters and opponents ranging from serious thinkers to cranks. In the U.S., basic income is occasionally presented as a potential replacement for the current welfare system. As you might expect, most American economists have a highly blinkered view of the subject and can scarcely think beyond traditional labor economics. I stopped paying attention to economists such as Paul Krugman several years ago, because like most mainstream economists he appears to be unable to envision a future in which capitalism implodes. In my view, capitalism will inevitably end simply because economic competition entails a powerful incentive to decrease labor costs, and that trend has been unmistakable over the last fifty years.

One of the main causes of the current insurgencies in both American political parties is the prolonged state of low income growth. Real incomes for the middle class have remained stagnant for decades, and there is nothing on the horizon indicating a change in that status. The topic is usually discussed in terms of income inequality, and economists such as Thomas Piketty advocate higher taxation on the wealthy in order to rebalance equality. As an economist, Piketty is far from radical, and, like Krugman, he doesn't seem to find economic competition inherently problematic. In my view there is in principle no reason for economic entities to discontinue the driving down of wages. If you are running a for-profit corporation, it is your fiduciary responsibility to move jobs overseas when labor costs are lower there and to install computers, software and robots whenever they reduce operating costs compared to hiring people. Although this inevitably leads to a scarcity of jobs and lower wages, this manner of operating a business is fundamental to the capitalist model, and it can't be changed without degrading the very idea of economic competition, which carries almost religious status in the U.S.

The principal irony I find in capitalist mythology is that here, precisely while we are witnessing the success of large corporations, these same corporations are toying with their future demise by creating a large underclass which one day may be unable to afford their products. That hasn't happened yet, but you can see signs of it in the falling quality of many consumer products. Because most consumer products are designed to be sold to the middle class, there is an upper limit on their price, and with falling incomes the middle class can only afford cheaper products. We already seem to be in a race to the bottom in product quality. What we now call food deserts in inner cities may expand to suburbs, and deprivation of other goods and services will increase when businesses have no economic incentives to locate in poor neighborhoods. I see no hope for places like Ferguson, Missouri.

The primary drawback to the concept of basic income is that its time may not have come. For now it could work well in a wealthy developed country with a large population of unemployable citizens. For me, its real interest lies further out, when technology has made it almost impossible to find a job, when an economy becomes so automated that there is no need for economic competition and little demand for human labor of any kind. Barring an unforeseen disaster between now and then, from that point onward capitalism may be viewed as a driver of technological change that outlived its usefulness.

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