Last month I wrote a piece about the European Citizens’ Initiative for a universal basic income but I had no idea that there was an organisation campaigning for just such a thing in Switzerland until a friend sent me this link from Reuters which tells us that there will be a referendum on the proposal sometime within the next couple of years.
The fact that the Swiss are even contemplating the idea of a universal basic income (UBI) is a wonderful thing. When I first heard of the concept I was hostile to it but the more I thought about it the more I realised just how liberating it could be for our economy, as well as for us as individuals.
Most of us live for most of our lives with the fear of poverty lurking on the edges of our consciousness. If you think this is overstating it imagine if your income stopped tomorrow. Do the sums and work out how long you could survive until you ran out of money. For most of us it would be a matter of weeks or months.
Income, whether it comes as wages or returns on investments, is a precarious thing that makes us slaves to our jobs and blind to the ethics of what we invest in. Our personal need drives us into doing stuff that we wouldn’t otherwise do if we didn’t feel the cold breath of poverty on the back of our neck.
A universal basic income would banish that fear by providing a reliable backstop for us: enough money to pay the essential bills regardless of how our circumstances change.
It would create a truly free market for labour, allowing us to negotiate the terms on which we agreed to do paid work, and freeing us to do whatever voluntary work we chose. And it would allow us to abolish big chunks of the welfare state, getting rid of all of the stigma, hassle and expense associated with means-tested benefits.
I am convinced that the potential downsides of a UBI (e.g. letting lazy people be lazy) fade into insignificance when compared to the good it would do.
The problem is funding it.
This article from the Swiss Broadcasting Corporation suggests that the Swiss UBI will be funded by a sales tax of more than 50%, which means the project is doomed to fail.
A UBI can only work within a vibrant productive economy. It can only succeed if there are lots of people who are motivated to do and make all of the stuff that we need for our security and comfort. If you want a healthy economy you have to encourage productive activity, not tax it.
Furthermore, funding a UBI from taxing commerce does nothing to address the fundamental dysfunctions in our economic system: the very things that are causing economic pain to the masses and driving them to look at ideas like UBI.
A large proportion of the money that’s used for commerce ends up in the hands of a few individuals and companies who are successful at capturing it (as interest and residual profits). When they’ve got it they tend to hold onto it and use it for financial gambling, or simply to make themselves feel rich, so it’s lost from the productive economy.
For the productive economy to keep working properly the hoarded money has to be replaced. This means that we have to borrow more money from the banks who create it when they issue new loans (which exacerbates the growing problem of private debt repayments), or the government has to print it and spend it into the economy (which is wildly unfashionable so it hardly ever happens).
The funding mechanism being proposed by the Swiss means the UBI will merely add another layer of dysfunction to their already dysfunctional economy. The UBI will feel good for a while but it won’t protect the Swiss economy from inflation, or recession, or seizing up when the mountain of private debt gets so big that the repayments overwhelm everything else (the elephant in the room).
There are better ways of funding a UBI.
When researching my book, Our Money, I was looking for a way to discourage the hoarding of money that’s the root cause of perpetual inflation and periodic recession.
I came up with the idea of a “negative interest rate” that’s applied to all money, wherever it’s being held. I soon discovered that my idea was far from original and had been successfully applied in the past in a variety of ways.
Economists call the negative interest rate “demurrage” and it’s actually happening right now (in a small way) to any of you who have money in the bank that’s earning interest at a rate that’s lower than the rate of general inflation: your idle money is steadily losing value.
But demurrage is only one half of the solution to getting money working in an economy. The question then is how do we make sure it gets distributed as far and wide as possible so that the economy as a whole feels the benefit of it. The obvious answer is a universal basic income payable on a regular basis to every citizen in the land.
The idea was refined to include a mechanism where the UBI had to be spent within a month of its issue otherwise it would be lost. This means that no-one can get rich by collecting and hoarding their UBI money: it’s only worth something to you if you spend it into the economy.
I also realised that it could be a relatively small sum of money – around £50,000 million for the UK – because it was being constantly recycled on a monthly basis. To put this in perspective UK GDP is around £1,500,000 million/year. So 12 months of UBI at £50,000 million represents £600,000 million of GDP, which leaves plenty for investment in the productive activities on which we all rely.
Under this system money is favoured as a medium of exchange (at which it excels) but penalised when used as a store of value. Money will no longer be a reliable proxy for wealth so, if we want to be materially wealthy we will have to spend our money on things that we think will hold their value, or invest in long-term projects.
Despite my initial hostility, having thought about the ethics and the practicalities of it, I am now convinced that a universal basic income is the next logical step for our civilization.
I’m hoping that the Swiss will come up with a more sustainable way of funding their UBI in advance of their referendum. But their example – even just considering the concept worthy of a vote – is inspiring.
Imagine if, instead of a desire for independence our political leaders had concentrated their ambition over the last few decades on a desire to eliminate poverty and encourage the productive economy to be productive.
Imagine if, motivated by this desire, they’d come up with a practical proposal for a sustainable universal basic income.
Just think how exciting it would be if that’s what we were being asked to vote for in next year’s referendum.