Monday, 10 February 2014

"A Citizen's Income would be unaffordable"

Is one of the daftest arguments I have ever heard.

The point is, of course, that the Citizen's Income is a tax rebate, so however much tax the median/average/typical household pays in to the central pot to fund the CI, they will get exactly the same amount back. So for the vast majority of households, the gain or loss from running a CI is merely a percentage of the difference between their income/spending* and the CI level.

This gain or loss will always be lower than the gain or loss under the current bizarre combination of contributory and means-tested benefits (which are diametrically opposite concepts and cancel each other out) where the majority do the paying in and a sizeable minority receive the pay-outs.

For example, if we assume that the personal allowance for income tax and the NIC primary threshold are reduced to zero and rolled into our fiscally neutral CI (meaning = no change in tax rates), somebody in work pays £3,021 more in income tax and NIC (using 2014-15 rates) but receives £3,700 a year in CI and ends up £679 a year better off.**

How can anybody in their right mind say that they wouldn't be able to afford to be £679 a year better off?
* Most working households pay more in National Insurance and VAT than in income tax. A sensible tax system would replace NIC and VAT (the worst taxes of all) with Land Value Tax anyway, in which case, the cost/benefit to an individual household of the CI system is the difference between the rental value of the home they choose to occupy and the rental value of the median home. The median household will always break even, and for most households it would be plus-minus a couple of thousand pounds a year.

** There are people who earn less than the personal allowance, of course. Under current rules they are entitled to Working Tax Credits and there will be some very marginal cases (i.e. those who do just over 30 hours a week, and how on earth they police this I do not know) who would end up £10 a week worse off - if they continued working exactly the same number of hours.

But they are relieved from the grief and hassle of filling in endless forms, having to worry their award might be clawed back, having to worry about what happens if their hours drop below 30 hours a week, signing back on to the dole again etc. That costs the taxpayer nothing, saves the taxpayer a few bob as we no longer need so many civil servants, but is worth a fortune to the individual claimant; if they spend another two hours working instead of dealing with/worrying about all this bureaucratic crap, they are ahead of the game, as is society in general.


Bayard said...

Economically it may not be unaffordable, but politically, it certainly is.

Ian B said...

This is not an argument, but a question. What is the proposed level of the Citizens Income? I am presuming it is intended to be enough to live a spartan life on without any additional benefits (in most cases?) thus replacing out of work benefits? So, it must cover a rent, food, bills, council tax etc.

If I am understanding this correctly, it also seems to me problematic relating to housing benefit, since a person's housing costs might be above whatever the calculator of the Citizen's Income considers enough.

Derek said...

According to the example in Mark's post above it would be £3,700 a year. Or if you read the report that he linked to, table 1 says it's age-dependent. but everyone between 25 and 64 would have got £71 per week in 2012-2013 which works out to about the same.

Mark Wadsworth said...

B, until people wise up. Then it will be unaffordable NOT to.

IB, I helped the CI Trust with the workings, you can follow the link and read up.

We did not really "propose" anything more than adding up the cost of the current welfare system and the value of tax free personal allowances, and then giving everybody the same amount/value. Which happens to be the same as the basic dole level of £71 a week.

As you will note at the end, we copped out on Housing Benefit and said that would continue as a separate benefit for the time being.

D, thanks.

DBC Reed said...

Mark has pretty well nailed this form of Citizens Income and by allying it with LVT has made a nigh-on impregnable case IMO.
But there are other some older/ some newer forms of CI which divvy up the vast amount of money created by Fractional Reserve Banking and distribute that as a National Dividend (the Douglas Scheme of Social Credit) or there is the oft repeated proposal to distribute QE not to banks (to boost supply) but to the people (to boost demand). Recently some big names have got behind this idea: Anatole Kaletsky, Prof Steve Keen ,Robert Skidelsky, Ellen "Public Banking" Brown and some influential journalists such as Mehdi Hassan and Robert Jenkins .Adair Turner has spoken in favour of Quantitative Easing for the people (QEP).
Being very old I can remember when
LVT could n't get a hearing.

Mark Wadsworth said...

DBC, thanks.

As to helicopter money, as the MMTers have long pointed out, the government can print and spend as much money as they like, they don't need to collect taxes (in the short term).

The problem is that this leads to hyper-inflation (in the medium term), so the function of collecting taxes is not actually to raise money, it is to prevent hyper-inflation (a transfer of wealth from some groups to others = A Bad Thing).

In which case, the obvious thing to tax is land values, because land price inflation is the most corrosive kind of inflation.


Ian B said...

Thanks Mark.

Housing benefit remains a problem then, okay. Just wanted to know what is being proposed.


The problem with Douglas's scheme is his arithmetic is total pants, which kind of blows the rest of it out of the water.

As to QE, it's only not caused a disaster because it hasn't done what it was claimed to be supposed to do, which was increase bank lending (M4). Currently M0 has been bloated by 350%, M4 is up by... 7%, hence the lack of inflation. If the bankers actually started lending it instead of shoving it up each others' backsides, the economy would spiral into hyperinflation.

DBC Reed said...

This isn't helicopter money (no bad thing in itself) its just, in the case of QEP, the latest attempt to direct newly created money from banks and rich bastards who use it to enslave people towards the people themselves to spend.You don't get hyperinflation when banks create money; they're doing it right now but so selfishly that they have created stagflation.Its just a question of the State reasserting its right to create money and directing it to the demand side of the economy instead of ,as now, the banks funding financial terrorists.
Like a lot of the most unorthodox land taxers, you are ultra orthodox about monetary reform believing that private sector banks should create money and do what they like with it.Or else the sky will fall down.The sky has n't fallen down in North Dakota.

Mark Wadsworth said...

IB, I/we/the Citizen's Income Trust would retain Housing Benefit/Council Tax benefit for the time being, and if YPP were in charge, they would be rolled into a single "Land Value Tax Benefit/Rent Support" as a separate benefit running in parallel with normal CI.

Over time, the cap on the amount you get would be pushed down; the basic CI would be pushed up; and the withdrawal rate for the "LVT benefit" would be pushed up until the problem has sorted itself out (people either 'right size' or get themselves an average-paying job, which will always be enough to pay the average rent/LVT, by definition.

DBC, my view is that private sector banks can create as much money as they like, provided

a) None of it goes into land price inflation (LVT-man sorts that out)
b) Their 'rental' income of about 1% or 2% of gross lending is taxed away via a bank asset tax.

As to this: "You don't get hyperinflation when banks create money"

I refer you to Ian B's point:

"As to QE, it's only not caused a disaster because it hasn't done what it was claimed to be supposed to do, which was increase bank lending (M4). Currently M0 has been bloated by 350%, M4 is up by... 7%, hence the lack of inflation."

I largely agree with this view.

DBC Reed said...

Please prove Douglas's arithmetic was total pants.It could n't be much simpler: work out total productive capacity of economy : subtract total amount of money in circulation ; issue the difference in citizen's income or National Dividends.The economy will then work at full capacity.

A lot of you so-called libertarians believe those darling bankers
are only trying to create money through FRB to enrich the common man.

Ian B said...

It could n't be much simpler: work out total productive capacity of economy : subtract total amount of money in circulation ; issue the difference in citizen's income or National Dividends.The economy will then work at full capacity.

That's the part that's pants. The production in the economy has to equal the money in circulation, otherwise there would be some left over, in which case it wouldn't be in circulation, because it wouldn't have been spent on anything (circulated). Which is internally contradictory.

Douglas should have realised that the mismatch between the two figures he thought he'd identified is an impossibility. It's the same type of impossibility as measuring a difference between the input and output energies of a classical physical system.

A lot of you so-called libertarians believe those darling bankers are only trying to create money through FRB to enrich the common man.

Except that Libertarians are the most persistent and vicious critics of the "darling" bankers, FRB, etc. No, Tim Worstall doesn't count. Not a Libertarian.

Kj said...

Whatever monetary system you have, prices will adjust, and you can only redistribute between holders of money/debt, and in the best case remove excessive benefits from certain financial oligopolists, which is probably a good thing if we can work that out (free banking gold footing whatever, maybe even state banking for that matter). Real resources OTOH is subject to real limitations, where monopolies always gains more, and that´s a fact under any monetary system. Conclusion, I care less about the monetary system that floats on top of the real resources and wealth creation than actually redistributing the benefits from monopoly resources. Peter Smith did an excellent job in describing the issue in The Cargo Cult of Money.
Another matter is that macroeconomics, as in someone who actually believes they know the "full productive capacity of the economy" , is one of the most inherently dangerous and destructive plaything someone has created, and I´d rather noone have access to it, not a comittee nor the arses we vote in with regular intervals. Here endeth.

Kj said...

MW: the temporary measure,LVT-support, essentially Housing Benefits, means tested and all, but with a tapering over time?

DBC Reed said...

This is getting very confused. Either you believe that private banks should control the creation of money by FRB or you believe that power rightfully belongs to the people and their representatives.In the latter case (of Public Banking) one of the other advantages is that bank interest becomes a tax on money which can defray other taxes.The problem of leaving LVT to sort out Fractional Reserve Banking is that the LVT has to be
at rebarbative levels. With Public Banking the State could pay for the CI out of the Fractional Reserve uplift.It is nonsense that the State borrows money off the banks who have created it themselves when they could cut out the middleman and create money on its own account.The State does not really need to tax to get money either.

Mark Wadsworth said...

Kj, agreed and yes.

DBC, no I am not confused at all. You cannot legislate against FRB so there is no point trying. But you can easily impose LVT which gets rid of all the bad side effects of it.

And your idea about paying CI out of FR uplift doesn't stack up, you are comparing a current amount with a static amount.

"It is nonsense that the State borrows money off the banks who have created it "

Agreed, obviously, what's worse is that the govt creates money and lends it to the banks at below market rates. And then borrows it back etc ad infinitum.

Kj said...

DBC: you can always tax banks, and yes, have some public banking. BND contributes somewhere between 50-100 dollars per capita in net profits net to the state of ND. Which is nice, but does not a CI make.

Bayard said...

"Housing benefit remains a problem then, okay."

Not really, simply cap it at the level of the rent charged by the local authority.

Mark Wadsworth said...

B, we only have Housing benefit on such a large scale (and it's not even that large, TBH, private landlords get £9 billion a year) because they sold off the council houses and didn't build any more.

So obviously you would have a cap, as Kj suggested, and that would be reduced over time and the basic CI would be nudged up. At the same time, build more council houses again so that there's enough for the bottom 30% of households, job done, sorted.

DBC Reed said...

Despite the frantic,embarrassing loyalty to the private sector banks in evidence here, the fact remains that Quantitative Easing
would better be directed to the demand side ( as in Quantitative Easing for the People)and not the supply side via the wonderBanks who seem to spend it on everything else bar production. ( I forgot that one fugitive to here from Worstall [who seems to have gone off the air] said that it was a good job that
the banks were n't distributing all the QE money else you'd get hyperinflation.Even Hitler was n't worried by this when the Nazi economy was under capacity: unemployment etc)

Kj said...

DBC: first of all, why do you assume loyalty to the "private" banks? I haven´t seen anyone who is very much in favour of bailouts, QE or other "injections" into the banking cycle, and many of us are probably more against other favourable towards other interventions into private banking, such as deposit insurance, and would favour public banking as an option if not a monopoly (for different reasons). But what if Ian B is right? That the only reason that "money printing" in one form of the other hasn´t gone to inflation is exactly that the financial system has been sucking it into their own balance sheets? As MW has demonstrated in another thread, ideas like the "output gap" is controversial, and we should be sceptical about the idea that we can measure all these parameters and decisively to measures to reach "desired" parameters, at the right time. I´m not saying no such thing can ever be done, I´m saying it´s quite unlikely that such a thing can be done if you mix in politics, corporatist interests and general folly that would inevitably be a part of such a measure. And do this regularly? Don´t make me laugh.
Besides, you are discussing two quite different measures, funny money and public banking. The latter may have some merits, the former is subject to what is mentioned before. You jump between these two as they are interchangeable, and they are not.

Mark Wadsworth said...

Kj: "But what if Ian B is right?"


His statement that QE merely inflated the number on the computer screen showing mututal indebtedness between government/BoE and commercial banks is quite clearly 100% correct.

The Jap's have done the same. Official govt debt is 500% of GDP (or some such insane figure) and bank holdings of govt debt are also 500% of GDP, but all the banks do with that money is lend it back to the BoJ/government.

It is completely nuts, but thankfully, apart from generating massive banker bonuses, has little impact on the economy or real meaning in the outside world.

DBC Reed said...

KJ The output gap is hardly controversial: it is central to current economic policy as evidenced by Mark Carney's Inflation Report today in which he suggested that it should be taken as the main, going on only, objective of policy.
We will not get anywhere with LVT by ignoring the output gap. It is our best argument : that output is suppressed by land values sucking demand out of the economy.

Kj said...

We will not get anywhere with LVT by ignoring the output gap. It is our best argument : that output is suppressed by land values sucking demand out of the economy.

Agreed, but the absence of proper taxes on economics rents reduce demand by reducing returns from labour and capital, both by taxing them too much, and by diverting investments/consumption to land, not from a lack of paper money. Even if we agree that LVT reduces demand, that doesn´t mean we can say exactly how much, which is my point, we find out by way of the market when doing it.

Kj said...

DBC: and by the way, when I object to funny money being used to "fund" a CI, I don´t object to a few percent deficit spending, that probably won´t matter too much, but I disagree that you can have a significant CI funded by it without inflation. Not to the same extent that you can from an LVT, that recycles economic flows that comes from the real economy.

Mark Wadsworth said...

DBC, yes, the economy would run at a much higher level if we shifted to LVT, estimates between 15% and 50%, depends on whether you look short term or long term.

This has little to do with 'output gap' in the sense they mean it, which is a pseudo-scientific figure of about 5% of GDP.

I refer you to Kj's responses, nothing more to add.

Kj, except this: "LVT reduces demand". For what? No it doesn't, if anything it boosts demand.

Kj said...

MW: err, that was supposed to write the absence of LVT .

Mark Wadsworth said...

Kj, you are forgiven :-)