Sustainability through Massive abundance.

Episode 25: Getting Free Money

How a universal basic income would make cities economically stronger and ecologically more sustainable. Caution: the first two minutes of this episode may challenge what you thought you knew about money!

◄Home | Reference Design | Free Newsletter

Transcript

“What if you could have all the money in the world?”

This is the kind of crazy kid-style question I used to hit my grad school roommates with all the time. They got used to it. Eventually, their answers got pretty good. In this case, I was talking with Bryan Miller, my vegan roommate who wouldn't hurt a fly. He was a true gentleman, and I'd caught him on his way to the bathroom first thing in the morning, and he stops and says: "Well, I wouldn't take that offer, because money is a medium of exchange. If no one else has money, it would be meaningless."

But I pressed him, I said, "What if I forced you?"

"Well, I'd have to give nearly all of it away immediately, like today, because by tomorrow, people would start inventing new currencies that they could use and my money would soon be worthless."

Well, that put me in my place, didn't it?! It really expanded my concept of what money is.

Like most people, I thought of money in strictly zero sum terms, as a way of managing scarcity. If I have more, you have less. But Bryan's comments opened up a whole new world for me. He had just shown how, in the big picture, money is a social vehicle that has more value when more people have it.

Hmm, does that sound familiar? Back in Episode 21, I spoke about permaculture founder Bill Mollison's fourth type of resource: those that degrade when not used. Is money ultimately like that? And in the same episode, I also spoke about economist Carol Rose's Comedy of the Commons, where you have types of resources that gain value as more people use them. This would be things like social media, or the internet itself or phone networks. Could money be a little bit like that, too?

This is a design show, so our question today is: how can we design cities to make sure that money does the most possible good for everyone. And spoiler alert, one of our answers is going to be to make sure that everyone has money.

INTRO [music]

Cities designed like modern Edens, for economic and ecological abundance. I'm Kev Polk, your guide to Edenicity. Welcome to Episode 25, where I'll discuss the Edenicity of getting paid.

Our winner-take-all world

We live in an economy that is rapidly careening towards the hypothetical that I hit Bryan with all those years ago. We live in a winner take all economy. According to a 2019 article in brookings.edu, titled Six Facts About Wealth, the top 1% wealthiest people in the United States hold $25 trillion of wealth while the entire middle class, the middle 60% hold $18 trillion. And it keeps getting worse. The middle class actually had more wealth than the top percent before 2007.

According to Rutger Bregman, in his 2017 book, Utopia for Realists, the richest eight people in the world own as much as the poorest half of humanity put together. We have more wealth inequality than ancient Rome, slavery and all. And speaking of slavery, part of what's driving this change is that work is increasingly mechanized and automated. We'll say more about that in a moment.

But let's back up a moment and ask what's wrong with this much inequality? Well, letting people suffer or even starve is cruel, of course, and it's unjust. Bregman points out that for every homeless person in America, there's five empty houses. And it's hard to imagine justifying that, given that for many people, homelessness is practically a death sentence.

And yet most of us are fairly blasé about the plight of The poor. Why is that? I think maybe it's based on the belief that people are individually in control of their fortunes. In truth, this is just not the case. Random factors dominate, especially when you don't have money.

The Lottery Economy

I recently read a kind of mind blowing book by Dale A Dauten called Max Strategy. It was published back in 1996. And in the book, he points out the paradox that although most experiments fail, real wealth comes from innovation. And this brought to mind toss off comment that Tim Ferriss made in his 2007 book, The Four Hour Workweek, that even a publisher with 20 years experience finds a book that breaks even only 5% of the time. According to the US Small Business Administration, business facts from 2020 50% of businesses fail within five years. And keep in mind that everybody involved in writing, publishing and starting businesses is working as hard as they can to make things succeed. And yet the failure rate is still very high.

Success is kind of a lottery. And in Max Strategy, Dauten points out that in a world of change and innovation, imitating success practically guarantees failure. People study other successful people and try to duplicate their career and business strategies. But that doesn't work in a constantly changing world. It's almost a perfect formula for mediocrity and failure, because it makes you a sitting duck for competitors that experiment and innovate. Dauten points out that there's an overcapacity of skills with too much risk aversion and so this leads to bogus jobs. There's too many people competing for too few soul sucking jobs like commodity day trading, and search engine optimization, which is basically all about what keywords will make your product a best seller for at least a few minutes on Amazon.

Would you take this bet?

Can you see that the vast majority of people can't risk any significant amount of personal time and money in any significant new ventures? In Max Strategy, Dauten makes this really personal with the following thought experiment:

Would you risk $100,000 on a coin toss to get a million dollars?

Well, it depends on who you are.

According to the Federal Reserve, in 2017, the median family net worth was $100,000 in the United States. So imagine you are the head of that median household and somebody offers you this bet. Everything you own --your cars, your home, your dishes, everything-- against a million dollars on a coin toss. Are you gonna go to your significant other and maybe your children and be able to convince them to take that bet? Probably not.

And if you're a black family, chances are you won't even get to play, because in the United States, the median black family's net worth is $20,000.

The only people who could reasonably take that bet and justify it to their families are those who have many multiples of $100,000. So the only people who can really benefit in a lottery economy are those who have considerable money to begin with.

Amazon.com founder Jeff Bezos, who is now the richest man in the world, was speaking at the Bush Center's forum on leadership in 2018, when he said, "one of the foundational things to being able to take risk is to have some kind of support." He went on to say, "I've won a lot of lotteries. Amazon is one of the lotteries that I've won. But I had a Big Lottery with my parents."

Bezos's parents were able to put money into his education. They were able to take really good care of him growing up. They had the financial means to do that and they were able to invest $250,000 In the Amazon start up: a pretty good chunk of change that most families in the United States don't have.

This really sheds light on the question:

Why are Poor People Poor?

Now, when you see somebody in the grips of poverty, they're under tremendous stress. And one of the things that happens when you're under stress is that it's a little bit harder to access your rational mind. This is why people sometimes feel their brain shut down during a high stakes test, for example. and imagine living with the feeling that your very survival is on the line every single moment of every single day. It's just a little bit harder to make good decisions. And so when you see people in the grips of poverty, making bad decisions, it's easy to assume that they're poor because of those bad decisions. But in fact, it's really the reverse. Because they're poor, they may not always make the decisions that you would expect. In fact, there's an article in The Economist just today about the economics of bad judgment.

But the fact is that most poor people are very hardworking and make much better decisions than you would expect given half the chance, as we'll see in a moment. They just simply can't play the lottery because they're out of money. They have no inheritance. And in many cases, they have difficulty accessing what safety nets are available.

And there's large scale factors at play that push people into poverty. There's been a shift of income, for example, from labor to capital. Now, income from capital is passive income from ownership. This would be investments or royalties, and it grew 6% compared to income from labor between 2008 and 2018, mainly due to global labor markets driving down wages, and automation displacing jobs.

As machinery replaces labor, more and more wealth is tied up in capital rather than labor. Yet we still tax labor far more than capital, don't we? This is bad policy! This accelerates the concentration of wealth and reduces the number of people who can participate in the economy.

How do we correct this? Well, there's of course, many social programs such as food stamps, job retraining, but there's inefficiencies involved in all of these, which I'll get to in a moment.

What is Universal Basic Income?

But what about giving people free money? In fact, what about giving everybody free money? This would be a universal basic income, no strings attached. Free routine payments to every person regardless of need.

It would be a monthly income from the government to everybody. Now, how much would this need to be to keep poverty at bay? According to the US Department of Health and Human Services, the poverty line in the United States is $12,700 per person per year in 2020. So $1,060 per month would be enough to lift every citizen out of poverty.

It's actually a sliding scale because a family of two could get out of poverty on $1,400 a month, while a family of three could get out of poverty on $1,800 a month and so on, because it costs less to share a house and other living expenses.

Is UBI possible?

Now you may be thinking, yeah, but does it work? Does giving everybody free money really lift people out of poverty?

Well, in his book Utopia for Realists Bregman lists a very large number of historical experiments, going back to Speenhamland, England, which began in 1795, and was regarded for centuries as pretty much a failure. But now historians are thinking that it may have helped stabilize England's economy, helping it become a world power. In 1964. Lyndon Johnson's war on poverty involved experiments with 8500 Americans on universal basic income in seven states. The results were very encouraging: more graduations, fewer hospitalizations, and people using the money to support themselves while they found a higher paying job.

In 1968, 1,200 economists signed a letter recommending that the United States begin a program of universal basic income. the Nixon administration push this forward in the form of the Family Assistance plan, which had a 90% approval rating in the press, and passed the house with a vote of 243 to 155, before dying in the senate due to political infighting, and a false report that the experiments had increased divorce rates.

Bregman goes on to give many examples of recent successes in Africa, including GiveDirectly's cash to the poor in Kenya, which found that people invested the money and capital for their own small businesses, and 2008 program in Uganda where the government gave away $400 to 12,000 people who used it mostly to invest in education. Their incomes went up by 50% and their employment went up by 65%. He also mentions a follow on program in Uganda, which involved giving 1800 women $150 each, and that increased their incomes 100% after they spent the seed money on whatever they needed to earn a higher income. So the evidence is that the poor actually use the money wisely.

What does UBI accomplish?

Universal basic income directly and effectively addresses poverty. It provides a safety net for everyone, because in our world of rapid change, anybody can lose a job at any time. And anybody could have their investments wiped out at any time.

It removes the red tape and guesswork involved in distributing aid. And it gets rid of the Means Test: that degrading process where people have to prove that they're poor enough to qualify for assistance. This is a critical economic point because it takes the distribution of money out of the business of picking winners and losers, which involves making the judgment call of who's the working poor versus who's the lazy poor.

Now look, I've lived in the poorest county in Ohio. I've seen things like food stamp scams, where somebody walks into a restaurant with a case of soft drinks, trying to sell it to the owner. Where'd they get the soft drinks? Well, with food stamps at a grocery store. And they're basically trying to turn that into money.

This is a basic inefficiency built into the food stamp system, which is based on the arrogant assumption that the central planners of that system know better how the money should be spent, than the people they're giving it to. People need money for all kinds of things: medicine, transportation, and what they get is more food stamps than they actually spend on food in a month. I've also seen how in an economy where there's not very many jobs, gig workers such as handyman can be no shows for small jobs because the bigger job comes along last minute.

So I've seen the results of safety nets that try to sort out the good from the bad guys and try to tell people how they should spend their money. And the results are kind of disastrous. There's immediately huge incentives for people to create an underground economy to correct these imbalances. So again, the universal basic income provides a much more efficient means for addressing poverty than all of these other programs.

What about the risks?

Now, what are the risks? I mean, let's really take on this question of: does it reward laziness and bad choices? I've talked with Harvard economists who believe that we're really in an era now, where the big narratives of economics are over. And we really should just focus on applications and they get down to worrying about what to do about the fact that some people just continue to make bad choices and others make better choices.

I would argue that that's not the place for economic reform and economic policy. When we look at the empirical data, when we look at what's actually happened, it doesn't support the negative assumptions most of us were raised to make about the poor. Bregman pointed out that the studies I mentioned earlier showed a very slight reduction in employment hours among younger people. But there was a general trend to higher value employment. In other words, people used the money for education and to keep themselves afloat while they looked for better jobs. Even when you give money to addicts and criminals, as they did in Liberia, what they found was that the people spent the money mainly on food, clothing and starting new businesses. And this is indeed what they found in a London experiment in 2009, with 13 homeless men.

Here's why crafting a policy to pick winners and losers is a mistake. Imagine a 25 year old woman who likes writing stories, but never seems to finish them. She moves overseas to teach English, and within a couple of years she meets a local guy at a pub, marries him, has a child, but it doesn't go well. He beats her. So she flees the country with her daughter. Now she's alone, jobless, destitute, with a baby to care for. She applies for public assistance because it's either that or become homeless.

What she's supposed to do? You guessed it: pound the pavement looking for jobs, of course.

But she doesn't. Instead, she keeps writing.

It's a terrible time for her. She has a college degree, but feels like a total failure. Her classmates are all climbing the career ladders and making big money. She's depressed, suicidal at times. Her estranged husband turns up trying to haul her and her daughter back overseas. She files restraining orders and eventually gets a divorce. Her mom dies. More depression, more despair.

Now she's 30. And she finally after five years, finishes her first manuscript, a short children's novel. She finds an agent who shops it around over the next year. 12 publishers reject the book before one finally picks it up for a measly $2,500 advance

Remember, that publisher has about a one chance in 20 of even making that amount back along with printing and distribution costs. And she picked a crowded genre: fantasy adventure books for young boys.

So our heroine finally faces reality. She stops writing and enrolls in a teacher training course. But her heart is not in it.

Eventually, she wins a $12,000 Arts Council grant and starts writing again, stretching every penny for as long as she can.

She's almost 32 when her book is published, with an initial print run of 1000, half of which goes to libraries.

Five months later, it starts winning awards. The book is auctioned for overseas distribution, and she gets her first big advance: $105,000. The book and its sequels eventually sell 400 million copies and spin off a movie franchise with nine blockbusters and our author JK Rowling. becomes the first person in history to earn a billion dollars writing stories. Chances are you know somebody who's read Harry Potter.

How many other authors, business people, musicians, artists and inventors had to give up their dream forever because they were unable or too proud to get on public assistance? Means testing prioritizes mothers and children and, in many places, men are simply out of luck. Anyone can lose their assistance at any time without warning, and have to spend all day for weeks trying to get an appointment to get back on the rolls.

In Max Strategy, Dauten points out that to succeed in business or most any career, you need to start playing games that have big payouts and low costs over and over again. The universal basic income deals everybody into that game by providing a universal safety net.

Now, some people have argued that universal basic income depresses labor markets. I mean, if people are already being paid, then why can't employers just offer tiny wages? Well, the answer is, with the universal basic income, labor is, if anything, a little more scarce because workers now have options. They don't need to take a job immediately or starve. So employers must offer either higher wages or better conditions to attract labor. If this kills any jobs at all, it will kill bad ones.

Funding UBI

What would it cost and how will we pay for it? According to The Balance' review of the US federal budget, mandatory benefits came to $2.7 trillion in 2019, including Social Security, Medicaid, Medicare, food stamps, and so forth. To fund a universal basic income up to the poverty line would cost $2.6 trillion, and it would replace many of those programs.

At this level, a household of three would get 1800 dollars a month. That's affordable without changing the tax structure much at all.

But recall how wealth is shifting from labor to capital. Well, how much capital is there anyway? In the United States, according to the Brookings Institution, we have 100 trillion dollars worth of capital wealth, that's $300,000 per person on average. If we were to tax that at half a percent a month, that would give our three person family $2,400 a month, all by itself, and we could reduce other taxes and entitlements significantly. That really would take the edge off. And as we'll see, this kind of intervention would go a lot farther in the Edenicity.

Now a more progressive tax structure has environmental benefits. Progressively higher taxes on higher value assets, property and income, encourage people not to waste resources. For example, having many houses that are unoccupied throughout the year, which is absolutely terrible for the planet. In Utopia for Realists, Bregman points out that higher taxes on higher earners encourages people to do work that is more useful, rather than competing for high paid search engine optimization jobs, for example.

How would UBI work in Edenicity?

Now, you may be thinking, "do we really need something as radical as a universal basic income in Edenicity?" I mean, isn't it an unnecessary extra that would weaken its business case? Won't it scare businesses and investors away? Well, no! It actually reduces risk, because it would substantially reduce crime and there'd be less family disruption, so people would have less to lose.

Robert Reich, Bill Clinton's labor secretary, has for decades made the point that cities attract businesses better through a race to the top rather than to the bottom. Instead of offering tax incentives, they need to focus on the fundamentals that create a vibrant economy. That starts by creating a great place to live and raise a family. A universal basic income massively increases the quality of the environment and the labor pool. Employers love that.

And let's look at the rewards. A universal basic income creates a much stronger overall economy, where more people can innovate, and this creates far more wealth.

It's also easy to fund because the cost of living in Edenicity is half of what it is in any major city today. See episode nine for details.

I found it fairly easy to model a universal basic income with a flat wealth tax, and it funded everything, including the operational aspects of transportation, energy, healthcare, education, building and farm maintenance and wild habitat restoration.

Does it HAVE to be this good?

But does it have to be this good? Yes!

I mean, cities don't strictly need fancy fiscal policies or free transit systems, any more than clothes need to be beautiful, or iPhones need to look cool. Or for that matter, cherry trees need more than a few blossoms in the spring. But this is Edenicity we're talking about. The whole point is that it's much, much better than it has to be by design. And that design includes making sure that everybody has money.

Close [music]

If you're enjoying Edenicity I need your help getting the word out. Please let your friends know about the show on social media. And you can really help by subscribing and reviewing it on Apple podcasts or any other podcast player. See the Episode Notes for the links. And be sure to join me next time when I'll discuss the Edenicity of justice. I'm Kev Polk and this has been Edenicity.

Sources

Edenicity 25: Getting Free Money

Copyright © 2020 by Kev Polk. All Rights Reserved.
| | Privacy Policy