Tuesday, August 07, 2012

Bruce Wilder

08.05.12 at 5:12 pm at Crooked Timber again.

Here’s a post-apocalyptic vision (after we’ve brought down the helicopter gunships of SuperPac billionaires with our populist peashooters):

1.) The payments system is taken back from the Visa/Mastercard debit/credit folks (where it is currently exacerbating income inequality—why is Bank of America giving me a kickback of 1% to 3%, and whose paying for that, if not the poor and merely middle-class?) So, everyone has something like a debit card (maybe it’s like Google Wallet, and virtual) cum identity verification, and gets credited ~$1000/month by the Central Bank in units of CB currency issue. (See the Influidity blog, for fuller explanation of why this would be a very good idea, for institutionalizing monetary policy in the 21st century, digital credit age.)

2.) There’s a bit of paternalism at work, behind the digital scenes. There’s no takeback or needs-testing, but there is some capacity in the system for sequestration: welfare agencies or guardians (parents?) can target minimum allocations to food (food stamps—which are a debit card now, anyway, not stamps) or shelter (Section 8 in the U.S. policy parlance), with appropriate modifications for people, under out-patient psychiatric care, prison half-way houses, substance addiction treatment, etc.

3.) Taxes on economic rents—“land”, corporate profits, high ‘labor’ incomes—executives exploiting power and hollywood stars exploiting the accidents of celebrity—are managed as a fiscal policy to stabilize the economy. We worry about people with a basic income giving up on ambition or responsibility (see 2, above), but we worry even more about people, with excessive power or luck, running out of control in pursuit of status and sadistic satisfactions.

In the U.S., we’re living in a society unmade by low marginal income tax and corporate income tax rates, which have the effect of leaving economic rents largely untaxed. It’s the 21st century equivalent of the 18th/19th century German Junkers or the British landed aristocracy running out-of-control, with ecological catastrophe instead of world war looming on the horizon as consequence. With the Central Bank spewing free money at banksters, there’s a boomtime in schemes of extraction—innovative usury—from the poor (and everyone, other than the 1% is poor, or soon enough will be): for-profit education (student loans are an absurd abuse), for-profit health care, payday lenders, debit card kickbacks aforementioned, dental care financing, veterinary health insurance (the prices of vet care for pets has skyrocketed over the last 15 years in the U.S.)—anyway, enough of that rant.

I realize that Q is trying to think through the feasibility, and don’t wish to derail. The point I’m trying to make is that we might want to think about this feasibility issue in a framework of terms of solving problems of the financial system, rather than strictly in terms of solving problems of the social welfare system.

The financial system is supposed to help us optimally allocate funds for investment, but it does a lousy job, for a variety of reasons. One is that many worthwhile investments cannot be made unless a business model can be devised, which captures a large part of the return on investment privately, for repayment of a loan or a capital income for a capitalist owner/investor. A competitive market economy, though, tends to cause the returns on innovative investments to diffuse away into economic rents on only incidentally related factors of production. The returns on general education, for example, do not accrue to individuals with education so much as to landlords, particularly in urban areas where the educated congregate to use their education in productive ways. The financial system will work hard, not to identify the best investments, but the sources of power and economic rent, which assure the possibility of private returns on investment, and this dynamic has a tendency to elide into usury (or fantasy frauds, such as ponzi schemes, but that’s another story).

One way to think about a basic income, and its design, would be as a way of correcting for the biases of the financial system, providing means for highly decentralized sunk-cost investments and risk-taking by individuals. And, in that regard, I would think it might be worthwhile thinking not in terms of how much of a burden would have to be imposed to up the proportion of national income funneled thru the tax-and-transfer scheme, but how much of distorting economic rents have to be captured at the upper end of the income scale, to bring the worst impulses of the (private) financial system under control.

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