A New Approach to Aid: How a Basic Income Program Saved a Namibian Village
spiegel.de
spiegel.de
That is, if say, $500/week was the basic income level, wouldn't the price of everything rise quickly to subsume that $500 almost immediately, as it moves the lower-bound from $0 to $500?
If not, that's wonderful, and I'd like to learn more about the idea of a society where you can still get rich but will never be in poverty.
A lot of money seems to have gone to education, which had excess capacity it could use to fill new demand at current prices.
It's not stated, but it sounds like most of the villagers aren't paying any kind of rent. I've always suspected that rent would be the place basic income might vanish into rising costs. Would be interesting to see how that turned out.
Anyway, it sounds in this case like most of the money was used as capital, which is a win for everyone.
The basic income is a form of wealth distribution. The poorer people get a larger share of the economy at the cost of the richer people getting a smaller share.
Assuming that we have the capacity to produce enough stuff for everyone to live off of, then we could give everyone a livable wage by putting 100% of the money into the basic income.
The downside to this is that (for the most part) a basic income mucks with the incentive structure, so it results in us having a lower production capacity [0]. The hope is that our production capacity is sufficiently large that we can have a much smaller percent of money go into basic income where it is still a livable wage, but small enough that it does not shrink our total capacity significantly.
Additionally, you also have to look at how elastic the supply of basic necessities are (that is to say, how much prices increase with demand). In the USA (and probably other countries), food is highly elastic, so prices would not raise significantly. Housing is weird (because politics and zoning), but we would expect to see more low cost housing to be built to match the demand, however this would take a while to occur.
[0] At a macro level, it can be argued that a basic income could actually increase production capacity, but that is not relevant to your question.
Would be interesting to see it play out in a community with a higher baseline.
Here in the 1st world any basic income which we try has to be paid by us too. It's doable. But it's not a panacea. http://www.vox.com/2014/10/8/6946565/progressive-taxes-are-n...
The economics are so complex that unless someone tests it at least at a town-wide level, nobody can predict the outcome. This Namibian town and Dauphin, Manitoba are two such sites. Some other experiments have failed because tests were not done with 100% of the local population, which creates an unwanted interaction between the BI and non-BI group.
A very simplified view of a basic income is that your new post BI income becomes a percentage of the population's average income plus 1 minus that percentage of your current income:
> I_post_bi = aI_ave + (1-a)I_pre_bi
If a=0 we have capitalism, a=1 communism.
For small 'a', this does change individual incentives a bit, but not much for those with very high income. That is because your incentive to produce is a function of how much more you will make (as a percentage) vs. how much more time you invest (as a percentage). For incomes much larger than the basic income, this ratio remains the same.
What is the optimal 'a'? Who knows. Just start with a low one and slowly increase it to find out.
If one really wanted incentives to be neutral across the board, one could try:
> I_post_bi = a*(I_pre_bi)^p, where 0 < p < 1, a<1
This would be a subsidy for lower incomes and a (pre-Reaganeque) progressive tax for higher incomes.
The more important question is what will happen to the group that is around the cusp of working/not-working. Some may choose not to work post-BI. Some may choose to stay home and take care of the kids, elderly parents (which is not necessarily "bad" for the economy when you factor in future earnings of children and reduced health care costs of parents). Some might even choose to start a business.
I realise you're intentionally oversimplifying, but it's worth pointing out that Marx wrote page up and page down to complain about simplistic ideas about redistribution, including simplistic ideas put forward by other socialists and communists about the practical politics of redistribution.
To Marx, under socialism it seemed reasonable to push individual incomes closer to an equal proportion of their contribution to production (but even then distorted in various way by welfare), while under communism he made the point that distribution would explicitly be unequal not just as a side effect of imperfections, but as a fundamental property of the system, because the goal according Marx would be for distribution to follow need independent of your ability to produce, and peoples needs are wildly divergent.
Under no circumstances did he advocate a "flat" equal distribution per person (nor anything similar to that). Instead he explicitly argued for unequal distribution. In the Critique of the Gotha Program, he wrote:
"Further, one worker is married, another is not; one has more children than another, and so on and so forth. Thus, with an equal performance of labor, and hence an equal in the social consumption fund, one will in fact receive more than another, one will be richer than another, and so on. To avoid all these defects, right, instead of being equal, would have to be unequal."
He then went on to argue the famous "from each according to ability, to each according to his needs!" [as a goal for an advanced communist society] after explicitly pointing out the unequal nature of such redistribution, and went on to write:
"Quite apart from the analysis so far given, it was in general a mistake to make a fuss about so-called distribution and put the principal stress on it."
Instead, according to Marx "any distribution whatever of the means of consumption is only a consequence of the distribution of the conditions of production themselves" - in other words, it is the working class control of the means of production that is important; redistribution would follow from that - an argument that e.g. the Bolsheviks either learned from or ignored, depending on how cynical you are about their intentions, when they started reigning in their early experiments in worker control in favour of the control of their party.
http://www.tradingeconomics.com/namibia/inflation-cpi
Also, even testing at a town wide level is insufficient. This BI is merely a transfer of resources from outside the town into the town. How could that not make the town richer?
At the nation level the only way to accomplish that is imperialism.
Upper middle class to low end rich invest money in stocks, bonds, real estate. They aren't investing in startups or the next big thing. Taxing the "hell out of some rich guy" allows society through its elected representatives to make such investments and to invest in things that society deems useful (at least in theory). It's through this mechanism that one gets the space program in the 1960s. The Hoover dam, the highway system, clean water, etc. Private investments could not possibly have produced the moon landings, etc.
The relevant measure: http://en.wikipedia.org/wiki/Marginal_propensity_to_consume
...allows society through its elected representatives to make such investments and to invest...
Which is irrelevant to this conversation since we are discussing taxing people to pay for consumption.
"Mucks with" is not a positive term. And to be sure, there are employers for whom the introduction of UBI would be a very negative thing. But there are people (many more, I suspect) who would see UBI as a positive development. These people would not say "it mucks with the incentive structure". They would say "it improves the incentive structure by making it more humane".
Why? Because if you were an employer with a business model that relied on easy access to the bottom end of the labor market, abject fear would cease to be a viable management tool. In a world with lower barriers to quitting you'd no longer be able to pad your margins by exploiting workers in a way that would be inconceivable if they didn't live in constant terror of hunger and homelessness, should they suffer any disruptions in their jobs. To put it more politely, as a manager, you'd have to make more use of carrots and rely less on sticks. This would certainly muck up the game of anyone who relied on nothing but sticks, but again, that would be an improvement in the eyes of many.
Consider, for example, the employers that refuse to give people full-time work to avoid paying benefits while simultaneously refusing to give people regular schedules, which bars them from taking seconds jobs. These employers are demanding full time availability for part time returns, and getting the on-call time for free. This is atrocious. While I can only speculate here, I suspect this practice would be far less common in a world where people desperate enough to put up with this abuse were significantly fewer and further between.
What opponents of UBI must concede is that the end of labor extracted on highly unfavorable terms from people who fear for their very survival does not mean the end of labor in general. As most people on HN know, there are many reasons besides basic survival that motivate people to expend effort. Taking some of the negative power out of employer's hands would re-focus their efforts on developing non-abusive ways to keep people expending effort on their behalf.
That's bad news for managers who lack the ethics to be managers in the first place. It's good news for decent managers who no longer find themselves lumped together with thugs and thieves (and yes, wage-theft is endemic at the lower rungs of the economy).
I should point out, too, that only a fraction of the work that people do is also paid employment. Any mother who works full time raising her kids can attest to this. The same could be said of working out regularly. UBI acknowledges that there are all sorts of socially beneficial activities that require considerable effort, but don't require formal employment by staffed organizations.
At present, when we say "work" what we really mean "work done directly for someone else in exchange for money". It's important to note that while UBI may, indeed, reduce incentives to work directly for terrible people who pay a pittance, it doesn't mean that people will stop working for the good of themselves or others in general. Indeed, given our intrinsically social nature, freeing people from the monsters may lead to a spike in the output of socially beneficial effort.
This is much too basic an understanding of the real value of a fixed quantity of dollars to people in different economic classes. $100 to someone making $4,000 a week is a drop in the bucket, $100 to someone making $300 a week is magic.
Of course when assessing the marginal value of a fixed quantity of dollars to different people one also has to take into account their individual preferences, and there's certainly an argument that the net $100 taken out of the income earned in the sixty-first freelance hour worked by a software developer paying for a very expensive condo in San Francisco has more value to them than the extra $100 received by the person who quit their job after BI was introduced because they didn't need an additional income source and found working a bit boring.
Obviously there are many people with little or no source of earned income that desperately need that $100 and would happily work longer and harder than the software developer for less money. Non-BI wealth/income redistribution programmes generally try to distinguish - with hugely varying degrees of success - between those who would find the extra $100 magic and those that don't.
BI is unique in terms of welfare reforms in assuming that factors such as willingness to work and living costs are essentially meaningless when it comes to determining how much people need handouts.
How would that happen? Alice's and Bob's grocery stores still have to compete for customers.
Also, even if they do raise prices, the price rise will be averaged over all their customers, most of whom will be spending far more than whatever the added spend from basic income would be, so will alter the degree of redistribution and the cost, not in any way eviscerate the benefit to those it is meant to help.
Of course, there might be a bunch of social workers, bureaucrats, administrators, and other folks living on BI as their primary income for a while, but part of the point of the system is to take away the stigma of that.
Of course it misses the elasticity of the supply, but also that the supply is not exclusively paid by people for whom $500 makes up all that large part of their demand, so even if there is a price rise, the primary effect of that price rise will "just" be to alter the degree of redistribution (making the $500 worth a bit less to the recipient, and make providing it cost a bit more to the people eventually footing the bill).
The first useful question is, what does this do to the quantity demanded of goods in the economy? One answer is that it does nothing, people wanted food before, they want it now, except that now they have a bit of money to allocate to food. If you raise the price of your soup because anyone can buy it now, you still lose out in your soup sales to a competitor who will sell for the old price. Unlike establishing price floors as things like the farm subsidies do and which encourage over production of unneeded goods, you continue to have market forces which dictate the goods that come to market.
The second question that people toy with is the question of productivity. If everyone is getting a check every couple of weeks for doing nothing, won't they just stay home and sleep all day? Why would they even take minimum wage jobs?
The challenge there is endemic to the current welfare system that is popular in the US which reduces welfare payments in proportion to earned income. This creates an inversion layer where the first 20 - 30 hours per week of work do nothing to change their monthly take home pay. With a BI system every hour worked is additional money in your pocket at the end of the month. Working 20 hours a week in a minimum wage job not converts living at the resident hotel into living in a small studio apartment. Which is to say it has a direct impact on the quality of life experienced by the individual.
And the software engineer making six figures? She might take here bi-weekly BI check and help others, or go out to dinner at a fancy restaurant, or save it for a durable goods purchase. For her, its like "free money" so its easy to spend (which also helps the economy).
Screw the Military budget, The FED has pumped trillions into the economy with its quantitative easing strategy. Which was characterized as "dropping money out of helicopters". Had they in fact dropped money out of helicopters, the experience of the cash for clunkers program suggests the economy would grow much more quickly than it has, and more effectively because it would grow by new workers entering the workforce, transfer payments which would land directly into the 'cilia' or outer layers of the domestic economy like rents, food, clothes, and durable goods.
This idea sounds stupid when you first hear it. I certainly thought it was, but I've been researching the questions above and looking at things (like cash for clunkers) which might provide some insights into the possible effects, and it is definitely not Marxism or pure socialism. It's something different than that, and it is made possible by the fact that individuals in the US economy generate more output than in any previous time.
If money is not spent, it is invested (not hoarded). Even putting money in a bank is investing it, as the bank loans it out to people who spend it.
The idea that giving money to someone to spend is better than to someone who invests makes no sense to me.
As for why it might be better to give money to someone to spend than to someone who invests: someone who can't afford to spend needs money more than someone who can afford to invest.
If nobody's spending, though, you can 'invest' all you want - there's no broader economic gain from letting someone else hoard your money instead of doing it yourself. You'll only gain interest from those willing to trade their long term interests for their short term ones. There's simply more supply of money, and less demand for it, resulting in less return on your investments.
As an (extreme and unrealistic) example, your bank isn't going to give you a high interest rate if the only person spending money instead of investing it all is Bob, who's occasionally willing to borrow at 1% to buy a new TV when his old one breaks. In fact, you'd be lucky for them to even be willing to store your dollars without a fee: What's in it for them? They've already got what they need to lend to Bob covered a million times over.
Consumers aren't the only ones buying, but their lack of buying has knock-on effects on broader investment opportunities - if Bob's the only one buying TVs, TV manufacturers certainly won't be spending money on fancy new equipment. Their suppliers won't be spending money building new mines for materials or manufacturing equipment for construction. This all translates into fewer opportunities for investments, and less demand for your money with which to invest.
That savings become investment because the bank can only make money when the money it holds works for it, is a principle that we all learn in Econ, however after the Mortgage crisis and the response to it, there has been a twist. For very large banks, and for most US citizens they only have very large banks to interact with, they stopped investing in the outer layers of the economy. Banks stopped lending to a large swath of people in part because as a large portion their deposits could be consolidated into very large pools which were used in more abstract investment schemes. Even today if you read Bank of America's annual report you will note that their investments benefit a much smaller percentage of the population than they have in the past[1]. There are merchant banks that are investing in local infrastructure but retail banks, historically a big component in that area, still suffering from the malaise of the breakdown between banking and trading which still has a cloud over them.
I don't think the book is written yet on the entirety of the challenges set up by the consolidation of capital, it certainly will provide fodder for a number of Phds in the discipline :-) But the events of the last 15 years have shown us that when you consolidate large amounts of capital into the hands of a few, their choices on investing it disenfranchise a number of previously valid capital markets. You will note that it is tied in with Piketty's observations and others about dis-contiguous capital pools. When the .01% start disenfranchising the the .99% it might feel to us in the 99% like the Gods fighting amongst themselves on Olympus, but it seems to have really material effects at a micro and macro economic level.
I am convinced, although I don't feel that my belief is widely held, is that direct transfer payments in BI (or UBI) schemes "work" because they force capital diffusion. And it is the market forces that seek to consolidate that capital that pull the capital through the economy. I originally held the opinion that such diffusion, which has to come at the cost of taxing those capital pools in the first place, would remove the incentives for those people to collect it (the old 'communist trap' you learn about, if you're not going to get to keep it, why work for it). The change though is the force multiplier effect of modern technology which has increased productivity for those who employ it far far above that of previous workers. That and a growing inefficiency of the existing transfer payments system have suggested we may have reached that point where the combined increase in efficiency of abolishing welfare and a modest tax on very large capital consolidations could provide an outsized economic benefit. The danger (or the trick of it if you will) is to manage the capital burden so that it remains a positive benefit. You essentially want a 'leaky bucket' algorithm for capital diffusion. Which is why I expect that until the next shoe "drops" which is the complete relaxation on the energy component[2], such systems will never be sufficient, in and of themselves, to be a 'living stipend'.
[1] I realize that much of Bank of America is trying to unwind some disastrous CountryWide mortgages.
[2] That would occur if we were to crack the fusion problem such that energy production was no longer limited by external factors.
By having UBI the choice to participate in the labor market now exists. The market is more free.
It's not an inherently collectivist idea (socialism being extreme authoritarian collectivists). It's a collectivist libertarian idea (see the following link for history and moral philosophy): http://en.wikipedia.org/wiki/Geolibertarianism
While the programs are certainly not perfect, part of that is by design. The idea is to overproduce storable goods now, when you can, in case you cannot produce food in the future (crop failure, war, etc.).
> And the software engineer making six figures? She might take here bi-weekly BI check and help others, or go out to dinner at a fancy restaurant, or save it for a durable goods purchase. For her, its like "free money" so its easy to spend (which also helps the economy).
Given that a $100K salary puts one in the top 7%[1], wouldn't you have a different inversion layer here? i.e. The taxes paid to support basic income will exceed the income from basic income. As a result, I don't see it becoming 'free money' in the eyes of such people, it will be something to cling on to because it and more were earlier taken away.
[1] http://en.wikipedia.org/wiki/Personal_income_in_the_United_S...
By the way, with the US military budget you could provide similar Basic Income for about 3.75 billion people. Just saying ...
> By the way, with the US military budget you could
provide similar Basic Income for about 3.75 billion
people. Just saying ...
The reason the United States has to spend so much on defense - constantly one-upping the bad actors of the world [1] - is because no other nation will ( or wants to ? ). Perhaps if Western Europe stepped to its end of the bargain, U.S. won't have to.
President Obama summed it up nicely in a recent 60 Minutes interview with CBS News' Steve Kroft:
Steve Kroft: I think everybody applauds the efforts
that you've made and the size of the coalition that
has been assembled. But most of them are contributing
money or training or policing the borders, not getting
particularly close to the contact. It looks like once
again we are leading the operation. We are carrying...
President Obama: Steve, that's always the case.
That's always the case. America leads. We are the
indispensable nation. We have capacity no one else
has. Our military is the best in the history of
the world. And when trouble comes up anywhere in
the world, they don't call Beijing. They don't call
Moscow. They call us. That's the deal.
Steve Kroft: I mean, it looks like we are doing 90
percent.
President Obama: Steve, there is not an issue ...
when there's a typhoon in the Philippines, take a look
at who's helping the Philippines deal with that situation.
When there's an earthquake in Haiti, take a look at who's
leading the charge making sure Haiti can rebuild. That's
how we roll. And that's what makes this America.[2]
http://www.youtube.com/watch?v=ygHN-vplJZg
http://www.onr.navy.mil/media-center/fact-sheets/electromagn...
[2] President Obama: People Don't Call Beijing, Moscow, They Call Us When Trouble Comes Up In The World
I don't think it's clear which way the causality runs there.
As for the "the US does it because noone else will" - true, but it's not because we don't want to spend the money and sacrifice our troops. It's because we still believe that fighting fire with fire is wrong (and the results so far speak for themselves).
I live in SF. Every day I see dozens of homeless people, camped out on the sidewalks or under overpasses, panhandling.
So suppose you introduce BI into this. Let's say every homeless person in SF gets $1500/month (or pick a number). The homeless person, say, decides to blow it all on hookers and blow, and is out that money in 2 days. Now what happens to him? He's still on the streets. Who will take care of him? Who will pay for his emergency room visits? Who will clean up after he takes a dump on the street? Who will provide him with food and clothes?
Please don't get me wrong: I'm all for some magic wand which removes poverty, even if it means more taxes for me. But I don't know how BI will work in practice.
> The homeless person, say, decides to blow it all on
> hookers and blow, and is out that money in 2 days.
> Now what happens to him? He's still on the streets. Who
> will take care of him? Who will pay for his emergency
> room visits? Who will clean up after he takes a dump on
> the street? Who will provide him with food and clothes?
They gave 322 homeless street addicts free opiates, which allowed them to sort their lives out since their day to day activities weren't entirely consumed with scoring heroin. Property theft and street violence also plummeted, saving ambulance costs for overdoses, and the police and courts millions which was all in the full SALOME study as most of the addicts used property crime to fund their addictions.
I imagine BI would do the same. Instead of being on an automatic pilot mode of desperately finding money for drugs and booze everyday there would be time to reflect and maybe seek out detox.
... and thus will be born the "BI loan" industry: take $1000 now, and we'll collect your $375/week.
The point is not that it will cure all societal ills, but that there are a substantial percentage of poor people who are not poor because they lack the ability to spend money wisely, but because they've been thrust into situations that are beyond their ability to solve without cash.
For starters, it is extremely expensive to be poor, to the extent where certain situations are far harder to claw yourself back out of than it is to remain out of them in the first place - but sometimes people get knocked down into that hole. Basic income provides a means to protect a lot of people from those kind of situations.
Basic income further changes the dynamics even for those who end up messing up: Aid towards those people can then focus on addressing the problems that prevent them from making proper use of the income, rather than be limited by their lack of income.
A lot of problems poor people struggle with are related: Mental health problems can trigger poverty, but poverty can also drive people far into depression and make other problems worse by virtue of making treatment difficult; physical health suffers, and reduced access to health care makes it worse; alcohol and drug problems are a frequent escape, and while they won't disappear with basic income, treating addictions without addressing the situations which contributed to driving people into addictions is vastly harder. You will not automatically solve the mental health and addiction problems, but you can reduce homelessness to predominantly a health/addiction problem (as it is in many countries with decent welfare systems, even without basic income) and leave yourself with a smaller challenge.
Consider that your argument is similar to that of the Namibian farmer in the article, who assumed that people would just spend it on alcohol. The reality is that while he was right about some people, he was also wrong about a lot of people, who were able to not only change their own situation, but contribute to further improve the situation of others (e.g. the money helped some start businesses, but also contributed to creating a market for those businesses).
It is irrelevant whether or not your hypothetical homeless person is still on the streets. The more relevant question is how many are helped off the streets or otherwise see their lives improve, and whether the improvements seen are worth the cost.
That implies that the current "inefficient" infrastructure will still be needed after BI. That doesn't seem like a good use of resources; it just adds a massive tax burden on top of the current system.
BTW: I'm not arguing from philosophy, but from actually seeing homeless people on the streets every day. Each and every one of them seems to have mental and physical problems, and every one of them seems addicted to various substances (and incapable of taking care of their own finances).
So this was straight up a cash infusion. I don't think anyone questions that if money gets injected into a local economy that this improves the standard of living. This isn't Basic Income, this is a new way to distribute aid.
Still, congrats to the project it sounds like they are going good.
Its very similar to welfare, unemployment insurance, and social security in the US though (without the added bureaucracy costs). The only difference is the funding source (an NGO instead of a government).
Yet the article starts with just that claim, from a local farmer, and it is a common objection to aid programs that provides monetary aid from people who presumes that poor people are guilty of causing their own predicament.
> This isn't Basic Income, this is a new way to distribute aid.
It is both. The point is that that by not means testing the aid, and by providing it in predictable cash payments on a regular schedule instead of crisis aid, or doling out specific types of aid, such as health services or bags of rice, you obtain substantial benefits that you don't get through other types of aid programs.
> This isn't Basic Income, this is a new way to distribute
> aid.
In this case, foreign dollars were used to fund the cash grants, so your parent is arguing it's not a welfare-type BI system but simply a different form of aid distrubtion.
That vastly depends on how the money is injected. If it's injected into two warring militant groups or effectively into the pockets of some local dictator or in general to local group that does harmfult things it will degrade average standard of living.
They then got some additional funds and started it up again: http://allafrica.com/stories/201407170971.html
"From January 2008 to December 2009 the BIG Coalition implemented the world-wide first Basic Income Grant pilot project in Otjivero - Omitara, Namibia. After the conclusion of the Pilot Project a monthly bridging-allowance (N$ 80) to all who participated in the pilot was paid regularly until March 2012."
From: http://www.bignam.org/BIG_pilot.html
Edit: another comment says it it resumed: http://allafrica.com/stories/201407170971.html
1) The starfish parable ("it made a difference to that one") is the right mindset. It can be daunting when you consider how much is needed compared to how comparatively little is in your bank account. Instead visualize at what was made possible by your donation.
2) As a general rule, I think it makes more sense to give habitually over the course of a career than it does to wait until the end of your career. This probably applies more to stable jobs than startups, though.