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The various basic income proposals floating around are often criticized for being unrealistic, and let’s face it, they often are. In a recent column, John Kay is asserting that “either the basic income is impossibly low, or the expenditure on it is impossibly high.”

This includes an implicit dismissal of the Keynesian arguments — that the basic income would create demand that would snowball into economic growth — of some basic income proponents. I happen to agree that this aspect is unlikely to deliver miracles, so let’s assume no such effect here.

Too high

It’s easy to agree that spending half of GDP on basic income would not be acceptable, but it’s also a good problem to have: humans are scarcity animals and do not work well when too far from need, as can be seen in the often sorry state of people benefiting from windfalls (third generation heirs, lottery winners, small “first nations” in rich and guilty countries, etc). Thus a basic income should probably be high enough to remove fear of survival (food and shelter) but not to so high as to remove the need to get out to the world to improve one’s lot.

Impossibly low is desirable…

In Western countries what some would describe as “impossibly low” does provide pretty decent survival standard. The Ikea/Lidl/Primark lifestyle is pretty okay, and way more comfortable than what the richest slice of society could afford a century or two ago. So a basic income in the region of say $500 a month for a tier 1 developed country would probably do the trick (assuming social housing and healthcare are not subsumed into it).

… and possible

Would simple arithmetic work for that? To design a realistic basic income we need some premises:

  • Assume the net expense on welfare remains constant, because it reflects what a society is ready to accept in redistributive pressure. This allows isolating the effect of the basic income as a redistribution technique from other ideas about changing the amount of redistribution (which can be done through any mean).
  • Assume the wealthier members of society (say the top half) do not get richer out of it, that is the (income) tax system is adjusted to increase the tax they pay by the amount of basic income they receive.
  • Some existing welfare mechanisms are abolished (such state unemployment benefits, child benefits) or restricted (e.g. pension age could be pushed forward) as the basic income replaces them.

Then what basic income is possible? It’s simply equal to:

basic income = removed welfare services budget + tax equalisation

Detailed number crunching would be required, but I’d expect it to come to $300-$600 per adult, again for a tier-1 developed country.

The main variable here is what services get replaced (and to what extent) by basic income so it computes at all times.

Radical realism

A realistic scenario is probably better thought with social housing, public education and public healthcare arrangements untouched, but the basic mechanism also applies should someone wish to privatise some or all of these services: then the fewer services are left, the closer you get to a basic income equal to the tax take, though the higher basic income might then buy less, depending on the distributional profile of each service (a most tricky issue on its own).

What are the benefits of a survival income?

A survival basic income wouldn’t abolish poverty, in so far as this is more or less defined as inequality — how much less one has than others, rather than the absolute level of what one has — but still have some interesting properties:

  • Improve the bargaining power of low-paid workers not forced to work for mere survival
  • Remove net tax discontinuities (being a net loser when taking a low paid job)
  • Simplified administration (some)
  • Increased acceptability of redistribution

The welfare illusion

The latter point is perhaps the most neglected while the most powerful point in favour of basic income. It makes no difference in pure economic terms whether the cash flow between the state and the citizen is done through tax or benefit payments, it’s the net that matters.

But, like with the money illusion in the monetary realm, optics matter. This can be observed today in the difference in perception between universal benefits (like child payments and some healthcare in many developed countries) and means tested ones (typically unemployment and safety net income). The former are often popular and well accepted, even by net payers, while the latter are seen as prone to abuse, and divisive. A basic income, even if compensated by tax, would probably quickly become part of the societal furniture.

Even if it was the only benefit, it’s probably worth doing for that alone.

Tickled by architect John Hill’s wonderful coverage of new storage facilities in New York City, I’d like to discuss the hypothesis that one of the core forces that drives American economics and society, and many others beyond but perhaps not in such a pure form, is the Pursuit of Storage.

What is the purpose of economic activity? In prosperous societies, the basics of food, shelter, and essential healthcare are pretty quickly covered and can only explain a small fraction of the frenzied economic activity that can be empirically observed.

The accumulation of artefacts seems central.

People buy stuff; and store it. Many an economist could then appeal to utility, and say that people buy objects because of the functions they provide to them. This is easy to disprove, because if people were interested in objects from a utilitarian perspective they would, most of the time, rent them. Many objects that people store in their dwellings, or even corporations and government agencies in their facilities, have a one-time or only occasional uses. If you don’t live in a ski resort you don’t go skiing every day, so owning skis makes no sense for most people. Still many part time skiers own skis. It is almost permanently idle capital, with the additional costs of storage and transport adding to the economic loss caused by the choice of ownership other rental. This can also be observed in wealthy people collecting multiple instances of easy-to-rent objects whose use is exclusive — due to petty quirks of the laws of physics, people cannot be in two cars at once — and where the benefits of ownership over rental are oft negative.

A Storage Deluxe facility

The American Dream (source: Storage Deluxe via John Hill)

The primacy of accumulation of inert artefacts over their use can be seen in the organisation of labour: if people wanted objects for their use, a natural balance between the time spent producing objects and the time using them would be attained. But in work-centric societies like America, a cult of long hours and short holidays can be observed, both in a cultural sense — long hours give high status rather than leading the culprit to be ostracised as it does in more relaxed societies — and in a functional sense — the more hours spent on the production side, the fewer left for the use of artefacts. Storage is leverage for the workaholic: it enables the production of many more artefacts than justified by function, by maximising idle capital.

We could further argue that it extends to immaterial things: in insurance and finance, a lot of activity is dedicated to accumulation of titles, deeds and scorekeeping which has no effective purpose other than the self-referential accumulation of inert claims. At least they are more environmentally friendly than their material counterparts, as long as their “storage facilities” (banks, brokerages, etc) don’t blow up causing collateral damage to the truly functional parts of the system.

The endless pursuit of storage is also visible in the built environment and in the structure of American cities. People value vast houses with ample basements, where they can store a great number of discarded objects, never or rarely to be used, but proudly stored. A kitchen with vast cupboard space will add to the value of a home, as will ample storage space in all rooms above ground. Technology has largely enfranchised man from objects — a late twentieth century home may have been full of books and engravings of single sound recordings, all of whom now fit nicely on a single USB stick and can be comfortably viewed by a handful of compact devices. Preferences such as vast houses with good storage facilities in distant suburbs over compact places in town near to work express the sacrifices people are ready to make to live near their store of objects. The home is self storage first, and place for living, second. The destiny of man is to be a custodian of the objects they collect, catalogue and keep protected from the elements.

Rendering of Uovo art storage facility under construction

Art storage shed near a rail line, reminding commuters of their life’s purpose (Uovo via John Hill)

This is where I part company with John when he complains that new storage facilities in prominent urban locations are eyesores. When the point of modern life is to acquire objects and store them, with a little bit of quick display for status building — the Uovo display rooms nicely mirror the squeezing of some living space between the storage and display function of private homes. These boxes are not out of place: they are a reification of the American Dream. They can remind people why they get up in the morning: so that they, too, one day, can have inert capital stored in a shed to their own name.

Bonus ball for actuaries

John’s post contains another wonderful nugget. The Uovo art storage facility is spit into two sections separated by some sort of fire wall, because “insurance companies don’t want too much art in one place.” It’s a spectacular realisation of regulatory arbitrage, poured in actual concrete, and as is customary with such constructions likely to fail, as most risks beyond fire seem bound to be extremely correlated — there’s apparently even an internal door between the spaces, presumably to facilitate burglaries. It’s reassuring for the financial industry — in so far as the high end art trade is not a branch of finance — to see that the dishonest practices it pioneered are spreading across society.