Universal Income Credit: Brief Overview | Walter I Baltzley

ABSTRACT

This paper explains the basic principles of Universal Income—along with the benefits and risks associated with the program. It covers the social, economic, and political challenges of implementing Universal Income.

KEYWORDS: Universal Income Credit, Macro-Economics, Demand-Pull

Universal Income Credit: Brief Overview

INTRODUCTION

Today we face unprecedented economic challenges. Globalization and automation have hollowed out the American economy. Productivity and corporate profits are at an all-time high, while unemployment lines and welfare rolls swell. The “Great Recession” continues to drag on while the government pumps hundreds of BILLIONS of dollars into banks and corporations to no avail.

The problem lies in the fact that good conservative business practices require that companies first find customers before they expand—regardless of how much money they have. Unfortunately, people cannot become customers if they do not have money to spend. Thus, we have a Catch-22 situation: no new jobs without spending, and no spending without new jobs.

The real challenge is how to get money into the hands of consumers while businesses continually find new ways to reduce their workforce. One solution is for the government to pay its citizens a basic minimum income—Universal Income.

Similar Programs

Although others have proposed systems for government-issued income before, their proposals contain flaws that doom them to failure. Some are flawed economically and fail to provide an effective method of funding. Others are socially or politically unviable because they attempt to benefit one group at the expense of another, or “redistribute wealth”, which breeds resentment and conflict. Universal Income is unique in that it can avoid these issues.

Universal Income

To be effective, any system of government-issued income must not only be economically sound, but also socially and politically viable. It must be adequately funded, and be operated in a way that benefits everyone equally. Universal Income achieves this because it is:

  • Funded using new money
  • Paid equally to every citizen
  • Provides enough to live on
  • Requires a minimum contribution

First, Universal Income must be funded by creating new money. The program cannot be funded with taxes because it would eat up nearly half of the gross domestic product (GDP) and cause the economy to contract further. On the other hand, injecting new money into the system will generate demand, leading to economic expansion.

Second, all citizens must receive Universal Income equally, regardless of their economic status. This helps avoid the class division and resentment associated with “redistribution”. In addition, when combined with the Required Minimum Contribution, it allows both Republicans and Democrats to view Universal Income in a manner that is compatible with their respective political philosophies.

Next, the amount paid needs to be enough to live on: $20-30k annually. This allows Universal Income to replace most forms of government assistance—including Social Security, Unemployment, and Food Stamps. It would provide a stronger “safety net” with less bureaucracy. It would also allow us to do away with the minimum wage, and free people to do the kinds of work they WANT to do.

Finally, there must be a Minimum Contribution Requirement. To Receive Universal Income, citizens must be required to contribute at least ten hours a week in the form of paid employment, volunteer service, or education. This encourages people who cannot find employment to contribute value in other ways, and has many psychological benefits as well. In addition, it allows Republicans and Democrats to view Universal Income in a way that fits their political philosophy.

Two Perspectives

Republicans and Democrats have very different ideologies, which often put them at odds one with another. However, Universal Income is designed so that they can agree on WHAT to do, even though they disagree on WHY they do it. Each party can accept Universal Income because they can view it from their own unique perspective:

Republican: Universal Income is national credit, extended to The People with the promise that they will use it to be productive and create value. It is advance payment for goods and services YET rendered—an investment made in good faith that The People are willing and able to grow the economy.

Democrat: Universal Income is an entitlement program—providing a minimum living wage that every citizen has a right to receive. It is a sustainable social safety net designed to end poverty and achieve Social Justice.

In addition, Republicans will view Universal Income as a way to eliminate a wide-range of existing social programs, including: Social Security, Unemployment, and Food Stamps. They will also see it as an opportunity to eliminate deductions and credits to simplify the tax-code. Universal Income would make the minimum wage redundant—and, if set high enough, it can even open the door to privatize Education, Medicare, and Medicaid.

On the other hand, Democrats will see Universal Income as a major stepping stone toward solving a variety of social problems. It can be a springboard toward Universal Healthcare, improved education, and lower crime rates. Universal Income would also empower workers to push for better terms of employment, and enable larger numbers of people to be politically active.

Unlocking Our Potential

Universal Income injects 6 TRILLION dollars a year into the base of the economy—or in other words the “demand-side” of the economic equation. In most other circumstances this would cause massive inflation. However, our situation is unique because of:

  • Pent up economic potential
  • Trillions in personal debt
  • Oversupply of existing goods
  • Foreign corporate expansion
  • Entrepreneurial Spirit

First, our ability to create new products and services is increasing at an exponential rate, but our ability to purchase them is diminishing. This does not mean that the “supply side” of the equation is growing—in fact it is diminishing along with purchasing power. The POTENTIAL supply is increasing, but companies produce at far below their full capacity. This is because high unemployment and debt have diminished our ability to buy the things they produce. We still want them, and thus we have POTENTIAL demand, but we lack the money to purchase them. Universal Income would allow us to unlock all of this potential and trigger a period of rapid economic growth.

Early on, growth will be slow because a large portion of Universal Income will be used to pay down existing debts. Also, many people will use the money to purchase a house or vehicle—which are currently in over-supply. However, eventually the existing inventory will run out, and businesses will ramp up production to take advantage of the increased demand.

With a lowered cost of doing business domestically, multinational corporations are likely to repatriate some jobs. Unfortunately, it is also likely that most of their expansion will continue to occur overseas and involve automation—which will slow job growth a little, and export some of the funds to foreign lands. However, this will have the benefit of unlocking the economic potential and raising the standard of living in those countries as well.

Finally, America is a land of entrepreneurs. Universal Income would empower them to develop their ideas and start small businesses. And getting started on a shoestring budget has never been easier—thanks to inexpensive digital manufacturing technologies (like 3D Printers), social networking, and the internet. Never has greater productive power been placed in the hands of the average person.

In economic terms, Universal Income allows us to balance the supply-demand equation, and keep it balanced as the economy expands. It pours money onto the “demand side” of the equation to release pent up supply potential. In real terms, it fuels economic growth and empowers entrepreneurs to do what they do best: find free-market solutions to social problems.

Avoiding Inflation

Although Universal Income itself poses minimal risk of inflation, this risk is multiplied by the banking industry through Fractional Reserve Lending. Banks are no longer required to maintain a high level of reserves, and are allowed to lend many times their deposits in bank credit. This was the primary cause of the 2008 Financial Melt-Down—Too Big to Fail (TBTF) Banks had lent 10, 30, or even 60 TIMES the actual money they had on deposit.

To prevent this from happening again, Congress needs to include in the Universal Income legislation regulations that require banks to exclude ongoing Universal Income payments from their eligibility calculations for loans. It is also advised that they set stricter lending standards, and increase the reserve requirements for the banks. If Congress fails to pass these regulations, they can still mitigate the risk of inflation by increasing taxes and raising interest rates.

Avoiding Abuses

The beauty of Universal Income lies in its simplicity—the fewer parts a system has, the harder it is to hack. However, there will always be people who try to abuse the system. There are several ways in which they might attempt this:

  • Use for illegal activity
  • Misuse income of dependents
  • Receive without meeting the Minimum Required Contribution

There is no way to stop people from committing crime. However, Universal Income could be redirected to the state to pay for fines, incarceration, and civil penalties. In addition, those found guilty of substance abuse could be required to pay for rehab, and forced to have a conservator manage their income until they are declared capable of self-management.

Because parents are given charge over their children’s income, it too creates potential for abuse. This could be handled by removing the offending parent as executor of the child’s accounts, and the parent may also be forced to repay the child out of their own income. If the fraud is not discovered until the child is grown, they can take their parents to court and sue for remedy.

Finally, there are going to be people who attempt to receive Universal Income without fulfilling the Minimum Contribution Requirement. However, in spite of this the best approach to assume that people are “productive until proven indolent”—they should NOT be forced to prove that they qualify unless they are caught cheating the system. We can trust The People to self-police and report indolence because America has a strong culture that values work and resents laziness.

Overcoming Partisan Politics

The greatest challenge to Universal Income lies in the two-party system. It is like a game where the score is measured in popularity. The goal of the game is not only to score as many points as possible, but to take points away from the opposition. Neither party can allow the other to take credit for anything that would increase their popularity—especially when the opposition controls the field and their own score is down.

Right now both parties are “down” and desperately need a win. They are tied in the Congress, but Democrats control the field because they hold the Presidency. This puts Republicans on the defensive—meaning they will oppose anything that would “score points” for Democrats. They will shoot down Universal Income on reflex if it is labeled as a Democrat Bill.

However, there is enough economic incentive (TRILLIONS of dollars) that Republicans would pass Universal Income if Democrats gave them credit for the legislation. It will be a hard sell, but if it is labeled as a Republican Bill, it would compensate for their defensive position by giving them a double win. They get to: (1) Shrink government by cutting taxes and eliminating entitlements, and (2) Take primary credit for the greatest economic recovery in history. However, because President Barak Obama would be the one to sign Universal Income into law, Democrats will automatically get some credit for the recovery. In addition, it would earn him the respect of the people as he fulfills his campaign promise to “reach across the aisle” and get things done.

In the end, giving Republicans the credit for Universal Income would work out as a tie—scoring enough points for both parties to put them on an equal footing. However, the popularity of both parties would soar as millions of dollars flow into every congressional district. Republicans and Democrats alike would regain the confidence of their voting base as they work together to bring about the greatest economic recovery in history—ensuring their re-election for many years to come.

CONCLUSION

Universal Income provides an elegant solution to our current financial crisis. It puts money directly into the hands of consumers without increasing taxes or the national debt. Universal Income creates money and injects it on the demand-side of the economic equation. Businesses and entrepreneurs see an opportunity to profit, and begin to create more products and services. Competition for customers leads to innovation and greater efficiency—unlocking our pent-up production potential.

However, Universal Income also carries a certain amount of risk. Banks need to be regulated to prevent large-scale inflation, and there need to be penalties for abusing the system. Universal Income is not a social cure-all—we should expect that some people will be dishonest and plan accordingly.

Universal Income is politically viable because it can between the seemingly polar worldviews of both Republicans and Democrats. In addition the current political climate is such that both sides are desperate for a win. However, Democrats still dominate the field—and Republicans will only support Universal Income if it is positioned as a Republican Bill. If Democrats do this, then both parties will be able to take credit for the greatest economic recovery in history.

Universal Income will be a hard sell on both sides of the political fence, but it can be done.

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One Response to Universal Income Credit: Brief Overview | Walter I Baltzley

  1. Pingback: Who Needs A Job Anyway | Walter I Baltzley | Wealthonomics: Rags To Riches

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