Why basic income is a bad idea

I'm gonna talk today about the topic of a basic income there's been a lot of promotion of this in media over the last two or three weeks but it's an idea which has been going round on the left I would say the last two or three years and was widespread in theoretical economics at the time I was doing my degree in the 1970s at that time it was associated with right-wing economists like Hayek and Milton Friedman they called it negative income tax and the reason why they advocated it was that they felt that unemployment benefits were holding wages too high if there's an unemployment benefit paid nobody is going to be willing to work for less than the unemployment benefit and that meant that employers who are offering low wages couldn't get people to take them on people would rather stay unemployment benefit them get free low wages so their scheme was suppose that in order to get someone to work you have to pay 50 percent more than the unemployment benefit to make it worth their while why not just play the unemployment benefit to everybody and then it would be possible to pay only half their the unemployment benefit as a wage and would still get people to come to work for us so the scheme was basically one of how to lower the base level of wages down to below the unemployment benefit to do that the ideas you pay everyone the benefit whether they are employed or unemployed and then you can get low-wage jobs filled now it was called negative income tax because the idea was that if you are earning above a certain threshold you would be taxed if you're earning below that threshold the tax authorities would pay you money and Gordon Brown was a follower of this theory and a form of it was introduced in the family tax credits but a predictable result of that kind of policy is that it results in employers for low-skilled jobs pushing down the level of wages to below the level the subsistence minimum you they can get away with paying less wages and people could survive on and rely on the government to subsidize the difference and this was happening with the big supermarket chains when Gordon Brown had Family Tax Credit there if it was introduced across the economy as a whole it's a general principle the net effect would be to lower the base level of wages and what's the effect of low wages it's to encourage economic backwardness because if wages are low it doesn't pay to invest heavily a new plant and equipment and without new plant and equipment productivity doesn't rise and therefore the basic output of the economy doesn't advance in more recent years the argument for a basic income has been put forward by some on the Left who say robots are taking people's jobs there's going to be no jobs left unless we pay people to do nothing so we should pay everyone a basic income otherwise people won't be able to survive because there will be no jobs but this whilst it may seem superficially plausible on the basis of what the media say about how robotics is advancing is actually based on a misapprehension of what's really happening in industrial productivity the rate of improvement of industrial productivity has been slowing down for the last 40 or 50 years it was at its peak during the sixties and seventies during the 50s and 60s probably by the by the mid 70s it was already slowing down if you look at the graph I'm showing you'll see that in Britain industrial productivity has slowed down to such an extent that it is that standstill labour product the improvements in labor productivity came to a standstill and this is not just a British figure if you look at the other graph you can see that the same thing applies across the world all the leading industrial economies have had this slowdown and why have they had the slowdown it's because there's been a shift in income from wages to capital wages have become cheaper and therefore it doesn't pay for companies to automate it doesn't pay for companies to introduce higher productivity so the threat is not that robots are taking our jobs the threat is that low wages are preventing any technical progress and solution that people are advocating of a basic income is going to make the matter Sydal worse it'll push wages down further and further slow down the rate of technical progress beyond that there is the question of its affordability if you're going to pay everyone a basic income you're going to have to take that out of other people's taxes now let's take the proposal that was going around in Scotland put forward by the Green Party a year or two ago but there'll be a basic income of 150 quid a week I think they chose 150 quid a week because it's the same ously the the basic UK pension never mind that the UK pension is the lowest in Europe and is not enough for people on the basic pension to survive unless they have some other source of income that's what they proposed well the idea was that this 150 pounds a week payment would replace all other social security payments and Pensions so the thought was the pensioners would be no worse off they would get the money but everyone else would get the money of course the pensioners are going to say we contributed for 40 years of tarah national insurance and we're getting that money and then everyone else gets it for nothing so what was the point of us paying that contribution so it's not going to be very popular among pensioners and as I'll show you it's likely make most pensioners worse off but let's assume that you set the taxes such that someone an average income average income in Britain two years agos 227 K average earnings was 27 K that someone on average earnings would just break even so they would get seven and a half thousand which is hundred fifty pounds a week seven and a half thousand or so extra income from the state as their basic income but their taxes would go up to cover it and people below average income would be net benefit in the making a net benefit from it that would mean that someone on average income would have the 27,000 they were getting before plus them now a thousand adds up to a net pre-tax income of 35,000 if you take off their tank tax allowance of 11,000 that means they would have a taxable income of 24,000 on top of that they then have to pay enough tax to exactly balance the seven half K and they have to pay their listing tax and their existing national insurance the they currently would be paying three someone on that level will be paying three thousand and three hundred and income tax afterwards they're going to end up paying eleven thousand in income tax now what does it mean it for tax rates if you watch it out that means that to pay for it you're gonna have to raise the base rate of income tax from 20 percent to forty six percent it means you're going to have to raise the higher rate from which cuts in at forty thousand you're going to have to cut or forty two thousand now your that you're gonna have to raise that from 40 percent to sixty six percent now when you're adding seven and a half thousand to people's income it means that the effective threshold for paying the higher rate of tax would come down from forty two thousand to thirty five thousand so that means everyone above thirty five thousand in salary is going to be paying an income tax rate to sixty six percent on top of that they're going to be paying their national insurance of twelve percent so the net effect just of bouncing out the wages the summer on average income is that the the base rate of textplus national insurance is going to go up to fifty eight percent the and then anyone earning more than 35 thousand is going to be paying a rate of 78 percent now that is just talking about redistributing the basic income between people who are in employment once you take into account that the basic income is going to be paid to people or not an employment I'm not going to go through all the details of the calculation present on my blog but you find out that any in the end anyone oh the the new base rate of income tax has to be raised to seventy seven percent once you start factoring in the payments that are going to people who are currently unemployed currently not working but not registered on the unemployment register etc and the effective rate for people earning more than 35,000 is going to rate rise to about ninety percent now is that going to be acceptable I very much doubt it the my calculations are that for people to be for a single person on an average wage they can't take home pay is twenty thousand after introducing a basic income their take-home pay will be seventeen thousand if you've got a a couple with one work person working and the one person not working there will be a net benefit there any couple with two people working lose six thousand a year I think it's practically impossible to construct a political consistency which would vote for this pensioners are not going to vote for it because they will see it as giving everyone something for nothing when they've had to pay national insurance contributions besides which they're going to be hit for taxation on any occupational pension they get which will now be their occupational pension will now be being taxed at sixty or seventy percent rather than the current rate tanks of only 20% anyone on average earnings or above average earnings is going to lose out so it's not going to fly it's not going to be affordable at that level now I chose the level of set of 150 pounds a week equivalent to the pension if it was much much lower if you say 70 pounds a week then it might be affordable but if you then consider the idea of replacing all on the benefits with this flat benefit of 70 pounds of evening that's not going to improve the people who it claims to be targeted to that and he ends up just being the same as Gordon Brown's tax credits a subsidy to Puli employing too poor employers who who pay low rates of wages there is actually no real threat of robots taking our jobs we are supposed to believe on one hand that robots are taking our jobs and everyone is going to be unemployed yet on the other hand the economy is shut so short of Labor that will fall to pieces if you immigration is cut off we are not in such a position that we can just dispense with human labor human labor is still essential to the economy and that's why there has been such an emphasis on encouraging immigration from Europe because there are so many jobs which cannot possibly be done by robots and only humans can do them but let's look at one of the areas where the press is raising worries at the moment which is if there is less low-wage seasonal labor importable from Eastern Europe will farmers be able to effectively gather harvests gather fruit harvests for example well if there is less low-wage labor coming in the farmers will just have to pay more if the farmers pay more or be less profitable for them and it may mean that it's worth their while investing in new machinery to improve the efficiency of of harvesting strawberries for example and I raise the example of harvesting strawberries because my robotics group was explicitly approached by the fruit farming industry to develop robotic strawberry picking machines and those are certainly doable if investment is put into them and it's desirable the agricultural wages should rise to the point at which it becomes profitable to use machinery to improve the the productivity improvements in living standards in the end only come about because machinery is used to improve productivity and if you hold that back living standards will stagnate and the whole emphasis of the basic income proposal is something which will lead to stagnation and technology it is financially unachievable and it is a subsidy to the worst employers

Channel: Paul Cockshott

Views: 14,609

Rating: 4.7582417 out of 5

Keywords: economics, politics

Id: QGBQwZsp3T0

Length: 16min 56sec (1016 seconds)

Published: Mon Feb 19 2018

Reddit Comments

[u/Phallen]

I wish the audio wasn't fucking garbage.

[u/AndyBroseph]

Notes/Fair warnings:

• Paul Cockshott works heavily off assumptions of Marx's work that drew some criticism. Take his work/arguments with a grain of salt.
• A longer and more in depth written critique is here if you want further reading/can't fucking stand the static braps
• He has some arguably reactionary takes on Sex/Gender