Hmmm. I am beginning to believe any author who writes essays with the word "capitalism" in it neither understands capitalism or is able to work with the concept in the abstract. Usually it's just regurgitated Marxist leftovers.
And let's see what we have: "A BI breaks with a fundamental principle of the welfare state. This, wrote Beveridge in 1942, is "to make and keep men fit for service.*" One function of the welfare state is to ensure that capital gets a big supply of labour, by making eligibity for unemployment benefit conditional upon seeking work. BI, however, breaks this principle.In its pure form, it allows folk to laze on the beach all day."
Okey dokey now. The welfare state is a product of the voters, not the result of one particular report in the 1940s in the United Kingdom. I can quite assure you that the voters were not interested in "providing labour to capital". They were interested in being compassionate to their fellow man, just as they were in the States. The welfare state is a lot bigger than wartime England. If anything, the modern welfare nation has its roots in the late Victorian period, as large groups of people realized that they were being significantly mistreated by the system.
This is an important point, because if you miss it you miss the rest of it. The social safety net, as most voters understand it, is to provide a lift up to those in need, and some sort of permanent assistance to those who are incapable of leaving their present circumstances. This means that any welfare state has as its primary mission the determination of the difference between those who are temporarily downtrodden and those who will not work, either because of physical or attitudinal reasons. Voters feel differently about these different groups of people. Therefore the policies towards them are different.
"capitalists, who want a large labour supply" -- no, capitalists want to trade stuff. Sometimes, like in the 1800s, this required a large labour supply busy as beavers in the sweat shop making widgets. Sometimes nowadays it might involve really expensive robots and 5 laborers. Or 3 web programmers and some space on AWS. These old ideas of capital and labor are dead. Please let them rest in peace without digging them up so often.
Minimum wages and basic income policies all do the same thing -- raise the floor at which most folks can enter into productive trade with others. This raises prices and increases unemployment. These kinds of ideas sound great. Who wouldn't want $25 per hour wages and guaranteed income for all? But all you'd end up with is $15 hamburgers and $34 gasoline. You don't do anything but raise the table stakes for people, like certain homeless, just don't want to participate in society. It increases poverty and suffering. Counter-intuitively, it does not make things better.
People need to pay special attention to those ideas which produce an emotional gut-feeling of "hell yeah! Why haven't we done that?" There's usually a really good reason that does not involve economic theories from the 1890s.
"Minimum wages and basic income policies all do the same thing -- raise the floor at which most folks can enter into productive trade with others."
Can you elaborate on this? Because it looks to me (only minimally educated in economics) that minimum wage and basic income work in completely opposite directions here.
With a minimum wage, a person may be willing to do some work for $X, and another person may be willing to hire him to do that work for $X, but the law prevents them from entering into an agreement to actually do it. Thus, anyone not able to produce at least as much value as the minimum wage simply does not work at all.
With a basic income, you no longer need a minimum wage. If a person is willing to work for a penny an hour, let him. The floor drops, not rises, because people can engage in very poorly-paid work if need be, and still be able to survive. A person whose labor is only worth $2/hour won't have a job today, but could very well have a job in a system with a basic income.
Well said, but I'd like to add that he is then also capable of working for himself at less than a "living wage", for reasons like "higher purpose" (charity), expected future returns (ie startups), or simple enjoyment.
This sounds like a huge win for mankind in general. It seems like it would be extremely difficult to get there from here, but if software and robots do indeed have the capacity edge out traditional scarcity, it looks like we should start planning the trip.
If I'm selling apples, I'm selling them at whatever the market can bear. Beats me what that is. I label the price 1-for-a-dollar, and they sell out. So tomorrow I charge $2. And so on. There is no certain "price" -- price is something that's determined by the reaction of the buyers to the offers the sellers make.
That's the way it is with everything: food, rent, insurance, car repairs, drugs, services, and so forth. Everything is negotiable, and it's all dynamically determined. So if everybody in town now has an extra 10K -- or even if the poor people now have a lot more free cash, then my apple pricing experiment will yield a higher result. So I'll charge more. I'm not trying to screw over anybody, that's just the way pricing works.
The only thing you get with giving everybody a new floor for the amount of cash they have is a new floor for how much the cheapest items cost.
This is tricky to see at 5-10K, because our minds don't take into account the thousands of tiny transactions each person makes in a year and the very small amount of difference it would make with each one. So just pretend that it's 100K, or 500K. What would happen?
And that's just pricing pressure for purchasing. The same pressure would exist for employment, dramatically increasing unemployment.
It just doesn't do anything, except cause economic chaos, make all the dollar figures higher for everything, and increase unemployment. And punish those folks who don't want to participate in society. That's not a lot to be proud of.
You seem to be conveniently ignoring the 5 other apple sellers in you hypothetical town, all who will gladly undercut your business. Or the fact that everyone in town now has a basic income, so starting a competing apple selling business is much less riskier, as they have the BI to fall back on if their venture fails.
More demand can raise prices, that is fair. But implementing a BI does not necessarily mean that we are getting rid of capitalism, a system that tends to keep the costs of goods close to the cost of production. Also, it's worth noting that BI would most likely replace current welfare systems, so the 'net' amount of money that is put back into the system would be smaller than you are probably expecting.
You seem to be confusing a basic income with minimum wage, which is a completely different thing. The apple sellers are also receiving the basic income, so whilst you are free to raise your prices, others will not, and you will lose out.
Did people like Milton Friedman and Friedrich Hayek, who were proponents of a basic income, overlook this basic point, or is it in fact you who "doesn't understand capitalism" and is "smoking crack" (your words).
(I don't mean to be hostile, but your tone really doesn't help your argument.)
No, stop pretending that labor supply is adjustable outside some narrow range. Wage earners at the bottom don't withdraw from the labor force in order to help those left in it earn a higher wage. They work for less, until a floor is reached. Then they work another job, driving wages down further, unless there are none, in which case they eat less. And when there are fewer jobs still, they subsist in other ways (charity, crime), or fail to subsist. Almost no one is moral enough to starve.
I agree that price is simply a measure of what the market will bear, but I don't see how a basic income results in exhausting the additional supply of disposable income through inflated prices.
To continue with your apple market example, you could try to charge $2 or more per apple, but pretty soon other people will realise that they can employ their own staff to run an orchard and deliver apples to the same market at a marginal cost far less than that, and competition will drive the market price back down.
With a basic income, people's basic needs would be met and any additional income earned would be a supplement. If they agree to work for $1 an hour picking apples, then that is the price the market will bear for that particular skill and the price for a single apple will be reflective of this.
A minimum wage on the other hand works in the opposite direction. If it is set to $50 an hour, then sure, the costs of apples, along with most other things, will skyrocket, but there will also be a huge amount of deadweight loss as people simply choose to forgo employing others for many skills in the first place.
"To continue with your apple market example, you could try to charge $2 or more per apple, but pretty soon other people will realise that they can employ their own staff to run an orchard and deliver apples to the same market at a marginal cost far less than that, and competition will drive the market price back down."
Unless I reinvent the market and brainwash you that my Apple is like no other and it's worth selling your kidney for it. This way I'll grow my Apple company to record high stock prices and I'll sue any other kind of vegetable sellers. You'll think you'll figure out a way to beat us in the end, but the truth is that pretty much everything (even the Jobs) will be ours eventually and everything you ever dreamed to afford will be ours to give.
I don't understand how you get to "dramatically increasing unemployment" at the end there.
Taking your apple-seller analogy, if you map that onto the labor market, then the apples are job-seekers, and when an apple is purchased, that's somebody getting a job. Unemployment is left-over apples that you don't sell.
I understand that with a bunch more money floating around, the price of your apples will increase. That's basic inflation. But what you're saying is that not only will the price increase, but it will increase so much that you will end up with a lot of leftover apples you can't sell.
But why? The price isn't set by magic, it's set by you. You'll make the most money if you can sell more or less all of your apples, so you'll set a price that results in people buying them all. That price will likely be higher than it would be in the world without a basic income, but you're still going to sell all of your apples. If you don't, you'll lower your price until you do.
I don't see why labor would be any different. Yes, prices (wages) probably get pushed up there. But where's the pressure to push prices up to the extent that a large number of people can't find jobs? Just like the apple-seller, people make more money when they set a price where they actually find work. If a lot of people are out of work at $X/hour, then those people will generally accept wages at $(X-1)/hour, or less, until they all manage to find jobs. The minimum wage puts a floor on this, but I don't see how the basic income does.
I can see an increase in voluntary joblessness, where people's labor can only produce a small amount of value, and they don't see the point in working for that small amount of value when they can stay at home and watch TV and survive on their basic income. But I don't see how there would be an increase in involuntary joblessness a.k.a. unemployment if you created a basic income and simultaneously did away with minimum wage.
Very interesting thoughts. IMHO the basic income will have the opposite effect. A business may currently be able to find a loo cleaning employee for $X/h, but with a basic income that rate will go to say $5X/h.
I'm fairly happy that the author as a former investment banker and a current journalist for the Investors Chronicle understands capitalism pretty well.
I've read Chris Dillow's blog for a long time. If you scratch away the Marxist sheen, which some people will find toxic at first glance, he has a few basic themes which are pretty hard to argue with:
Modern capitalism has failed to keep everyone employed. It may have helped countries out of poverty but there remains a persistent and growing underclass.
Most subsidies to the poor end up directly in the pockets of the rich. i.e. rent accounts for 50% of the income of people on welfare.
The poor are statistically less happy i.e. Frank Gallagher maybe pissed up all the time and maybe happy, but most people are not.
The stability of corporate entities is overestimated. Most companies have the life expectation of a forty year old man.
Managerialism is a failure, and an unhealthy obsession of the modern left.
Whether you agree with the Marxism bits or not he is generally an interesting read.
Thank you for an introduction to the author. I'll look for some more of his work.
I try to be very careful about bashing things on HN -- it's too easy, and everybody does it. If I implied the author was somehow generally incompetent, I apologize.
He's just smoking crack here. Whatever his merits as a columnist and journalist, in my opinion he's out of his depth on this topic. I also appreciate your providing his credentials. Since my comment was on this essay and not on him, it doesn't make sense to respond to that information in one way or another. The last thing I want is to start some kind of discussion on Dillow the person. My remarks were entirely about the concepts and structure of his argument in this one essay (along with an observation about the use of the word "capitalism" in general) I found the material off-handedly shallow, ill-conceived, and not very well thought-out.
> Modern capitalism has failed to keep everyone employed.
Im not sure how you would know that. Depends on your defintion of "modern capitalism". If it is how current western states work then sure not everybody is employed. I would however argue that in a system without minimum wage, wellfair, unemployment insurance, retraining programmes ... unvoluntary unemployment would be very, very low.
Now note, Im not making a value jugment here.
> Most subsidies to the poor end up directly in the pockets of the rich. i.e. rent accounts for 50% of the income of people on welfare.
Well, of course it does. Do you imagen a underground economy of poor people or something. Most money is spend on things owned by large cooperations, walmarkt, mcdonalds and simular.
> The poor are statistically less happy i.e. Frank Gallagher maybe pissed up all the time and maybe happy, but most people are not.
It depends on who you ask. There is quite a bit of research but it all has the fundmental problem of measuring happyness. Asking people if they are happy does not really make sence when you think about culture or signaling. So yes there is research that suggests there is a general positive corrulation with wealth and happyness but there is also research that suggest that after some level of wealth you stop getting happier. Some research suggest its only importend how rich people you interactive with are.
> The stability of corporate entities is overestimated. Most companies have the life expectation of a forty year old man.
Yes.
> Managerialism is a failure, and an unhealthy obsession of the modern left.
Agree. There are much more fundamental problems in the economy then wages of managers for example.
I disagree with your first point if I understand it correctly. Even relatively right wing or libertarian economists like Tyler Cowen consider that the low hanging fruit for most businesses is now gone. There is a dearth of investment opportunities and the demand for labor especially at the low end is not there in the west.
Though I agree that there are people who can work but won't work, I think this is overestimated. This is a point of principle hardly worth arguing.
I'll take you up on your response to the expenditure of the poor ends up in the pockets of the rich.
The point is that the poor get "blamed" for needing this money. The market will allow the price of a piece of land with some bricks on it to increase due to demand. But clearly the market can't magically create land.
> Even relatively right wing or libertarian economists like Tyler Cowen consider that the low hanging fruit for most businesses is now gone.
Well Cowen is quite on his own with this possition and even he is arguing that it will pick up again. Read the last chapter of the great stagnation.
Also just having a economy that doesn't grow doens't really have anything to do with jobs. You can have full employment in a economy that is shrinking. The question is about laber market equillibrium, if wages ajust downwards eventually you will have full employment.
> The point is that the poor get "blamed" for needing this money. The market will allow the price of a piece of land with some bricks on it to increase due to demand. But clearly the market can't magically create land.
Well the market can creat land, but the market can creat any natural resource but that does not mean every resource becomes more expensive all the time.
If rents get bigger somebody will have the idea to nock down a small building and build a bigger one. Also the notion that there is a lack of land is strang, specially in america, there if tons of land that is very cheap its just not where most people would want to live.
The market can not creat land but it can creat living space.
Though I agree that there are people who can work but won't work, I think this is overestimated.
I think that people who feel that way generally overlook the role of housewives in society. I don't know if it's still current, but I recall a few years ago seeing estimates that ~10% of all women in America were unemployed, by choice, for reasons of home-making, or whatever the most politically correct alternative of 'housewifery' is (not trying to be inflammatory, I genuinely don't know).
As America has a slight gender bias towards females, that means that ~5% of the population is willfully unemployed. Unemployment is, what, 7% right now?
Also, yes, I'm well aware that employed does not negate underemployed, which is where I really feel that America is suffering right now, but we're just talking about employment figures.
I think you are misunderstanding. Nobody cares about voluntary unemployment, if people dont want to work and just live of some other source of income family, saving or something like that. There is no economic argument about that.
The problem is people that can work, but dont because the gain of working is not big enouth to overcome the lost of safty net payments.
You only have to look to Denmark to see this in action. And mind you we don't actually have a national minimum wage. Instead it is negotiated between employer and the unions. The unions have historically been strong.
Basically you end up with a lot of people unemployable because they don't have the necessary skills needed and thus are not worth the salary for even entry level jobs.
As society requires more and more skilled people the bar is raised and the number of people who are unable to land a job because of inadequate skills are rising.
Add to that that automation is an even bigger competitor than China and you have all the ingredients for an explosive cocktail of demise.
And let's see what we have: "A BI breaks with a fundamental principle of the welfare state. This, wrote Beveridge in 1942, is "to make and keep men fit for service.*" One function of the welfare state is to ensure that capital gets a big supply of labour, by making eligibity for unemployment benefit conditional upon seeking work. BI, however, breaks this principle.In its pure form, it allows folk to laze on the beach all day."
Okey dokey now. The welfare state is a product of the voters, not the result of one particular report in the 1940s in the United Kingdom. I can quite assure you that the voters were not interested in "providing labour to capital". They were interested in being compassionate to their fellow man, just as they were in the States. The welfare state is a lot bigger than wartime England. If anything, the modern welfare nation has its roots in the late Victorian period, as large groups of people realized that they were being significantly mistreated by the system.
This is an important point, because if you miss it you miss the rest of it. The social safety net, as most voters understand it, is to provide a lift up to those in need, and some sort of permanent assistance to those who are incapable of leaving their present circumstances. This means that any welfare state has as its primary mission the determination of the difference between those who are temporarily downtrodden and those who will not work, either because of physical or attitudinal reasons. Voters feel differently about these different groups of people. Therefore the policies towards them are different.
"capitalists, who want a large labour supply" -- no, capitalists want to trade stuff. Sometimes, like in the 1800s, this required a large labour supply busy as beavers in the sweat shop making widgets. Sometimes nowadays it might involve really expensive robots and 5 laborers. Or 3 web programmers and some space on AWS. These old ideas of capital and labor are dead. Please let them rest in peace without digging them up so often.
Minimum wages and basic income policies all do the same thing -- raise the floor at which most folks can enter into productive trade with others. This raises prices and increases unemployment. These kinds of ideas sound great. Who wouldn't want $25 per hour wages and guaranteed income for all? But all you'd end up with is $15 hamburgers and $34 gasoline. You don't do anything but raise the table stakes for people, like certain homeless, just don't want to participate in society. It increases poverty and suffering. Counter-intuitively, it does not make things better.
People need to pay special attention to those ideas which produce an emotional gut-feeling of "hell yeah! Why haven't we done that?" There's usually a really good reason that does not involve economic theories from the 1890s.