Last week, I attempted to explain Modern Monetary Theory (MMT), and am not sure I did a good job doing so. Frankly, I am not certain how anyone could, save a smug so & so with a political agenda, and even that wouldn’t make sense. Then it dawned on me, and how! The perfect way to describe MMT to folks who don’t ordinarily read economic newsletters.
Here it goes.
Imagine there is this old, fat guy, more like an enormous elf, who lives at the top of the world, the North Pole even. He lives with his chubby wife and a horde of much smaller elves in a large castle with an even larger workshop attached. For 364 days out of the year, they make children’s toys with whatever technology and resources they can muster in such an unforgiving climate, far removed from the global economy’s established distribution routes.
On the 365th day, the large elf gets into an oversized sleigh pulled by a team of 8 reindeer, when conditions are favorable. If inclement weather, he adds a 9th reindeer to the team, one whose red nose illuminates the night sky. These aren’t ordinary hooved animals, oh no. Despite their heavy bone density, musculature, and complete absence of wings, these several hundred-pound reindeer can fly…and at an impressive speed as well.
You see, this fellow delivers the multitude of toys he and his elfin army had made over the previous 12 months to every single Christian child (even secular ones) across the entire world in the span of 24 hours. Given there are, quite literally, hundreds of millions of homes to visit in this short period of time, they really, and I mean really, get after it.
Sometimes, the dude physically goes down the chimney to deliver the things, and other times he sends/floats toys down using an umbrella, a la Mary Poppins. At least, certain television specials celebrating the reindeer with the radioactive schnoz have led us to believe this is the case. Regardless, of how or even why, supposedly good Christian children wake up to a bounty of toys, of all varieties, compliments of this huge elf, his pliant minions, tubby spouse, and flying caribou.
Amazingly enough, they don’t ask for a single farthing, not one red cent, in return.
That’s right, they do this, and one can only assume at an enormous cost and under incredibly harsh working conditions, for one reason: so little boys and girls will be “good,” without providing a working definition of what good means! It is all very nebulous, and sometimes you have to wonder about their, well, decision making…because some of the kids getting gifts can be real brats. Further, and this has always been a mystery, the number and quality of toys any individual child receives is directionally proportional, perfectly positively correlated even, with their family’s income bracket. Finally, rumor has it they even give gifts to the occasional child of another religion or even, gasp, atheists! Regardless, all of this is an incredible undertaking and terribly mysterious to boot.
Huh? What do mean none of that doesn’t make any sense? That it isn’t feasible on so many different levels? Flying reindeer with glowing noses? Elves, let alone toy making elves at the North Pole? Come on, Norris. Well, I hear you man, and have to tell you sometimes you just have to suspend your disbelief, go with it, and accept that it is just magic…kind of like Modern Monetary Theory.
There you have it.
This week, I am going to attempt to explain another controversial topic which will also get a fair amount of ink moving forward: Universal Basic Income (UBI). This is as the name implies: a predetermined amount of money the government gives to each individual adult regardless of their ability or even willingness to work or otherwise participate in the labor force. Universal = everyone. Basic = base or floor amount. Income = in this case money from the government. Who wouldn’t like that?
From what I have read, the most bandied about number for a UBI in the United States seems to be $1,000/month plus healthcare benefits. Again, to every adult regardless of ability and/or willingness to work. There you have it; $12,000 a year for doing nothing, nada, if you so desire. This is the base off which you start the year, and you can’t go below it no matter what you do.
How does that strike you? Okay, now that you have that initial first impression, what do you think about it when you peel back the layers of the onion? When you really get into the details? Even more, what are YOUR details, or those you would like to know?
For me, I would like to know whether a UBI would be in addition to existing benefits and so-called entitlements OR would it supplant them? That is a huge question, and could sway a lot of people’s vote, as it were. After all, $12,000 plus healthcare isn’t a great deal for people ALREADY getting as much from Uncle Sam, particularly those seniors who have maxed out on their Social Security retirement benefits. Further, what of those at the lower end of the economic spectrum who have children in the house or are on Social Security disability insurance? This would be the economic equivalent of getting the shaft from the man. Conversely, those people actively participating in the workforce would/could get a really nice benefit, an additional $1,000 per month…even if it did mean having to take government health coverage in return. Obviously, this would be a boon for lower-end hourly wage earners.
When you think about it, this makes sense from an efficiency standpoint. No more means-based testing. No more fraud or otherwise gaming the system, or at least less of it. No more bureaucratic inefficiency and oversight. No more reason NOT to get married. In fact, no more of what has trapped, or will likely trap, a lot of folks in a never-ending cycle of poverty…the government’s one size fits all definitions and restrictions. Hmm. When you look at it that way, as in pragmatically.
However, is this really the goal of UBI proponents? Eliminating inefficiency in the entitlements programs, and giving a monetary benefit to working people at the expense, in all probability, of those currently ‘taking from’ the system? I would be willing to bet, up to 4 of you, a beer it isn’t. Much more than that amount, especially if we are betting IPAs, I wouldn’t be able to make any more bets…if you catch my drift. Nope, if this IS the primary goal of proponents, bureaucratic efficiency, I haven’t read it anywhere yet.
It seems their arguments, or goals if you want, are perhaps a little softer and more difficult to adequately define. Phrases like “reducing economic stress” and “ameliorating living conditions for the working poor,” seem to be de rigueur. Okay, I confess: ameliorating isn’t usually the verb of choice, although I did see it once. ‘Improving’ is much more prevalent, but ameliorating just sounds SOOO much better.
You see, the economic floor of $12,000 would seemingly allow lower-end workers the flexibility to do what it is THEY want to do, not what the economy would have them do. They could go from low paying jobs they HATE to other, presumably, low-paying jobs they love. Who knows? We might even unleash a huge amount of entrepreneurship just by giving people an economic floor AND not taking it away simply because they decide to work, unlike the current ‘welfare’ system which penalizes work and, arguably, the traditional family.
As an aside, no one really likes sweeping floors, emptying out the trash, scrubbing toilets, cutting grass in the hot sun for the man and the like. Trust me, as I have been there and done that. Who does this dirty work if folks leave jobs because of a UBI? It would seem unskilled labor just got that much more expensive. How does that work in a vastly competitive 21st century global economy? More on this part of the argument in a later piece.
Of course, the concept of ‘universal’ is galling, to both sides of the aisle. On the left, why should the Top 1% get a UBI, which is ultimately insignificant to their overall standard of living? That is a reasonable question. On the right side, why should people who are able to work and choose not to do so get this type of largesse, ultimately from folks who are paying, or have paid, into the system? That, too, is reasonable. Both questions strike at the very heart of the definition of fairness, and, unfortunately here, it will mean vastly different things to different people, especially people who hold a political office.
However, the concept itself is NOT as crazy as I might have originally thought. In fact, it even makes some sense provided we scrap ALL other entitlements programs. Everyone over the age of, I would argue, 25 gets the UBI, no questions asked and no stipulations. Period, and end of discussion. What could be fairer? Age, gender, racial, religious, sexual orientation, ability, geographic location, and in all other ways blind?
Everyone starts off the year at $12,000, or whatever number, and what you do after that is completely up to and dependent on YOU. This could very easily save the country a fortune, reduce the bureaucracy, and substantively help a huge chunk of our workforce…namely the working middle class and near middle class.
Unfortunately, I don’t think this what proponents have in mind: that is getting rid of everything else, even Social Security. That would disproportionately impact the aged and those folks currently getting various entitlements, which can amount to far more than $1,000/month in benefits. Further, and this is where the buck really stops and where the rubber will ultimately meet the road, the AARP would no more go for this than flying to the moon. I mean real DOA stuff.
So, this definition of UBI doesn’t work politically. How about keeping existing basic benefits AND overlaying a UBI on top of it? How now brown cow on that, huh? Well, that would be something like an additional $3 trillion of Federal spending, and Washington would have to come up with some way to pay for it. How could it do so?
Soaking the rich? Probably not so much, as rich people contribute to political campaigns and the like. Psst…sometimes they even flat out bribe otherwise pay off politicians. That might come as a shock to you, but it has been known to happen and you didn’t hear it from me. A VAT (value added tax)? Maybe, but that is hardly progressive taxation big guy, and would probably not be real appealing to the very people advocating for a UBI on top of the current way of doing things. Hmm.
If only there were a way…if only there were a way. What could it be? What could…wait! Hold on! I have it, the ultimate solution! Modern Monetary Policy! THAT is the ticket. We will simply finance this vast increase in Federal spending with freshly printed bills and everything will be groovy. Man, I am hearing the melodious strains of ‘Three Little Birds’ by Bob Marley going through my head right now: “don’t worry about a thing, ‘cause every little thing gonna be alright, singin’: don’t worry about a thing, ‘cause every little thing gonna be alright.” Get me a Red Stripe or something, but, as I have already established, no more than 4.
Yep, we will ultimately just pay for everything for everyone, no questions asked, the same way that fat elf delivers presents around the world using only a sleigh and 8 flying caribou: magic.
Have a good weekend
John Norris