Should We Get a Basic Income

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Basic Income



To understand why the concept of basic income would not work, it is necessary to understand the meaning of money and how it has value. Money has value because of two things: 1) confidence—as in the confidence that is placed in the currency by those who use it, and 2) the fact that it represents a store of worth—for example, if a person works ten hours on a roof, he expects to be compensated. He could theoretically be compensated with wheat, or milk, or beef, or gas, or some other goods or even services in exchange; but to facilitate the exchange and the agreement between the hirer and the laborer, money is introduced. Money thus acts as a store of wealth: the laborer who works on the roof for ten hours agrees to be compensated by x amount of dollars or euros or pounds or renminbi or whatever currency the two agree upon. Money is an easy way to settle exchange and eliminate the need for bartering.



In the old days, money was represented physically by coins—gold, silver, copper—these metals have been commonly used throughout time and societies all over the world as money. The reason these metals were used as money was that they were commonly believed to retain their value over time. Unlike today’s fiat currencies, which can literally be printed up by the world’s central banks at any moment in time, metals like gold and silver required a great deal of man hours, labor and energy to mine and forge into coins. Why is this important to know? The point of this illustration is to show that in order for money to be useful, it must retain its value over time. If a nation decided to use loose leaf sheets of paper as its currency, it would quickly lose the public’s confidence as such sheets can easily be created and distributed amongst the public. The more sheets there were to go around, the less value they would have. Gold and silver are believed to hold their value over time because they cannot be acquired without an exchange of labor and energy. Money it could be said represents energy. The amount of energy that one puts into one’s work should be commensurate with the amount of energy that is stored in the money that is received in return for one’s work. That is the fundamental nature of money. Money makes it easier for people to exchange their energy.



If, however, a society decides that people should receive a basic income for free—i.e., for nothing—not for any exchange of labor or energy, it corrupts the system and concept of money to the core. If a basic income is granted to all, it does two things: 1) first, it dilutes the value of money already in supply; 2) second, it gives the false impression that the money given to the public for free has value. Since no exchange of energy or labor or an alternate form of value was made but rather the basic income was simply generated out of thin air and supplied to the public, it has no real value.




Of course, the proponents or supports of the concept of basic income know that—which is why they point to two methods of supplying basic income that does not follow in the footpaths of central banks like the Federal Reserve, the Bank of England (BOE), the European Central Bank (ECB), and so on, all of which have printed up trillions in their own currencies to prop up markets since the Great Economic Crisis of 2008. What this means is that since the Great Economic Crisis, which has defined the past decade in terms of how monetary policy is conducted, the great central banks—the Fed, the ECB, the BOE—have engaged in a strategic policy of quantitative easing (QE), designed to send “trillions of euros [dollars, and pounds] into the financial system” (Van Lerven, 2016, p. 237). While QE tends to prop up market prices, the goal of the policy is to jumpstart the economy—much like the concept of basic income is meant to do. The more money people have, the more likely they are to spend, right? That is why CEOs like Elon Musk and Mark Zuckerberg support the concept of basic income—it is populist and it puts more money in the pockets of people who will then likely spend it frivolously (perhaps not on electric cars or ad space from Facebook, but the idea is that they will stimulate the economy and help grow a country’s GDP) (Schiller, 2017). The problem with this is that it makes a number of assumptions about the consuming habits of people—habits that are based on past consuming habits of prior generations, which are no guarantee of how a thrifty generation that has suffered through the collapse of credit will respond to being given free money.



Moreover, the one guarantee of “free” fiat money (money printed by central banks rather than taken from taxes collected by the government or obtained through the sale of debt—i.e., Treasuries), is that it will result in currency devaluation (Haitsma, Unalmis & de Haan, 2016). How? The injection of liquidity into the market leads to an increase in the supply of the currency. A rapid increase in the supply of money leads to inflation. The more money that is pumped into a system, the less value it has: it is the basic principle of supply and demand. This can be seen today: the central banks have added trillions into the marketplace in an effort to stimulate the global economy; there is debate about whether the economy has truly been stimulated—but one thing that cannot be debated is the fact that inflation has occurred: asset prices have risen across the board since 2008, when QE was launched. In fact, this phenomenon happens anytime credit is expanded: the more access to money the public has, the higher prices move. That is how supply and demand works. One can look at housing, medicine, education, equities, bonds, or precious metals: everything has gone….....

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References

Curran, E. (2018). Global debt hits record $233 trillion. Retrieved from https://www.bloomberg.com/news/articles/2018-01-05/global-debt-hits-record-233-trillion-but-debt-to-gdp-is-falling

Haitsma, R., Unalmis, D., & de Haan, J. (2016). The impact of the ECB's conventional and unconventional monetary policies on stock markets. Journal of Macroeconomics, 48, 101-116.

Schiller, B. (2017). A universal basic income would do wonders for the U.S. economy. Retrieved from https://www.fastcompany.com/40463533/a-universal-basic-income-would-do-wonders-for-the-u-s-economy

Van Lerven, F. (2016). Quantitative easing in the Eurozone: A one-year assessment. Intereconomics, 51(4), 237-242.

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