With the opening of Australia’s 45th parliament, the new Coalition government has begun to articulate its economic agenda in somewhat greater depth. Unfortunately, there is already cause for concern. If early signs are any indication, the government has not yet got to grips with the ramifications of growing inequality and is overly concerned with public debt.
The Treasurer’s first significant speech was seemingly short on specifics and long on contradictions. In this light, its chief sound bite—that Australia is facing a growing divide, once benefits are factored in, between the “taxed and the taxed-nots”—assumes a greater significance. And it is worrying one. To suggest that is necessarily unfair for people to be net beneficiaries of the tax and transfer system over their lifetime as a whole is to disavow one of government’s fundamental responsibilities, which is to spread risks—whether of unemployment, low pay, or ill health—across the population as whole. As a matter of fact, it would be the rare nation indeed that was able to discharge this duty without some people being net beneficiaries of government in this sense. Of course, it is possible for the state to be overly zealous in pursuit of this goal, or for an equitable tax and transfer system to be undermined by citizens’ attempts to evade their responsibilities or claim more than they are owed. But evidence in the Australian case suggests the contrary. Growing inequality is depriving those at the bottom of the means to be included in the “taxed”—a group they would be better off a part of but cannot access. As a result, “reigning [sic] in the growth of welfare spending”, as the Treasurer has proposed, would compound unfairness rather than diminish it.
The other worry is that the government continues to use household budget metaphors to reference the need to tackle the budget deficit and government debt. This may be an attempt to relate the problem to the average voter. Nevertheless, it overstates it. There is generally less reason to be concerned about government debt than household debt for three reasons. First, the government has the capacity to boost economic activity (at least when the economy is below its existing capacity, and perfectly good productive resources are being underutilised as a consequence of an coordination failure). As such, it has the power to increase its ability to meet the real burden of its debt by spending, as greater economic activity means greater tax revenue. Second, governments of monetarily sovereign countries (like Australia, but unlike Greece) need never default on their debt as such because they can always create the money needed to pay it off by fiat. Third, and perhaps most importantly, a proportion of a nation’s public debt is standardly owed to its own citizens. To that extent, it is money we owe ourselves, and there is no comparison to “loading more and more debt on the shoulders of our children and grandchildren” or “living effectively on the credit card of the generations that come after us”. True, future generations stand to lose if we fail to pay down our debt now to the extent that ours is a government “of the people”, but they also stand to gain in their role as private creditors to the extent that that debt is maintained.
Needless to say, none of this represents an unfettered license for the Australian government to borrow and spend. The danger of inflation, and the fact that a majority of Australia's public debt is now foreign owned, represent real, if rather remote, constraints. But the default imperative is not, as generally in the household case, to eliminate as much debt as we can as quickly as we can. Rather, the focus should be on tackling inequality before it begins to have the kinds of implications we have already seen in Britain and the US.
In the July edition of Prospect, Jon Cruddas and Tom Kibasi argue that a universal basic income (UBI) remains “a bad idea”. Part of their complaint is that it is unrealistic. However, it may not be as unrealistic as they presume, particularly if a number of widespread and hence influential confusions—confusions that are perpetuated in the article (and other popular treatments, see Eduardo Porter’s NYT op-ed)—can be ironed out. Here I address four.
1. According to C&K, a problem with the UBI is that it would “discourage work” and hence “it would be difficult to see a state [that paid a UBI] as being very fruitful”, particularly given that the “New Labour nirvana”—in which we are able to return to the pro-poor growth of the post-war decades via investing in human capital—has failed to materialise.
Nobody doubts that, were a UBI to be introduced, some people would quit their jobs and, as a consequence, GDP would decline (or, more likely, fail to increase at so great a rate, at least for a period). However, it is not at all obvious that this would be a problem. First, it is a commonplace that GDP is a poor measure of total economic value—particularly given externalities—much less aggregate welfare. If introducing a UBI would free up people to do non-market work that is not currently included in our national accounts (but ought to be), it may well be a very good thing.
More importantly, GDP is distribution-insensitive. What exactly would be the complaint if, as a consequence of introducing a UBI, consumer luxuries were somewhat more expensive provided that the worst-off amongst us were better off overall than they otherwise would have been by virtue of not having to work in the least-fulfilling and worst-paid jobs?
Of course, anyone would admit cause for concern if the disincentive to work entailed by a UBI were so strong that even the worst-off would be harmed were it to be introduced—as in the extreme case in which the economy contracts so much that the level of the universal income is limited out of necessity. However, a hunch is inadequate to determine the prospects of such an outcome. Are the authors aware of an experiment or model to buttress their position?
2. C&K argue that work “improves lives, and brings dignity”, whereas sitting back, relaxing, and tuning in “to daytime television” does not.
Undoubtedly so, but the argument for a UBI is about what means are permissible in promoting the valuable goal of ensuring that people do what is best for them, and work. If C&K wouldn’t be prepared, as I assume they would not, to force somewhat who would sincerely prefer to watch television into “work” by means of threats, why are they so comfortable with people being effectively forced into work by fear of destitution? Isn’t a bit of rational persuasion and cultural pressure more appropriate here? The other points to note are these: (a) it is unlikely that, having received a UBI, people would just sit and watch television, because to do so would, as the authors admit, be “antithetical to the values of most British people, who believe in the value of work”, and (b) paid employment acquired through the labour market does not, needless to say, exhaust the possible range of dignity-conferring work (consider childcare, community organizing, etc.).
3. According to C&K, the supporters of a UBI are hopelessly “utopian” in that they rely on “individuals, having received a universal income… [taking] it upon themselves to do socially useful things”.
I don’t think there are any supporters of the UBI who believe that a substantial number of employees in unfulfilling but socially useful (necessary?) jobs would, once provided with a UBI, spontaneously continue in those jobs out of the goodness of their hearts. But neither is this a problem (or necessarily a problem—see above). A market economy with a UBI no more relies on altruism to get socially necessary work done than does a market economy without a UBI. In either type of economy, socially useful work is elicited by means of a wage-incentive.
4. C&K claim that “embedded in the idea of universal basic income is the assumption that some jobs are worthwhile, and others not. Some may sneer at “McJobs”—but cleaners in McDonald’s stop infections, just as cleaners in NHS hospitals do. We all enjoy clean streets and benefit from well-stocked shops. Proponents of UBI ignore the value of such work: it only makes sense to be emancipated from an obligation that is inherently undesirable.”
Of the four claims considered here, this is the one that most misses the mark. (And like the previous confusion, it arises because the authors fail to consider the consistency of a UBI with, and the consequences of a UBI for, wages.) One of the strongest arguments for a UBI is that some of the most valuable work is also the worst paid (and hence, too, the lowest status) precisely because the people who undertake that work have no alternative way of supporting themselves, and hence limited bargaining power in the labour market. In providing them with an alternative, in other words, the UBI would put upward pressure on wage rates, bringing remuneration more in line with social contribution.