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A National Assured Basic Income Will Poison the Well

On a steamy night in Tampa, Florida, during the 2012 Republican National Convention, a few of us were having drinks with some of the conventioneers at a local watering hole when a rather odd topic came up. Some Democrat complaints about Mitt Romney were blaring on the television – I don’t recall the specific issue – and the idea of additional federal entitlement programs came up as a way of “leveling the playing field” against the super duper rich fat cats, as represented by the nascent GOP nominee. One of our ad hoc drinking buddies scoffed in a gruff tone and, with tongue planted in cheek said, “Why don’t we just pay everyone to stay home and watch television all day?”

This may sound like the makings of a good joke in conservative circles, but it’s not entirely unheard of. I first noted real world suggestions of this last year when Switzerland was toying with the idea of providing a $2,800 per month assured income to all of its citizens, whether they worked or not.  This is not an unknown theory, particularly in nations with nationalized oil companies and rich mineral resources.

The other place you run into a parallel to this sort of utopian concept is probably best exemplified in the movie Star Trek: First Contact.  In one scene, Captain Jean-Luc Picard has traveled to the past and is explaining to a lost and confused local woman that the crew does not get paid because, in the future, there is no money. No money? No, he explains. In the future, people work cooperatively to better themselves and the world, not for personal gain.

It’s a wonderful idea, isn’t it? But clearly one destined to remain on the fiction shelves for those of us who reside in a 21st century capitalist society. Or is it? CNN recently published an op-ed from David Wheeler who’s gotten a whiff of this idea and, having smelled what the Swiss are cooking, seems to think this is just the recipe for what’s ailing America as it faces the bugaboo of “income inequality.”

A monthly cash payment to every American, no questions asked, would solve several of our most daunting challenges. It's called a basic income, and it's cheaper and much more effective than our current malfunctioning safety net, which costs nearly $1 trillion per year.

The United States is already experimenting with a variation of basic income, even though most people don't realize it. Alaska has a small version, called a Permanent Fund Dividend, which is incredibly popular and made the state one of the most economically equal places in America. Importantly, Alaskans don't consider it "redistribution," but rather "joint ownership."

Of course, all government programs have imperfections, and the basic income idea has an obvious one: There will still be people incapable of functioning in daily life—people who will spend their money before paying for basic necessities. What should be done about these "moochers"?

It’s in some ways admirable that Wheeler takes time out in the course of his ponderings on a more perfect union to wonder if there might be some flaws with this plan. But looking at this from the capitalist perspective, he seems to be ignoring a few of the truly massive flies in this particular ointment. The first of these comes with the attempt to somehow conflate Alaska’s Permanent Fund Dividend with the idea of a socialist state handing out paychecks for free.

Alaska and certain Nordic socialist interests have a few things in common here, but not what the author supposes. First, much like some European North Sea entities, Alaska is dealing with a miniscule population when compared to other large states. More to the point, the state government enjoys a peculiar benefit similar in nature. No, Alaska is not a socialist state, but they do control vast natural resources which outside companies extract and process. These entrepreneurs pay a fee directly to the state for mineral exploration rights and it adds up to a tidy sum. What Alaska is doing is not offering any form of guaranteed basic wage. They are more in line with a very prosperous company engaged in a practice known as profit sharing. (As an aside, I don’t know if any American companies actually do that anymore. Those of you casting about with a confused look on your faces can either Google the term or ask your parents.)

The point is that a nationalized oil company such as the ones found in socialist nations can gather, process and export their own oil. They may then, if they wish, distribute some of the profits to their citizens as a direct form of welfare. Alaska doesn’t follow that model. In order for the oil to find its way to market and generate a profit, outside companies have to come in and do all of the hard work of creating wealth. Alaska simply offers a refund to their taxpayers if the income exceeds the costs of doing government business. But the key point here is that somebody still has to invest the time and labor, generate a product and realize a profit for it to work.

But let us leave aside the nationalized oil model for a moment and move on to the essential idea of handing out paychecks to all and sundry as a form of safety net. Now, Mr. Wheeler isn’t talking about anything as extravagant as $33.6K per year for everyone… perish the thought. He’s suggesting a far more modest, barely sustainable “living wage” for those who are not working. Where’s the harm in that?

In order to see the long term impact of such a move – assuming we could even afford it – we must tie in this conversation with one of the problems with a vastly higher national minimum wage, also currently on the table for election year Pablum.  When you raise the minimum wage, prices go up. This is a given. But now consider what happens if you begin handing out some minimal living wage to anyone willing to scrape by on it.  If you have a choice between flipping burgers or stocking shelves to get a basic income or sitting at home watching daytime television, which will you choose? And when companies can no longer find anyone to show up and run the fry machine or keep the cereal aisle full, they will need to pay more to attract workers. In effect, you’ve just raised the minimum wage without a mandate.

Aha, the progressive argues… that’s what we’ve been saying needs to be done all along! This plan is perfect! And it might be except for one pesky detail. When you pay all the workers more, you have to charge more for your product.  Which means that the money paid to the person sitting at home watching The Ellen Show won’t be enough to squeak by on. So you’ll need to pay them more. And then the shelf stocking, burger flipping contingent will lose interest in working. And…

You can see where that story is heading.  But even the cost analysis doesn’t nail down the fundamental flaw with this plan which is best seen from the ten thousand foot level.  In a productive, capitalist society, there is no wealth beyond that which is produced through private endeavor. When production is greatest there is more left over to be scooped up by the government and redistributed. But the more people you have drawing cash from the pool without generating any of the wealth the system runs on, the shallower the pool becomes. In short, when everyone sees riding in the cart as being preferable to pushing it, the cart stops.

A national assured basic income is not only antithetical to a capitalist society, it’s poisonous to it.  And when you inject this practice into the system, it’s the same as when a massive, dying star begins to produce iron in its core.  The next step is rapid and unavoidable.