Basic Income in a Nation of Start-ups?

As this Economist article points out, we’re becoming a nation of start-ups.  So how do you configure a nation to maximize start-up creation, success, and wealth generation?

One idea is called the basic income.  Essentially, every citizen would receive a sum of money every month unconditionally.

It’s an idea that has been rattling around in the socialist/libertarian discussion groups for some time now.  From what I’ve read, socialists see it as a way to permanently eliminate poverty.  Libertarians see it as a way to reduce the overhead/expense of administering a plethora of social programs already being run.

However, neither of these “intellectual arguments” have made any headway against the widely revered American work ethic.  Simply, to most people, programs that would reward everyone for doing nothing are unethical.  It would undermine any incentive to contribute, impoverishing us all in the process.  Up until recently, the resistance to this idea made sense.  In the old system, wealth distribution was more akin to a normal curve and the value generated by work corresponded to the number of hours/effort you put in.

That’s simply not true anymore.

Increasingly, the companies and projects that are worth the most money don’t grow linearly.  They grow exponentially (we’ve even seen this in income distributions — income is a power law), and the value created by these companies, isn’t correlated with hours put into it, or the effort expended, or even the educational level of the people involved.  It’s derived from a creative spark that’s been nurtured in a supportive environment.  It can either flicker out or explode or anything in between.  Further, the companies that emerge from this bolt of lightning are usually so leveraged, they don’t need to employ many people.

That method of wealth creation is a completely at odds with the traditional economy.  It also makes the idea of basic income interesting for a different reason.

Here’s some blue sky thinking on this.

In an economy driven by bursts of innovation, the goal is to generate and support as many innovative sparks as possible.  The best model we have for that today is how venture capital and incubators work in today’s environment.  Essentially, this is being done by “giving” a little money around to lots of potential innovators in the hope that they zoom (the payback to the investors is equity, which makes it different from those onerous micro-debt ventures getting so much hype).  Apparently, this wide and thin investment strategy is working in both software and hardware ventures, since there have been so many successes doing it.

So, what does this suggest for the rest of society?

  • A basic “innovation” income for everyone.  Self-funded innovation everywhere.
  • No taxation on income.  Waste of time and drag/friction on economic activity.  Fast wealth accumulation possible.  Fast recovery from failures.
  • Heavy taxation on extreme wealth (wealth over a couple of million $, using today’s metric).  More innovation = more lightning strikes = more extreme wealth to tax.

Interesting?

JR

PS: How long before start-ups generate almost all of our wealth?  It may be sooner than later.

24. January 2014 by John Robb
Categories: Ideas | 23 comments

Comments (23)

  1. ◾A basic income for everyone. Self-funded innovation everywhere.

    Sounds good – as long as it’s for everyone. They can use the excess money being printed – with trillions in debt, a few hundred billion more each year won’t be noticed, right?

    ◾No taxation on income. Waste of time and drag/friction on economic activity. Fast wealth accumulation possible. Fast recovery from failures.

    Sound even better – but all taxes are friction in the economic system. Where would the money come from?

    ◾Heavy taxation on extreme wealth (wealth over a couple of million $, using today’s metric). More innovation = more lightning strikes = more extreme wealth to tax.

    Of course, this requires a constitutional amendment. The present constitution forbids direction taxation of the people, except for taxes on income, from whatever source. Given the wealth of the politically powerful, how likely is this to happen?

  2. I’m getting taxed on wealth right now — real-estate taxes, property taxes…

    • Not from the Fed Gov, aren’t. If you were referring to the States taking these steps, it’s 50 times less likely.

      Sorry for the typos above. It should have been “direct taxation,” of course.

  3. And taxes on capital gains should be higher than income. It is “lazy” money. It doesn’t contribue as much to the economy as income.

    Remember, before we had a federal income tax we had taxes on alcohol. Prohibition wouldn’t have happened if the tax burden hadn’t shifted from the breweries to the workers, or it would have been a lot less likely.

    • We still have Federal and State taxes on alcohol. And firearms and ammunition, tires, etc.

      With excessive taxes on capital gains, the economy will not be able to raise capital. People would “hoard” their capital, either in financial accounts, or in tangibles like gold, silver, and lead (ammo!).

  4. Libertarians need to think more deeply here.

    The state of nature is one in which a natural person has de facto rights to fight for his survival — which includes not just his own personal survival but the right to sire and raise children to equally viable adulthood. When I use the word “fight” I mean it: Animals will fight for territorial access for the lives of themselves and their progeny. The Austrian and Lockean schools fail to recognize the situation which arises in nature when an animal is without the means of intergenerational sustenance, and the necessity of aggression in some of those situations. Civilization attempts to ignore this by proclaiming “property rights” as “natural” against “aggression”. This foolishness at the heart of these schools of thought renders them forever vulnerable to collectivists. The way out is trivially obvious: Follow Lysander Spooner’s definition of legitimate government as a mutual insurance company into which men voluntarily invest their natural rights in exchange for shares in and dividends from the company. The premiums paid for property rights take the place of taxes. The dividends take the place of social welfare. The violation of this simple and obvious paleolibertarian construct sacrifices the bedrock principle of liberty upon which civilization is founded for the high purpose of becoming politically impotent against collectivists.

    As for socialists, all they need to do is find out who is responsible for ignoring Martin Luther King Jr’s final advice which was quite congruent with this paleolibertarian notion of natural rights investment being compensated by a dividend.

    They need to find out who is responsible for ignoring MLK’s advice and do whatever it takes to neutralize their power — and I mean whatever it takes.

    I’d start with the Southern Poverty Law Center.

  5. I’ve been thinking along the same lines lately, but I see no reason such an entitlement shouldn’t be means-tested to some extent (ie, why would we give Mark Zuckerburg a couple grand a month? He’s already paying tens of thousands a month into the fund…)

    Eliminate Social Security, Medicare, Medicaid, Food Stamps, etc. Combine all the funds spent on existing federal/state/local entitlement and welfare programs into a basic income subsidy. We can even call it Social Security…

    There’s plenty of room to argue numbers, but for ballpark figures, let’s say $1200/month to the unemployed/non-working; $1500/month to those who work part-time at least 20 hours a week at low wages; $2000/month to full-time low wage earners, gradually tapered down the more they earn in private income.

    On the flip side, eliminate minimum wage, institute a flatter tax with higher marginal rates but lower compliance time and costs, and generally unleash the full fury of the free market and creative destruction. I suspect there would be less opposition to a true dog-eat-dog, rapidly fluctuating economy if people were insulated against the nastier short and mid-term effects.

  6. Pipe dreams. A formula for more middle-class resentment feeding more reactionary Tea-Baggers. A good way to bring a real Hitler into power. We already have a guaranteed minimum income: three hots and a cot in the prison-industrial complex for the lower echelons, a job as a prison guard for the next group up, a nicer job as cop or various clerk for the next tier, all the way up to judges at the top. Another source of guaranteed minimum income exists for those who get themselves serious sick so they have to hospitalized at government expense. Patients at the bottom, nurses in the middle, doctors and administrators at the top. No limit to the number of old people that can be kept alive on respirators indefinitely.

    Make-work is a LOT more politically feasible than the dole.

    • If the Southern Poverty Law Center had taken up Martin Luther King Jr.’s cause, rather than merely occupying his niche in the body politic and investing the money and morale on fostering race-resentment via racial preferences demonizing the white working class, the political feasibility of basic income would be vastly greater.

      The SPLC has been waging a war on the poor and on peaceful race relations — doing so in the name of Martin Luther King, Jr. — and it has pocketed huge war profits.

      • To think… reading their site’s glossy-front, it looks so progressive. So capable of good deed.

        Its both remarkable and a pleasure to see that you post broadly.

        GoatGuy

  7. Will the 2nd Great Machine Age be a frightening jobless dystopia?
    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10596788/Will-the-2nd-Great-Machine-Age-be-a-frightening-jobless-dystopia.html

    “…For those tempted by cry Luddism, hold your thought. This is nothing like the switch from agricultural revolution to the first machine age. The new displaced cannot migrate into textiles mills and great manufacturing hubs on the 19th Century. Labour-saving technology is now sweeping all sectors, including services. “The challenge is that much more immense now,” he said… ”

    “… Nor will the emerging economies escape this curse. Indeed, they are in the “bulls eye”, said Prof Brynjolfsson.

    Apple’s new Mac Pro will be made in Austin, Texas. Robots have rendered the labour cost irrelevant. The BRICS and mini-BRICS can longer under cut on price.

    “Wages don’t matter any longer. Off-shoring was just a way station.” We are back to reshoring, but without jobs. Welcome to our brave new world…”

  8. Our “money” is fake. Counterfiet. Paper printed at will by a private foreign corporation (The Fed) in violation of the Constitutional mandate that only Congress has authority to coin money. And then “loaned” to us people with interest! Until America is free from the foreign banking elitists, and functioning under its own debt-free currency, all talk about money is idle chatter, and no matter what imaginary number you put to this “basic income”, it’s nothing but a random made-up meaningless number. We have inflation, another hidden tax. Further proof that “money” as a concept in America is nothing but a manipulated mechanism of control. Let’s just give every human on American soil a fixed income of $10,000 per month. Print more if we need to. So what? Prices will rise quickly until that is not enough – or should I say, the control mechanism will push prices high enough so we are all back under control and struggling month to month again. Until we have a debt-free currency controlled exclusively by our elected government, such discussions are mere academic exercises in vanity.

    • No, its not “fake” any more than gold was “real”.

      Money – in case we need reminding – is at its most basic, nothing more than a counter, a representation of an agreed-upon value. Whether a pound of gold was worth a buck, or a thousand, or a million, or a grain of rice … has nothing to do with gold, and everything to do with human intellect. It is we who give a pound of gold some relative (but still intangible) value.

      Gold’s rarity, along with silver, or wampum beads, or the giant Yap money-disks, or carved bone amulets of the Inuit, … created premium value for more rare, or hard to produce things. Yet, as tangible as any of these are, they do not have any particular value in and of themselves. Only an agreed-upon value, invented by people, and held to account by people.

      The bond-leveraged printing of money is perhaps one of the most deeply misunderstood systems of creating real value that Man has ever created. Folks who pine for the Days of Olde … say the bond-coupon system is fiat currency, as if creating new money can be done from nothing at all. NOTHING could be further from the truth.

      Just as banks (in the Days of Olde) used to horde tangible, countable, massively secured piles of gold or diamonds, or other objects of lusty value – to underwrite the far-larger-than-actual-money pile of loans and deposits they handled, thus giving value to their money exchanges … just as this, governments (and only them) creating bonds having interest-coupons that come due in the future deliver the same kind of value as those vaults full of gold. To you, if I (the central bank) makes available at open and unbounded auction a bond of some face value V, with quarterly redeemable coupons delivering some interest I, it is up to you, and no one else to decide whether to buy such a bond. YOU decide. Your sentiments about the prudence and conservativeness of the government’s monetary policy, along with YOUR peers similar views, determines whether the Tuesday auction’s bond prices will be at, above, or below prima faciae value. YOU determine that. Therefore YOU, and not only the government have something to say about the VALUE of the future money (those coupons) which will be redeemed for brand-new, uncirculated cash.

      Moreover, once you’ve shelled out your million bucks to buy that great sheaf of paper, you’re now stuck. For years, potentially. Clipping coupons every quarter, physically getting them over to a bank, which will give you a stack of money – tax free – in return. The tax-free side is nice, and keeps real-interest lower than it otherwise might be. You ACCEPT the payments, knowing that as the coupons wend their way through the banking system, at some point, the Central Bank will walk a big hand-truck into the printing office, and bring forth a great stack of cash, new to the economy, which has never been spent before. It is this intangible human trust, enforced by holding your million bucks hostage, that moderates any reactionary force to rapidly either devalue, or envalue the money that is. The ”trillions in hostage” survive the depressing effect(s) of war, the inflationary effect of consumer credit spending, the nominal effects of banking reforms (that aren’t good for anything except the banks).

      So… please stop passing around tripe regarding the intrinsic value (or you would pitch: lack of value) of the Western, Bretton Woods II covenant backed money system. It is the only system yet invented that has any ability to allow money supply to be prudently moderated, to track and advance with changes in industry, prosperity, technology and socio-economic trends.

      GoatGuy

  9. While I agree with the principal of a basic income for everyone (I would certainly benefit from such a scheme) I think we have two problems we need to understand.

    One, currency has become detached from any real value and therefore cannot be used as metric for wealth creation (eg. real wealth cannot simply come into being from nothing, unlike the creation of fiat currencies). Originally fiat money was backed by debt that someone had to work to repay (ie. expend energy). Increasingly the debt now floating around is unpayable and is continually rolled-over by one means or another. Which means its worthless, as must be the money backed by it.

    Secondly, if primary resources (real wealth) require more energy to produce relative to output, then they’re essentially becoming less profitable in energy terms. This has to have a knock on affect through the entire wealth creation chain. For example, the bigger the energy sector grows, whilst only maintaining the same output, means wealth has to flow from everywhere else into that sector to balance out. So growth in the energy sector relative to static or declining output makes everyone poorer in real terms.

    I believe the the amount of underlying real wealth, globally, is actually shrinking. Both per capita (due to expanding population) and in real terms. So there is a massive disconnect between actual wealth and that measured by fiat currencies (which are showing phenomenal wealth creation). Although the reality is beginning to show through in the fact increasing numbers of people are struggling to afford what was, until recently, a normal standard of living.

    Our monetary system is in effect masking the real situation. Which means our Command and Control system (aka. economics) is guiding us in the wrong direction. We’re becoming poorer even as our nominal wealth, measured in fiat currencies, is increasing. So a basic income will not keep our heads above water for long.

  10. John says: “In an economy driven by bursts of innovation, the goal is to generate and support as many innovative sparks as possible. The best model we have for that today is how venture capital and incubators work in today’s environment. Essentially, this is being done by “giving” a little money around to lots of potential innovators in the hope that they zoom (the payback to the investors is equity, which makes it different from those onerous micro-debt ventures getting so much hype). Apparently, this wide and thin investment strategy is working in both software and hardware ventures, since there have been so many successes doing it.”

    I think this is a good example of how the System is finding ways to keep up the pace of technological progress whilst avoiding the straight jacket of Capitalism (ie. the need for profits). But to maintain the pace needed to sustain the exponential technological progress, its funding program is going to have to grow exponentially too.

    Perhaps a Socialist model is appropriate at this point, as the only system that can simultaneously pull money from all parts of the economy. Then feed it into the ravenous funding mechanisms to drive technological advancement. A Basic Income approach fits the bill perfectly as John explains in the above article.

    • Burgundy, when you wrote about the need to avoid”…the straight jacket of Capitalism (ie. the need for profits)” are you including or ignoring the motivation of the venture capitalists? Venture capital may be employed in situations where the funded entity need not make profits for themselves, but if they don’t make them for their investors, nobody is going to invest.

      As for socialism being one way to raise capital, I can’t think of any good examples of socialist economies known for innovation. Usually the only thing socialism brings is ever growing government and lower living standards on the average.

      The profit motive of capitalism has a much better track record for creative innovation. The past may not be a perfect indicator of the future, but it’s still a good way to bet.

      • Chris, I was basically following on from my other comments, that technology doesn’t necessarily generate profits in the conventional sense. The venture capital guys make their profits from flipping their stakes rather than from production. Developing software, hardware, new technologies and techniques is expensive and often unprofitable conventionally (ie. product sales less cost of production and overheads = profits). So a conventional capitalist wouldn’t invest in a company that cannot generate a profit to produce dividends (ie. a return on capital). Hence the straight jacket. A new way of feeding money into technology had to be found and voila! financial bubbles became the new method.

        Now for technology to advance exponentially the investment presumably is going to have to follow exponentially too. And with global finance looking pretty burnt out and liable to collapse, a new source of funding will be needed. A means that can draw on the whole of society to fund the enormous investment required to keep up the pace.

        The State has the means to collect the money from everyone and redistribute it. Hence the socialist system as a possible mechanism, but of course with an innovative twist. State gathers the money and redistributes it via a basic income so people can create new start ups (aka. funding technological innovation).

        Remember, as far as the System is concerned, China has been a huge success and the methods used will proliferate (albeit improved upon). The System doesn’t care about ideologies, just about technological results. It’s quite happy to take the best mechanisms from capitalism, socialism, communism, neo-feudalism, etc. and mix them all up into a hybrid, if it’s a necessary means to an end.

        • Burgundy, Thanks for the explanation.

          Would you consider IRAs, 401Ks, etc, a form of “socialism” in generating capital? It seems it might be, in that it was intended to provide a supplement to social programs like Social Security, and it undoubtedly directed hundreds of billions of dollars into investments.

          • Yes, quite possibly. I tend to think of socialism as a system with the ability to make everyone contribute to the socialist system’s projects and aims.

  11. “Yes.”

  12. On 9/23, on gg, you wrote: “The global network we currently live in, enables us to create new methods of interaction that have the potential to make markets/bureaucracy look clumsy and slow witted in comparison.” … Just sat through a presentation on the “Sharing Economy” or “the collaborative economy” by April Rinne. She summarized many examples (ebay- decentralization of market place, zip car & airbnb – asset sharing), and outlined one of the network-based organizational models that’s outpacing/out-doing traditional economic models. Likelyto sneak up on markets/bureaucracies and blow them out of the water. Worth looking into. I’d love to hear your thoughts.

  13. Interesting concept.
    I know a lot of musicians who would be quite happy with a stiped. And artists. And maybe artisans.

    I would trade more art and crafts for the cold sterility of technology any day.

  14. Less recently, James Albus, a cyberneticist responding in part to the idea that most work would be automated away in the 70′s (in part due to his own work on the Cerebellar Model Articulation Controller), advocated a basic income under the name “Public Dividend” which states an equivalence between earning a basic income and drawing dividends from an ownership share in the automated economy that might make the idea much more palatable on capitalist terms.

    https://en.wikipedia.org/wiki/James_S._Albus#Publications

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