Wealth and Income Gap

This post started in January (2016) and has been amended several times since. The notion of guaranteed basic income appears to be getting traction, so new links will now be added here at the top for quicker access. The old material is marked below.

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Update June 16, 2018

Finland’s Basic Income Test Wasn’t Ambitious Enough

The payments encouraged beneficiaries to take work that doesn’t pay a living wage.

By Leonid Bershidsky
April 26, 2018, 4:04 AM EDT

KELA, the Finnish social security agency, has failed to secure the funding it needs to extend its universal basic income experiment beyond this year. Although it’s sad that this grand leftist idea is suffering another setback, Finland’s trial effort deserved its fate.

Before the experiment was approved by the government in 2016, KELA officials talked of paying 800 euros ($974) a month in unconditional income to a test group of working-age citizens. But by the time the program began early last year, the amount was whittled down to 560 euros: If extended to the whole country, the cost of the earlier proposal would have exceeded the Finnish government’s entire revenue. A similarly impractical approach led to the failure of a 2016 Swiss referendum on offering a payout of 2,500 Swiss francs ($2,540).

It’s all but impossible to live on 560 euros in Finland. A one-bedroom apartment on the outskirts of Helsinki rents for almost that much. So the experiment’s designers settled on not really paying the UBI to the unemployed, who kept a higher level of government support -- at least 32.4 euros a day for the first 400 days after losing a job. Only the working poor would benefit significantly from it.

That limitation was designed to address two problems. Finland has a low employment rate for a rich country: just 71 percent of the working-age population, compared with 77 percent in neighboring Sweden and almost 86 percent in Iceland. So the idea was to provide an incentive for the unemployed to step into the job market, even if it meant taking on part-time or badly paid work. The other goal was to simplify Finland’s complex system of housing, child-care and other benefits by replacing them with the lump sum payment.

KELA is not promising to release any results of the experiment, which involves 2,000 people, until the end of 2019 or even the beginning of 2020. But it was clear from the start that a basic income, even such a low one, is an extremely expensive way to boost precarious forms of employment. At 550 euros a month, KELA calculated, the UBI would cost 19.3 billion euros a year, while the government would only save 3.6 billion euros on existing benefits.

The Organization for Economic Cooperation and Development earlier this year expressed doubts about the Finnish plan. “Coordinating the tapering of various working-age benefits against earnings could drastically improve work incentives and transparency, while preserving the current level of social protection, and is hence a more promising route for future reform than a basic income,” the OECD said.

There are, in other words, less financially bruising ways of streamlining the benefit system. As for getting people to return to the job market, the center-right cabinet of Prime Minister Juha Sipila appears to be more interested in cost-effective negative motivation for the unemployed than in rewarding them for finding work that doesn’t pay a living wage. The government has proposed, for example, requiring out-of-work people to apply for at least one job a week to keep receiving benefits (unless they’re in job training programs).

Finland undertook its experiment for the wrong reasons. Using the universal basic income to increase labor market participation and phase out some benefits is like swatting flies with a sledgehammer. In a report on the future of work released earlier this month, the World Bank recommended the much more ambitious goal of considering UBI as a means of ensuring a “societal minimum” of welfare in a world of increasingly precarious employment and growing automation. If a society is to accept much higher taxes to pay for a basic income plan, it has to be for a revolutionary outcome, not a mere bump in employment numbers and a dent in the cost of social security administration.

Low UBI-like payments aren’t even likely to work well for the purposes KELA had in mind. Neither dividends from the Alaska Permanent Fund, which paid every state resident $1,100 for 2017, nor Iran’s one-year experiment, in 2011, with paying 96 percent of its population $45 a month, had any effect on employment. The Finnish program, of course, pays more but also below subsistence level, so its outcome is likely to be similar.

The UBI idea is not dead. It’s still worth watching other experiments, especially the ones that actually provide a living income. These include Oakland, California, which pays $2,000 a month, almost exactly at the poverty line, and the one in Kenya, which pays $23 a month, about half the average income in the country’s rural areas. Other tests, in the Dutch city of Utrecht and an upcoming one in Ontario, Canada, offer low payouts relative to the living standard, but still higher than in the Finnish test.

If these experiments show that tangibly increased financial security makes people more inclined to study, try more creative endeavors or even start businesses, the undeniably high cost of the UBI may yet seem justified. [Emphasis added]

Update June 2, 2016

Some residents of Oakland are about to get a basic income
Updated by Dylan Matthews 

June 1, 2016
Basic income is having a moment. First Finland announced it would launch an ambitious experiment to see if it would work to give everyone in a given area is given a set amount of cash every year from the government, no strings attached. Now the Silicon Valley seed investment firm Y Combinator has announced details of a basic income experiment it's funding in in Oakland.1

Four months after saying that the company was interested in funding a pilot, YC announced that it will begin with a short-term project in Oakland. "In our pilot, the income will be unconditional; we’re going to give it to participants for the duration of the study, no matter what," the company stated. "People will be able to volunteer, work, not work, move to another country—anything. We hope basic income promotes freedom, and we want to see how people experience that freedom." If the pilot is successful, they'll follow up with a larger-scale, long-term main study.

The evaluation will be lead by Elizabeth Rhodes, a recent PhD from the University of Michigan in social work and political science. YC notes that other contenders for the position included "tenured professors from Oxford, Columbia, and Harvard."
[Go to the link for details of the YC experiment.]

The Y Combinator study is one of four notable basic income trials of the late 2010s.

Right now there are two notable experiments in rich countries in the works. The first, in the Dutch city of Utrecht, suffers from the same key flaw as the US study by only targeting existing beneficiaries. The second, much more promising experiment is Finland's, which is testing a whole bunch of approaches. The researchers are trying a pure basic income, a partial basic income paired with some existing welfare benefits, a negative income tax, and some other ideas.

They're also aiming to test the idea not just by randomly selecting a group of people across the country to get benefits, but also by having some areas where a big chunk of residents or even all of them receive the benefit. That lets you see what happens to an entire community when a basic income policy is introduced.

Having a whole town get benefits could have cascading effects as households escape poverty, as some people use the income guarantee as insurance so they can take risks and form companies, as universities see increased enrollment, etc. Dauphin is really the only place we've had a study on that scale so far, so Finland's experiment is adding a lot.

Finally, GiveDirectly, a charity that gives cash directly to desperately poor people, is planning to launch a large-scale experiment of basic income in Kenya, with about 6,000 people getting full basic incomes and more than 15,000 getting at least some form of cash transfer. The study promises to be much, much cheaper than the rich country experiments, as each person getting a basic income will receive only $250 to $400 a year— a pittance by US standards, but as much as or more than the recipients ordinarily make annually.

These three trials are similar in many ways to what Y Combinator is proposing, especially the Finland one. But they're addressing different questions.

Finland and Utrecht want to know if a basic income is a more efficient way of delivering assistance to poor people than their existing policies; they're not particularly interested in ushering in a post-work future.

The GiveDirectly program is trying to figure out if basic income is a viable way to lift people in developing countries out of extreme poverty. That's probably the most promising use of a basic income from a humanitarian perspective. Giving $1,000 to someone living on $2 or less in Rwanda effects a much bigger standard of living increase than giving $1,000 to a poor person in the US.

But none of the three experiments is interested in the kinds of questions — "Does basic income make for a more creative society liberated from the constraints of cash?" "Does basic income increase happiness through greater leisure?" — that Y Combinator wants to answer. If done rigorously, the firm's study could wind up making a useful, original contribution to the basic income movement. Hope for a post-work future is a big part of why basic income has become popular. It makes sense to test whether basic income can make the best parts of that vision real.

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Update May 19, 2016

Links are now coming faster than I can note in précis form.  Here are two more:

Nobel Laureate Economist Angus Deaton endorses basic income

May 18, 2016 

Kate McFarland

The Present Crisis, A Pattern?

29 November 2012

Wim Grommen

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Update May 2, 2016

Bloomberg
A Basic Income Should Be the Next Big Thing
MAY 2, 2016
By  Paula Dwyer

Now and then a worthy economic proposal comes along that seems as politically unattainable as it is sensible. Then, on closer inspection, you see that it's more than a policy-wonk's fantasy. And you wonder whether it could actually prevail.

This may be happening with the concept of a universal basic income. The notion that government should guarantee every citizen an annual stipend of, say, $10,000 -- no strings attached, no questions asked -- is being studied by politicians, economists and policy experts worldwide.

Think of it as Social Security for all. In the social democracies of Europe, Canada and South America, experiments are planned or underway. In the U.S., it's still little more than a concept -- one that appears to have more conservative backers than liberal ones. 

Bernie Sanders says he's "sympathetic" to the theory behind a universal basic income but stops well short of advocating it. Hillary Clinton seems even less enthusiastic. By contrast, conservative economists, politicians and think-tank scholars are not as hesitant. Marco Rubio, for example, proposed the beginnings of a basic income in his 2015 tax plan.

The rest of the world is taking the lead. 

Switzerland will hold a June 5 referendum on whether to give every adult citizen 2,500 Swiss francs (about $2,600) a month. Ontario, Canada, will conduct an experiment with a basic income later this year. The city of Utrecht in the Netherlands is conducting a pilot program, and Finland is planning a two-year trial. A British proposal is gathering interest. In May, a nonprofit group will start giving 6,000 Kenyans a guaranteed income for at least a decade and follow the results.

Basic-income proposals come in many varieties, and have myriad rationales.

Some progressives see it as the ultimate expression of what a developed economy can achieve: a way to lessen poverty and inequality, and ease the pain of job loss and economic stagnation. But in the U.S., many liberals see it as naive and a distraction from more practical priorities, such as a $15 minimum wage and paid family leave.

For conservatives, the attraction is smaller government. Dozens of social-welfare programs now costing U.S. taxpayers about $1 trillion a year could be folded into a basic-income program, they argue.

With no eligibility criteria or enforcement needed, administrative costs would be bare-bones. Waste, fraud and abuse would be greatly reduced, the argument goes, if not close to zero.

In the 1960s, a basic income was part of the mainstream political discussion. President Richard Nixon even proposed an income floor, based on ideas developed by Daniel Patrick Moynihan, then a domestic-policy adviser. The proposal died in part because of liberal opposition to a work requirement and obstruction by a well-organized welfare lobby, Moynihan would later write.

The earned-income tax credit, a form of basic income, took its place, but only to supplement the earnings of the working poor. The tax credit was first proposed in 1962 by conservative economist Milton Friedman. One of his aims was to end the "earnings cliff," in which government aid disappears once income exceeds a cap. Such a limit discourages recipients from working, a consequence that keeps them poor and dependent.

The tax credit is still around and widely considered an effective anti-poverty program, but the earnings-cliff issue has only gotten worse: The U.S. now has 80-plus low-income programs, each with its own eligibility rules and earnings caps.

The idea of a universal basic income is enjoying a renaissance today, not only in Washington think tanks but in Silicon Valley, as my Bloomberg View colleague, Justin Fox, has written. Y Combinator, a venture-capital firm, is launching a five-year research project, for example. The goal is to give a randomly selected group of people a monthly check to see if they sit around and play video games or create economic value.

Why does Silicon Valley care? It can see the role of technology in accelerating job losses in the U.S. Two Oxford University professors wrote recently that about 47 percent of U.S. jobs are at risk of being replaced by automation. If that happens, the economy would shrink, and fewer and fewer people would be able to buy the goods that Silicon Valley creates.

The fear that people with a guaranteed basic income would become slackers may be unfounded. One economist who studied trials conducted in the 1970s in Canada found the opposite: Recipients were healthier and finished high school at higher rates. Adults with full-time jobs worked the same number of hours with one exception: Women took off more time after having a baby, an utterly reasonable outcome.

Yes, the costs of guaranteeing 322 million Americans $10,000 a year would be prohibitive -- a whopping $3.2 trillion a year.

But by excluding 45 million retirees who already receive a basic income through Social Security, the cost falls to $2.7 trillion. And if the benefit is phased out for households earning more than $100,000 (that would be 20 percent of the U.S.'s 115 million households, or about 70 million people, assuming three to a household), the cost declines to about $2 trillion. You could confine the program to adults and shrink the price tag even more, possibly to as low as $1.5 trillion.

Now we're getting close to the $1 trillion cost of all those unemployment checks, tax credits, food stamps, housing vouchers and a myriad other means-tested benefits that a basic income could supplant.

Here is where liberals start to get queasy. They don't like that a basic income would replace the safety net, even when assured that some programs, including education, job training and entitlements like Medicare, would be maintained. They worry that the civil servants who now run programs would be laid off. And they fear that a basic income would, in the end, be less than what many people get when all the federal government's cash and social-service programs are combined.

Those are valid concerns. But as other countries test the idea and seek improvements in their social-welfare systems, will it make sense for the U.S. to maintain an expensive crazy-quilt of programs, many of which have not lifted people out of poverty and dependence? A Social-Security-for-all approach might not seem like such a fantasy after all. 

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Update April 14:

A charity's radical experiment: giving 6,000 Kenyans a guaranteed basic income for a decade
Updated by Dylan Matthews on April 14, 2016

GiveDirectly, a charity that gives money directly to poor people in Kenya and Uganda, is launching a big new project: a basic income.A basic income — also called a universal basic income (UBI), 

guaranteed minimum income, citizens' dividend, demogrant, etc. — is a regular payment to a group of people just for being alive. Normally, basic income proposals call for the payments to be administered by the government, but there's nothing in principle stopping a nonprofit like GiveDirectly from doing it. 

So it's giving the policy a shot, and will give about 6,000 people in Kenya a guaranteed flow of cash for the next 10 years or more. In doing so, GiveDirectly is testing out an idea that's rapidly gaining interest inFinland, Silicon Valley, and Ontario, Canada, and could radically transform welfare policy in both rich and poor countries in the future. 

More than that, it's creating what is perhaps the first true universal basic income in recorded history. There have been previous policies that are at least somewhat like this. But GiveDirectly's introduction of a universal payment for whole villages over a long, long period, set at a level of basic subsistence, is truly historic.

[More at the link...]

When Robots Take Our Jobs, Should Everyone Still Get a Paycheck?
A concept called universal basic income is gaining traction as a way to help people deal with machines taking over the job market
By Randy Rieland (smithsonian.com) March 21, 2016

There’s nothing new about worrying that machines will take our jobs. More than 200 years ago, Luddites started taking sledgehammers to weaving machines.

But tech anxiety got a fresh jolt last month when the White House sent out a Council of Economic Advisers report including a projection that people making less than $20 an hour have an 83 percent chance of eventually losing their jobs to a robot. The odds for those earning up to $40 an hour are more than 30 percent.

Not that most Americans would find that very surprising. According to a Pew Internet Survey released last week, more than two-thirds of Americans think that within 50 years, most jobs will be done by robots or computers—although the vast majority conveniently thought that won’t happen with their own jobs.

No matter how this plays out, it’s pretty clear that machines will be handling more and more work, particularly now that increasingly sophisticated artificial intelligence is enabling them to take on mental tasks too. And that is raising a big question: When machines dominate the work world, what are all the people they replace going to do for money?

Checks for everyone

Remarkably, one idea starting to gain traction is known as universal basic income (UBI). It’s a simple, if somewhat radical concept—each citizen of a country would receive a monthly check from the government, no matter how much money you make and without any strings attached. You wouldn’t have to meet any conditions to qualify, you wouldn’t have to show you were looking for a job, you wouldn’t face any restrictions on how you spent the money.

Plenty of people think this is a bad idea, or at least a seriously unbaked one. Critics say all that easy money could result in a nation of game-playing, binge-watching freeloaders. But others counter that if there’s a tech takeover of the job market, society will need a safety blanket, not a net. They also posit that those who don’t have to take just any job to cover basic expenses may be able to do things that are more fulfilling or perhaps more beneficial to society.

The truth is that no one knows how people will respond. But there’s a growing consensus that it’s time to start finding out. Next year, government researchers in Finland will begin a two-year study, in which up to 100,000 Finns will receive as much as 1,000 euros a month, without any conditions. The scientists running the experiment will track how often the subjects use public services, such as health clinics, and attempt to get a sense of how much they really want to work. The researchers will also try to determine if a monthly, strings-free check lets people lead happier lives.

Several Dutch cities are considering their own UBI experiments for this year and a yet unchosen community in the Canadian province of Ontario will follow suit this fall. Plus, in June, Swiss voters will be weighing in on a proposal to pay every adult in the country the equivalent of $2,500 a month.

Dregs or entrepreneurs?

The response to UBI in the U.S. has been mixed at best, with much of the enthusiasm for exploring the concept coming from Silicon Valley. One of its biggest proponents has been Sam Altman, president of Y Combinator, the firm that has helped startups such as Reddit, Airbnb and Dropbox hook up with investors.

In late January, Altman announced that Y Combinator will be doing its own research—specifically a five-year project in which a random group of people “who are driven and talented, but come from poor backgrounds” will be provided with a basic income.

“I’m fairly confident that at some point in the future, as technology continues to eliminate traditional jobs and massive new wealth gets created, we’re going to see some version of this at a national scale,” Altman wrote in his blog on the Y Combinator site.

So, says Altman, why not find out now if a regular paycheck from the government turns people into dregs or makes them more entrepreneurial, whether it boosts their spirits or diminishes them?

And, in the end, will people be happier if they don’t need to get a job to survive?

“Fifty years from now,” wrote Altman, “I think it will seem ridiculous that we used fear of not being able to eat as a way to motivate people.”

[Six jobs at the link arranged as a slide show. One reason I blog is to avoid the advertisements and clickbait infesting the Web, but the reader is welcome to it.] 

Economists tested 7 welfare programs to see if they made people lazy. They didn't.
Updated by Dylan Matthews

November 20, 2015

For as long as there have been government programs designed to help the poor, there have been critics insisting that helping the poor will keep them from working. But the evidence for this proposition has always been rather weak. 

And a recent study from MIT and Harvard economists makes the case even weaker. Abhijit Banerjee, Rema Hanna, Gabriel Kreindler, and Benjamin Olken reanalyzed data from seven randomized experiments evaluating cash programs in poor countries and found "no systematic evidence that cash transfer programs discourage work." Attacking welfare recipients as lazy is easy rhetoric, but when you actually test the proposition scientifically, it doesn't hold up. 

The programs covered in the study have a pretty wide geographic spread. There are four in Latin America (two in Mexico, one each in Nicaragua and Honduras), two in Southeast Asia (Philippines and Indonesia), and one in Morocco. 

Most of the programs the study analyzes are what's known as "conditional cash transfers" (CCTs), where households receive help on the condition that they, say, have their kids attend school, or get them vaccinated. The idea is both to help poor people and to use the aid as a lever with which to ensure kids are getting educated and receiving health services. CCTs first caught on in Latin America, so it makes sense that most of the programs analyzed in the paper are from countries in that region. But the study also includes a Mexican program that provided a $13-a-month unconditional cash transfer to families in poor regions.

[Snip here. More at the link.]

All of the above evidence concerns the developing world. But it's worth being skeptical about welfare queen claims in rich countries as well. For one thing, the biggest program the US currently runs for prime-age poor adults is the earned income tax credit. There's a substantial body of evidence showing that the EITC encourages work, usually by pulling single parents into the workforce. That lets it have an anti-poverty impact beyond the actual cash that the tax credit provides to families. 

But even unrestricted cash programs aren't likely to have a major effect on work in rich countries. A number of studies in the US in the 1970s examined "negative income tax" programs, where a set sample of poor households received cash grants whose size shrunk as the households earned more money through their jobs. The studies found very mild declines in work, largely due to people taking longer to find a good job while unemployed and spending longer in school. Even those estimates were exaggerated by participants underreporting the amount of work they were doing, perhaps to get bigger checks; when researchers examined administrative data, rather than survey responses, they found barely any effect on work at all. 

A much better experiment in Canada, where an entire town got a guaranteed income by way of a negative income tax, found even milder reductions in work, and then only with new mothers (who spent longer at home with their newborns) and teenagers. 

There's no doubt that poorly designed social programs can deter work. Aid to Families With Dependent Children, the pre–welfare reform welfare program, was found to decrease hours worked by 10 to 50 percent among recipients; that likely has something to do with the fact that AFDC benefits were taken away at a rate of 100 percent, so every dollar earned on the job was a dollar not received from AFDC. Who would work under that condition? 

But most welfare programs are better than AFDC. Whether they're in the US or in developing countries, they don't tend to keep people from working.

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OLDER LINKS AND COMMENTS

 BEGIN HERE

In response to a Krugman column about wealth and inequality this came pouring out in a Facebook  comment before I could stop. This is the money quote from Krugman's column...

But the real question, in any case, is whether we can redistribute some of the income currently going to the elite few to other purposes without crippling economic progress.

He then tries to soften the impact of the r-word to calm the libertarian crowd, but his reassurance comes across as thin gruel to those for whom redistribution is among the deadliest of sins.

The challenge of inequality has been with mankind so long that every epoch has had to find a different way to accommodate the reality. Even in biblical times there were Old Testament injunctions to take care of widows and orphans, farmers were expected to leave enough grain behind during the harvest so that the famous "gleaners" would have something to glean. There was a scheduled Year of Jubilee during which debts would be forgiven and again, injunctions not to deliberately run up debts in anticipation of that adjustment.

Since forever there was a symbiotic relationship between the powers that protected everybody and the lower classes (peasants, vassals, etc.) without whom the whole structure of society could not hold together. The lower classes not only did the main work of feeding not only themselves but the landowners for whom they toiled, not to mention furnishing cannon fodder for the wars that everybody presumed were as much a part of life as taxes and the seasons of the year.

The industrial revolution upset those old systems based on land ownership, replacing them with production, processing and distribution systems not necessarily land-based. Marx noticed that the landlord class morphed into the owners of production, which thanks also to more elaborate monetary and accounting systems put them into something like a symbiotic relationship with workers, but this new model made cooperation less important than productivity. At the same time distribution systems meant competition, a new wrinkle in the scheme of things. Colonialism put trade and commerce on steroids and workers became "labor" -- another journal entry for accountants and lawyers to manage instead of an assembly of living people -- no longer bound by any symbiotic relationship with the employers for whom they worked.

Notice how *cooperation* morphed into *corporation*.

This is getting wordy so I will cut to the chase. Thanks to technology, work by humans is rapidly becoming obsolete. Beginning with those early inventions -- sewing machine, steam engine, cotton gin, erc. -- every elementary school student knows the drill -- little by little the need for human labor began to diminish. The pace of progress has been exponentially faster with the passing of time and progress, and mankind will soon reach a point where a new symbiosis is no longer optional. The best (and perhaps only) alternative we have found is what is condescendingly called a social safety net.

Some way must be found and employed to support and protect members of society who for whatever reason do not meet the performance demands of what we so proudly proclaim to be a meritocracy. We use the word to make competition for a pool of resources seem like an admirable quality, but the pool is shrinking in relation to the number of competitors and the rewards are few and far between, with few exceptions, even for those who manage to rise to the top.

I don't believe taxing individuals is the answer. We must find ways to tax the system instead. Europe's VAT (value added tax), excise and "sin" taxes, user fees and other consumption models will have to be part of the solution. Bernie's transaction fees, which some have called the Robin Hood tax, would be a huge revenue source. I'm sure other people smarter than I can devise better ways to make an openly competitive economy find ways to support those who cannot support themselves without resorting to the kind of state-managed models of China, Russia and other totalitarian systems.

Google search suggestions...

A couple of Scandinavian countries have recently begun experimenting with a guaranteed basic income [40,000+ links], simply passing out enough money to every citizen enough to feed, clothe and house them -- and without means testing. It's a tentative experiment, limited in time and distribution, but it is at least one imaginative response to the yawning and growing inequality to which Krugman refers.

What I'm proposing is a middle way that does not penalize material success. And not mentioned in most schemes, is the importance of not erasing intergenerational wealth accumulation too much.

As the founders noticed, we don't want an aristocrat class (though that is precisely what we are producing), but that does not mean eliminating the intergenerational transfers of wealth (especially property and economic security). That, unfortunately, was the lesson of slavery -- a despicable crime against an entire class of Americans who contributed more to America's economic success in the world than those who enslaved them. So no, we do not want to do away with inheritance altogether. That adjustment may be, in fact, the very place where some economic course corrections should be considered.

Sorry for the long comment. I got started and couldn't stop...

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Human work is rapidly becoming obsolete.

I noticed years ago when I was watching the stock market that labor reductions often triggered an increase in the value of a company stock. It seems counterintuitive because layoffs typically signal hard times. But it makes sense when you realize that one of the most costly expenses of any organization is it's people. Wages and benefits are a heavy price to pay compared with the value of the output, whether it be a product or a service. The most valuable employees are those who can operate or manage operations in ways that reduce the number of other people, and in many cases eliminate them altogether.  Mergers and acquisitions are perhaps the quickest way that expenses can be reduced. The same support staffs responsible for payroll, accounting, personnel and legal services for a company with two hundred employees can manage twice or three times as much with very little additional staff.  I was in the cafeteria business, and staffing is very much like a kitchen. A cook who opens five gallons of beans for lunch can just as easily put twice as much on the range, serving twice as many customers, with virtually the same time and effort. 

And speaking of the obsolescence of work, I observed it for years as technology and efficiency eliminated jobs in the cafeteria business. Thirty-five or forty years ago it was a little food factory. We did everything "from scratch."  Breads, cakes, pie shells and fillings and toppings -- all were made at each location in a bakery which employed two or three bakers in the morning and two more for the evening shift. A full-time butcher prepared ground beef, cutlets, steaks and bone stock from hanging beef. The salad department and the central kitchen both had the same recipe for mayonnaise made from scratch so they wouldn't steal from each other -- the salad department used mayo in many of their salads and dressings, and the kitchen made tartare sauce in ten-gallon batches for tartar sauce, chopping the pickles and parsley.  I don't need to describe what happened as factory-made products replaced these labor-intensive methods, and as it happened jobs vanished.

What happened to the cafeteria business is but one small part of what happens every time another technological advancement takes place. Ironically the new products are even better, more reliable, less expensive, safer and more consistent than the labor-intensive ones they replace. More often than not they are also disposable. It's quicker and less expensive to replace a broken coffee maker or microwave than get the old one repaired. Times have changed since my parents' old frigidaire bought before I was in grade school was still operating after I left for college, replaced by one that was bigger, more efficient and lasted even longer.

The price we pay for technological progress rarely takes into account the number of hourly jobs which are eliminated along the way. The arithmetic of a company is straightforward. Fewer employees means more money for the profit line. But I never see any analysis of what happens to the people whose jobs have been eliminated. This, the steady loss of hourly jobs, results in a race to the bottom of the economy as more people compete for the lowest-paying jobs. The result is that employers have no incentive to increase wages in an increasingly competitive business environment. This feedback loop started with the industrial revolution and continues with a velocity that is increasing every year.

Additional links:

Giving poor people cash makes them happier — and their cashless neighbors miserable
Updated by Dylan Matthews 

January 23, 2016

There's a large empirical literature on cash transfer now, andthe results are very positive, with various studies finding that just handing out money increases consumption, encourages investments in important assets like metal roofs, encourages more people to start working, boosts earnings, and doesn't lead to more spending on things like alcohol or tobacco. 

This had led to a quiet cash revolution in development circles, as aid agencies, nonprofits, and the like have become considerably more sympathetic to cash as an intervention, and new charities devoted to cash grants, likeGiveDirectly, have gained ground.

Cash transfer programmes empower poor people in developing countries to take control over their own lives. 
Development in Action blogger Hannah Loryman explores why they’re so successful
August, 2013

Over the past 15 years there has been a “quiet revolution” in development. Not in the form of ground breaking technological advancements or complicated new theories. Instead, the idea is simple: give money directly to the people who need it, through cash transfers. These are a key component of social protection: policies to protect the poor which include non-contributory pensions, health insurance and other benefits. Originally these were mainly implemented in middle income countries; however, low income countries are increasingly introducing programmes of their own (although they are often donor funded). Successful programmes across Latin America, Asia and Africa have demonstrated the potential of cash transfers to reduce poverty and vulnerability.

[More at the link...]

All about the Robin Hood Tax
Numerous FAQ, inclulding this:

In recent years there has been an explosion in high frequency trading – thousands of transactions happen every second via computer algorithms. There has also been a huge increase in derivatives, making the volume of financial transactions increase to more than 70 times the size of the world economy. Many serious commentators believe this volume is dangerously large and destabilizing, and that many of these transactions are socially useless. 

Many of the most speculative, risky and socially useless transactions are based on very small profit margins, meaning that even at the very low tax rates we propose, a Robin hood Tax would shrink the size of the market by reducing the profitability of the most risky transactions. 

These are among the reasons why more than a 1,000 economists, including a number of Nobel laureates, support the Robin Hood Tax. 

At the Robin Hood Tax Campaign we are principally supportive of an FTT because of the money it will raise to help repair the U.S. and global economies. However, if it also acts to reduce risky gambling and make the world economy safer that can only be a good thing. 

#Zika in Brazil: Microcephalic babies to receive a basic income https://t.co/HJ8YCmqiX7

— Crawford Kilian (@Crof) January 29, 2016

Minimum wage for microcephalic babies

[Google translation...]

The INSS agencies should receive in the coming weeks a flurry of requests of the Continuous Cash Benefit (BPC) for babies with microcephaly. Worth a minimum wage (R $ 880), the bag is already supplied to around 4 million people who have from 65 years or disability, provided they meet the requirements. The main one is that household income per capita (per person) or up to R $ 220. The federal budget for payment of the benefit this year was R $ 48.3 billion. That amount should increase as the Ministry of Health reported 4100 newborns with malformation. Number expected to reach 16,000 by December, according to estimates from Fiocruz. The INSS should set up a task force to to expedite the assessment of cases of children with malformation. The possibility of receiving a minimum salary encouraged some families from Pernambuco. In Gabriel's house, three months, who lives in Glory Goitá in North Forest, 75 km from Recife, the money would come in handy to support the trips you need to do up to three times a week to the capital and also in feed.  

[snip] 

To qualify for the benefit babies have to undergo medical expertise. What should generate even greater queues that today, as the strike by medical experts INSS, that after five months came to an end last Monday, left 400,000 calls retained in the country - 40,000 in the state. A technical representative of the INSS Social Service in the Northeast, Teresa Vital de Souza, said that so far the demand of benefit to microcephalic babies was not felt. Of the 1,373 babies reported in the state, only four came to do the scheduling.

Why a bunch of Silicon Valley investors are suddenly interested in universal basic income
Updated by Dylan Matthews 

January 28, 2016

Basic income is having a moment. First Finland announced it would launch an ambitious experiment to see if it would work to give everyone in a given area is given a set amount of cash every year from the government, no strings attached. Now the Silicon Valley seed investment firm Y Combinator has announced it wants to fund a basic income experiment in the US.
[snip]
Y Combinator — a startup incubator that counts Dropbox, Airbnb, and Reddit among its alumni — seems mostly interested in basic income as a response to technological unemployment. In the future, the reasoning goes, enough work will be automated that demand for all but the highest skilled labor will collapse, leaving a small group of programmers and capitalists with all the coconuts and most people with nothing.

Lest we get too excited, here is a closer look at the idea from Evgeny Morozov, a savvy observer who has been watching technology for some time. 
Silicon Valley talks a good game on ‘basic income’, but its words are empty
The radical idea of handing cash to citizens regardless of whether they work has taken root in Europe. Now America’s tech elite is backing the concept – but why?
February 27, 2016

Silicon Valley rarely talks politics – except, perhaps, to discuss the quickest ways of disrupting it. On the rare occasions that its leaders do speak out, it is usually to disparage the homeless, celebrate colonialism or complain about the hapless city regulators who are out to strangle the fragile artisans who gave us Uber and Airbnb. 

Thus it is puzzling that America’s tech elites have become the world’s loudest proponents of basic income – an old but radical idea that has been embraced, for very different reasons and in very different forms, by both left and right. From Marc Andreessen to Tim O’Reilly, Silicon Valley’s royalty seems intrigued by the prospect of handing out cash to ordinary citizens, regardless of whether they work or not.[...]So, why all the fuss – and in Silicon Valley, of all places? 

First, there is the traditional libertarian argument against the intrusiveness and inefficiency of the welfare state – a problem that basic income, once combined with the full-blown dismantling of public institutions, might solve. Second, the coming age of automation might result in even more people losing their jobs – and the prospect of a guaranteed and unconditional basic income might reduce the odds of another Luddite uprising. Better to have everyone learning how to code, receiving basic income and hoping to meet an honest venture capitalist. 

Third, the precarious nature of employment in the gig economy no longer looks as terrifying if you receive basic income of some kind. Driving for Uber, after all, could be just a hobby that occasionally yields some material benefits. Think fishing, but a bit more social. And who doesn’t like fishing? 

Basic income, therefore, is often seen as the Trojan horse that would allow tech companies to position themselves as progressive, even caring – the good cop to Wall Street’s bad cop – while eliminating the hurdles that stand in the way of further expansion. 

Goodbye to all those cumbersome institutions of the welfare state, employment regulations that guarantee workers’ rights or subversive attempts to question the status quo with regards to the ownership of data or the infrastructure that produces it.And yet there is something else to Silicon Valley’s advocacy: the sudden realisation that, should it fail to define the horizons of the basic income debate, the public might eventually realise that the main obstacle in the way of this radical idea is none other than Silicon Valley itself. 

To understand why, it is best to examine the most theoretically and technologically sophisticated version of the basic income argument. 

This is the work of radical Italian economists – Carlo Vercellone, Andrea Fumagalli and Stefano Lucarelli – who for decades have been penning pungent critiques of “cognitive capitalism” – that is, the current stage of capitalism, characterised by the growing importance of cognitive labour and the declining importance of material production.Unlike other defenders of basic income who argue that it is necessary on moral or social grounds, these economists argue that it makes sound economic sense during our transition to cognitive capitalism. It is a way to avoid structural instability – generated, among other things, by the increasing precariousness of work and growing income polarisation – and to improve the circulation of ideas (as well as their innovative potential) in the economy. 

How so? First, it is a way to compensate workers for the work they do while not technically working – which, as we enter cognitive capitalism, often produces far more value than paid work. Think of Uber drivers who are generating useful data, which helps Uber in making resource allocation decisions, in between their trips. 

Second, because much of our labour today is collective – do you know by how much your individual search improves Google’s search index? Or how much a line of code you contribute to a free software project enhances the overall product? – it is often impossible to determine the share of individual contribution in the final product. Basic income simply acknowledges that much of modern cognitive labour is social in character. 

Finally, it is a way to ensure that some of the productivity gains associated with the introduction of new techniques for rationalising the work process – which used to be passed on to workers through mechanisms such as wage indexing – can still be passed on, even as collective bargaining and other forms of employment rights are weakened. This, in turn, could lead to higher investments and higher profits, creating a virtuous circle.

There is more at the link but you get the idea.

~~~~~~~~~~~~~~

Moving right along, there's this via Bloomberg Business...

Goldman Sachs Says It May Be Forced to Fundamentally Question How Capitalism Is Working
The profit margins debate could lead to an unsettling conclusionJoe Weisenthal
February 3, 2016

One of the most heated debates among investors is the question of whether corporate profit margins can maintain their elevated level, or whether they will inevitably revert to mean 

A new note from Goldman Sachs Group Inc. analysts led by Sumana Manohar looks at the bull and bear arguments for the profit margins debate. 

Manohar argued that profit margins have expanded, thanks to four key trends: strong commodities prices, emerging market cost arbitrage (companies making things more cheaply in emerging markets), demand growth from emerging markets, and improved corporate efficiency driven by the use of new technology. Continuing one of its major analytical themes of recent months, Goldman also noted that the market has rewarded companies that have undertaken mergers and share buybacks, as opposed to companies that have invested internally, further bolstering margins. 

So will profit margins inevitably roll over?Goldman went through both sides of the argument. On the bull side, the bank said that ongoing consolidation in industries, cost deflation, and tighter purse strings help keep a floor under margins. Ultimately though, it found that the above trends, coupled with weak demand and general industrial overcapacity, mean that margins are likely to come down. 

But what if margins stay elevated? That too is possible, and its implications could be unsettling.Goldman wrote: "We are always wary of guiding for mean reversion. But, if we are wrong and high margins manage to endure for the next few years (particularly when global demand growth is below trend), there are broader questions to be asked about the efficacy of capitalism." 

In other words, profit margins should naturally mean-revert and oscillate. The existence of fat margins should encourage new competitors and pricing cycles that cause those margins to erode; conversely, at the bottom of the cycle, low margins should lead to weaker players exiting the business and giving stronger companies more breathing space. If that cycle doesn't continue, something strange is taking place 

Needless to say, it's not every day you see a major investment bank say it might have to start asking broader questions about capitalism itself.

Here's a quick look at S&P 500-stock index profit margins, for example,
going back more than 25 years. They remain high by historical standards.

~~~~

The reader might like to visit this two-year-old piece by Kevin Drum in Mother Jones (May, 2014). That was about the time Thomas Piketty first made a splash proclaiming "r > g."

Heads have been spinning ever since.

I like the "best comment" of the 250 left by readers:

DoctorJay • 2 years ago  I think the counter argument is that when there is a glut of capital (which more than a few people think we are in now) there is a reduction in r but there is also a reduction in g. That's pretty much where we are right now - reduced returns to capital and reduced growth rate.Honestly, that's what the people that hold capital want - If their personal wealth does not grow faster than the economy in general, then everyone else is catching up. And I think that human beings act more out of status motivation than profit-maximizing motivation.    

ReplySteve Roth to  DoctorJay  @DoctorJay: run don't walk to read Steve Randy Waldman's brilliant post on money as insurance on the Titanic: http://www.interfluidity.com/v... 

Or: "I don't have to outrun the bear, I only have to outrun you."

~~~~

Also, two years ago when Piketty was in the headlines...

The Conservative Case for a Guaranteed Basic Income
Creating a wage floor is an effective way to fight poverty—and it would reduce government spending and intrusion.

Noah Gordon 
August 6, 2014

The idea isn’t new. As Frum notes, Friederich Hayek endorsed it. In 1962, the libertarian economist Milton Friedman advocated a minimum guaranteed income via a “negative income tax.” In 1967, Martin Luther King Jr. said, “The solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.” Richard Nixon unsuccessfully tried to pass a version of Friedman’s plan a few years later, and his Democratic opponent in the 1972 presidential election, George McGovern, also suggested a guaranteed annual income. 

More recently, in a 2006 book, conservative intellectual Charles Murray proposed eliminating all welfare transfer programs, including Social Security and Medicare, and substituting an annual $10,000 cash grant to everyone 21 years and older. The Alaska Permanent Fund, funded by investments from state oil revenues, sends annual dividend checks to the state’s residents. Switzerland is voting on an unconditional basic income later this year. (Though the fundamental basic-income guarantee involves an unconditional grant to every citizen, no matter their wealth or age, other versions wouldn’t cut checks to those in top tax brackets or those receiving Social Security.) [More at the link, which opens with references to Paul Ryan and Marco Rubio.] 

~~~~

Barack Obama's proposed budget includes a proposal for wage insurance for people at the $50,000 and below earnings level in the event they lose that primary job. The GOP dominated House of Representatives has decided not to even consider the president's budget suggestions, but it is at least now on the record.

President Obama's budget calls for a new wage insurance program. Here's what that means.
Updated by Matthew Yglesias 

February 9, 2016

Congress isn't going to do it, of course, but it's a very interesting inclusion because we haven't traditionally seen this idea on Democratic Party wish lists. The fact that the president is pushing it now is a strong sign the administration would like to plant wage insurance as a seed in the minds of congressional Democrats even after Obama leaves the White House.[snip]As the overall level of skill and education in the workforce grows (which is actually a good thing), the risk that workers will be unable to find reemployment at the exact same skill and wage level will also rise. 

The basic idea of wage insurance is that workers should be insured not just against the risk of losing a job, but against the risk of being forced to switch to a lower-paying one.

Thomas Piketty on the rise of Bernie Sanders: the US enters a new political era
The Vermont senator’s success so far demonstrates the end of the politico-ideological cycle opened by the victory of Ronald Reagan at the 1980 elections

Because he is facing the Clinton machine, as well as the conservatism of mainstream media, Sanders might not win the race. But it has now been demonstrated that another Sanders – possibly younger and less white – could one day soon win the US presidential elections and change the face of the country. In many respects, we are witnessing the end of the politico-ideological cycle opened by the victory of Ronald Reagan at the 1980 elections. 

[snip] 

Sanders’ success today shows that much of America is tired of rising inequality and these so-called political changes, and intends to revive both a progressive agenda and the American tradition of egalitarianism. Hillary Clinton, who fought to the left of Barack Obama in 2008 on topics such as health insurance, appears today as if she is defending the status quo, just another heiress of the Reagan-Clinton-Obama political regime. 

Sanders makes clear he wants to restore progressive taxation and a higher minimum wage ($15 an hour). To this he adds free healthcare and higher education in a country where inequality in access to education has reached unprecedented heights, highlighting a gulf standing between the lives of most Americans, and the soothing meritocratic speeches pronounced by the winners of the system. 

Meanwhile, the Republican party sinks into a hyper-nationalist, anti-immigrant and anti-Islam discourse (even though Islam isn’t a great religious force in the country), and a limitless glorification of the fortune amassed by rich white people. The judges appointed under Reagan and Bush have lifted any legal limitation on the influence of private money in politics, which greatly complicates the task of candidates like Sanders. 

However, new forms of political mobilization and crowdfunding can prevail and push America into a new political cycle. We are far from gloomy prophecies about  the end of history.

This piece was first published in Le Monde on 14 February 2016

~~~~~

Basic income may be needed to combat robot-induced unemployment, leading AI expert says
The rise of artificial intelligence could put millions of human workers out of jobs - could a basic income be a solution?
Doug Bolton

[Good link with numerous references. These are the final paragraphs:]

According to a 2015 study, around 70 per cent of young people in Australia currently enter the workforce in jobs which will be "radically affected by automation." 

A separate 60 per cent of students are currently being trained for occupations in which at least two-thirds of jobs could be automated within the next 10 to 15 years, it claimed. 

If technology-induced mass employment does become a reality in the future, a basic income may be one of the solutions. Governments around the world will be keeping a close eye on the experiments in northern Europe to see just how feasible the concept is.

A Basic Income For Ontario? Province Plans Pilot Project As Part Of Budget
The Huffington Post Canada

By Daniel Tencer
Posted: 02/26/2016

The government of Ontario is planning to launch a pilot project to test out a guaranteed basic income. 

What that pilot project will look like, and what it will cost, is not yet known. In its budget documents, unveiled Thursday, the Liberal government of Premier Kathleen Wynne said it would “work with communities, researchers and other stakeholders in 2016 to determine how best to design and implement a Basic Income pilot.” 

Finance Minister Charles Sousa said the province will decide whether to make a basic income permanent on the basis of that pilot project, the Globe and Mail reported. 

The idea of replacing numerous government benefits with a single cheque sent to all households, regardless of income, has been gaining steam in recent years. 

Finland plans to outline a basic income plan for its citizens later this year, while the Dutch city of Utrecht launched an experiment in January, involving welfare recipients, to see what effect a basic income would have. 

The Swiss will vote in a referendum in June to decide whether to implement a basic income of some C$3,200 per month — much more generous than most basic income proposals and experiments.

In Ontario, some municipalities have been calling on the provincial government to cosider implementing a basic income. Kingston's city council last December becamethe first legislative body in Canada to endorse the idea. 

Supporters of the basic income idea say it could all but eliminate poverty. They argue it would streamline government bureaucracies, as a basic income would replace many other benefits, potentially including welfare, unemployment insurance, Old Age Security and others. 

The town of Dauphin, Manitoba, ran an experiment on what was then called a “minimum income,” or “mincome,” back in the 1970s. The experiment’s results were shelved, likely for political reasons, but a researcher uncovered the data in recent years and found the program largely eliminated poverty. 

Critics of the basic income often raise concerns that it would create a disincentive to work. The Dauphin experiment showed that there was a small decline in the workforce, but it was mostly due to people being able to afford to go back to school for further education.

I’ve been homeless 3 times. The problem isn’t drugs or mental illness — it’s poverty.
by Veronica Harnish 

March 8, 2016

At a late January Bernie Sanders rally in Iowa, 46-year-old Carrie Aldrich described through tears what it was like struggling to survive on less than $12,000 a year. I watched and shook my head knowingly, having survived on $8,000 each of the past two years. Such low income, combined with a perfect storm of unaffordable rent, incompatible roommates, non-living wages, and an inability to find full-time work, resulted in three bouts of homelessness that forced me to live in my car. And in a few days, it will happen a fourth time for the same reasons. 

I was born into a middle-class family, but I've hovered near poverty level all of my adult life because my line of work doesn't pay much. My career consisted of administrative roles in high-tech offices and government agencies, with most of it contract work because it paid more and provided more flexibility and mobility than permanent secretarial work. 

I attended college pay-as-you-go for a couple years while working, then left because I couldn't afford to continue and knew better than to take on student debt. My moderate savings was destroyed in my 30s by health care costs that insurance wouldn't cover. Within the past several years, full-time work that pays a subsistence wage has been hard to come by. Now I'm pushing 50, and am aging out of a workforce that for the most part gave me a subsistence-level existence at best. 

Three times within the past four years I've lived in my 36-year-old car that has more than 400,000 miles on it, because I could not find affordable rental housing or a job that paid a living wage. Though I reside in the Pacific Northwest, the situation is the same all across the country. Impoverished, working single women without children do not get top priority on long waitlists for subsidized housing, rapid rehousing, or other government services or benefits. I don't have family or a spouse to turn to for help or support. Friends can't or won't help for their own various reasons and circumstances. I am totally on my own.

This is a long piece -- almost four thousand words. And the writer is a published writer and blogger.
Her descriptions of the gig economy derive from harsh personal experience.