31 Jan 2017

Benoit Hamon and the Unconditional Basic Income

Things are getting interesting in France with the upcoming Presidential Elections on the 23rd of April and 7th of May this year. Today, it's the second round of the primaries for the Parti Socialiste, with a choice between Manuel Valls,  who until recently was Fran├žois Hollande's primeminister, and Benoit Hamon who, despite having been relatively obscure until a few months ago, is likely to win.

Benoit Hamon has been stimulating a lot of debate because he has been arguing for the progressive introduction of an Unconditional Basic Income (Revenue Inconditionnel d'Existence). Many politicians and commentators have tried to argue that such a move would be unworkable, because it would not be possible to finance it. Hamon proposes to raise the current RSA (which is conditional on resources) by 10%  to €600 a month in 2018 but to provide the same sum unconditionally to those aged 18-25. Progressively, he would increase the coverage so that the entire adult population would get €750 a month. A quick calculation shows that this would cost between €350 and €450 billion a year, and some people claim that this is totally unrealistic.

Hamon himself has argued that one source of finance would be to recover something like €80 billion a year lost because of tax evasion, or a tax on robots. He has also said that he would not feel obliged to stick to the 3% deficit limit imposed by Europe.  But even I, a staunch supporter of an Unconditional Basic Income, don't find his replies very convincing.

So, here, for anyone who is interested (including perhaps Benoit Hamon himself!) are a few other ideas that can make the whole idea more satisfactory.

The first point to make is that Mario Draghi, president of the European Central Bank, has been merrily pumping between 60 and 80 billion euros of freshly created money into the financial markets every month since March 2015. By the end of 2016, the total had reached €1532 billion. The vast majority of this money was used for the Public Sector Purchase Program, essentially buying up government bonds on the secondary markets, which totalled nearly €1272 billion. For France, the total has reached €241 billlion. You might have thought that by buying French government bonds, this might have reduced the level of French Public Sector debt, but you would be wrong. When the ECB's program started in March 2015, the debt was €2089.4 billion. The latest numbers for the end of the third quarter 2016 stood at 2160.4 billion, an increase of 71 billion euros. No, the only real beneficiaries were the financial markets, although I suppose you could say that the ECB's purchases helped keep the interest rates on French Government debt low - they are currently running at 0.75% per annum.
The fact is that this massive injection of fresh money into the markets has done almost nothing to improve the Eurozone economy. It may have boosted the markets, and allowed Companies to pay out massive dividends to sharesholders - totalling €55.7 billion in 2016 for the top 40 companies on the French stock market - the CAC  40. But there is precious little evidence that it did anything to boost the general economy, where inflation was 1.1% at the end of 2016, well below the 2% target imposed on the ECB.

Many economists are starting to say that if Draghi really wanted to use his almost unlimited abilty to create new money to really boost the economy, he should stop pumping money into the financial markets, and instead put it directly into the  economy. For example, he could be funding direct infrastructure projects including renewable energy programs. But he might also simply put money directly into the pockets of Eurozone citizens. The €80 billion a month that he is currently injecting into the markets would, if split between the 340 million Eurozone citizens, provide €235 for every man, woman and child. For a family of 4, the total cash injection of €940 would be considerably more than the minimum wage in several Eurozone countries, including Greece (€579.08 a month Portugal (€530 a month) and Spain (€655.20).

So, that's one place that Benoit Hamon could go to look for ways to fund the Basic Income. And, given the precarious state of Europe at the present time, and the real risk that the whole thing could fall to pieces with the rise of post-Brexit independence movements including Marine LePen's Front National in France, it might be a very good move to force the EU and the ECB to start thinking more about citizens and less about the banks and financial markets.

A second idea that seems to have been almost totally forgotten is the idea of imposing a Financial Transaction Tax. This was an idea that several European Governments had been talking about, but which seems to have stalled. In France, the BIS figures over the past 10 years reveal financial transactions averaging  €275 trillion per year. OK, the figure was down to a mere €213 trillion in 2015.