Fixing the system with a basic citizen's income

I've been very quiet for the last month. Sorry about that.

Let me take the opportunity to wish us all the very best for 2014.  We will certainly need to work hard if we are to fix the mess that we are in.

However, I'm actually pretty optimistic. I really think that there are ways to improve the way the system works, and to break the stranglehold of debt that is crippling all of us - individuals, businesses and governments - except of course for the tiny minority who have been profiting from the insane monetary system that we have inherited.

To recap on the essential point, the fundamental reason why we are in such a mess is that the money that we all need to live and do business is created out of thin air by commercial banks when they make loans. They then charge us all interest for effectively renting this money. But because the commercial banks don't create the money to pay that interest, the whole system is doomed to accumulate more and more debt as time goes on. And the so called growth in GDP that is starting to appear in countries like the UK is nothing more than an increase in debt.

The truth is that in the Eurozone (for example), the level of debt  had reached 24.5 trillion euros at the end of 2012 - a value that is 2.5 times the total amount of money in the system (as measured by M3). There is no way that austerity can fix this. Nor can we get out of debt by borrowing yet more.

So, how can we get out of this mess?

What we need is a way to inject debt-free money into the system to allow the debt to be progressively written off.

The Positive Money movement in the UK has been arguing strongly for the idea that central banks such as the Bank of England should be given the responsability of creating the nation's money supply. And they propose that that money should be provided directly to the government who could then use it in a variety of ways. For example, they could spend the money into the economy in the form of infrastructure projects (transport, education, health, energy etc). Or they could reduce taxes. Or they could pay of public sector debt. Or they could provide money directly to citizens in the form of  a basic income payment.

These are all perfectly valid ways of getting debt free money into the system. But of course, you can imagine that the commercial banks and their lobbyists will complain that giving politicians "free" money would be opening the door to corruption. What would stop the politicians using the money to buy votes etc.

The more I think about it, the more I am convinced that there is an even simpler method. I think that the Central Banks should short-circuit the politicians and put the debt free money directly into the economy via direct payments to citizens. It's an idea I originally mentioned back in August of 2013.

How might this work?

Well, imagine that the European Central Bank decided that it was prepared to put an extra trillion euros of debt-free money into the economy every year for at least a decade. Creating a trillion euros is actually no problem for a central bank - after all, Mario Draghi did precisely that when in December 2011 and February 2012 he created money that was provided to hundreds of commercial banks in the hope that this money might encourage the banks to create yet more money.

With a population of 333 million, the ECB could provide €3000 per year for every man woman and child in the Eurozon. That would be €250 per month for each citizen, and €1000 for a family of four.

The idea is that this money would be provided in an unconditional way - irrespective of whether or not the citizen was looking for work, and indeed of whether the citizen was actually in need.  It's the idea that been promoted by the European Citizens' Initiative for an Unconditional Basic Income, which organized a petition to force a debate in the European Parliament. They needed 1 million signatures, but missed the target because when the petition closed on the 14th of January 2014 at which point there were just over 285,000 signatures. I signed the petition, and I have also signed a new petition that is being organized using the AVAAZ site.

Why is an unconditional basic income such a good idea? There are a number of reasons but, in particular, it could radically change the current situation where people receiving benefits are often criticized for sponging off the system. If everyone received the same amount, this source of conflict would cease overnight - because everyone would be treated fairly.

Having an unconditional payment would greatly simplify administration costs because it would no longer be necessary to employ large numbers of people to check that claiments were really entitled to the benefit payments. 

An unconditional basic income would also mean that people to easily do the large number of useful activities that are currently difficult to finance by paid work. For example, child care and looking after the elderly are all vital activities that currently cost a great deal to finance. But many people would probably be happy to do it themselves if they could simply afford to do it - but they are literally obliged to work full time just to keep income levels at the minimum levels needed for survival. 

It would also free people to make their own choices about how they use their time. Some people might want to invest far more in voluntary and charitable work. It could allow school leavers to go into higher education without necessarilly running up massive levels of debt. It would also allow people to spend time developing cultural and artistic projects, as well as spending time developing their own projects for starting up businesses.

You might argue that providing an unconditional basic income would remove the incentive to work. In fact it would be quite the opposite, since any additional paid work would go directly in the citizen's pocket. Ideally, there would be no loss of benefits at all, meaning that the classic poverty trap in which people are actively encouraged to stay at home because they would lose their means-tested benefits if they find work would be eliminated.

Importantly, it would make the work market far more flexible. Currently, if you want to get enough money to survive by working, you almost have to work full-time. Any less than full-time, and you will probably not get enough income to pay the bills. In contrast, in a system with a unconditional basic income, people would be able to adapt the amount of paid work the do to fit their own requirements. If they can survive on just the basic income, then they would have the option of doing zero hours of paid work - thus allowing to devote all their energy to doing unpaid work such as child care, looking after elderly parents or voluntary work. But if they want additional income, they could do 5 hours, 10 hours, 20 hours or work full-time as required.

Imagine how things would be for employers. Currently, an employer is effectively obliged to pay a salary that is enough to provide a living wage irrespective of their family conditions. Thus an employer is obliged to pay the same to a single person with no children to someone who is the family breadwinner - it would be "unfair" to do otherwise. But imagine what would happen if a single person was getting €250 a month of basic income, and a father with three children was getting €1250. It would mean that the employer could provide a standard salary that was better adapted (and lower!) than would currently apply. In other words, the basic income payments would effectively act as a boost for business because they could provide a living wage at lower cost.

The change in the relationship between employees and their employers would have other highly beneficial effects. If the basic income meant that citizens actually have a real choice because they could (by being very frugal) survive without paid work, it would mean that the most menial and ungratifying jobs that are currently poorly paid would start to be paid at a better rate that reflected the real value of the work. People would choose to collect dustbins or clean sewers not because they are the only jobs around, but because they are sufficiently well paid to be attractive.

Another enormous advantage of an unconditional basic income is that it would reduce the pressure on housing in the places where work is easiest to find. Currently, many people are forced to move to cities because it it difficult to find jobs in more rural areas. The result is that housing, transport and other facilities in the cities are over-stretched. With a basic revenue, people could more easily live in the rural areas that are currently disadvantaged. And with the increase in the number of people who can work via the internet, this would make perfect sense.

This rebalancing would certainly apply to different regions within a given country. For example, in France, the basic income would have the effect of reducing the strain on the major population centres, because people could have the option of moving to places with low population densities and low demand. Two families with three children each could easily share one of the many inexpensive properties in the more remote parts of France without needing highly paid jobs.

But imagine what would happen if the ECB financed Citizens Income was the same throughout the entire Eurozone. This would mean that there would be a clear incentive for people to live in the parts of the eurozone where the cost of living is lowest. There are currently 8 European Countries that are currently obliged to join the Eurozone as soon as the convergence criteria have been met. These include Bulgaria and Romania, two countries which have been in the news recently because of fears that there could be a mass exodus of their populations to other EU countries following their change of status on the 1st of January 2014.  But if the citizens of such countries were assured of getting the same basic income payments from the ECB, irrespective of their country of residence, it is clear that they would be much less keen to delocalise, given that it would be much cheaper for them to live at home.


I hope that this list of advantages will have gone someway to convincing you that the idea of an unconditional basic income is a truly interesting idea that deserves close attention. But less me stress that while there are many people who are starting to realize that the idea is interesting, I'm actually proposing something additional.

My argument is that the first place to introduce such a system could be via direct payments made by Central Banks to citizens using truly debt-free money. The Central Bank would need to create individual accounts for all Citizens - this would be little more than a vast Excel Spreadsheet with 333 million entries in the case of the Eurozone. Providing a citizens' income would simply involve adding a fixed amount to each account every month. Each citizen would be able to link their ECB account to their normal bank account so that they could use the money.

Of course, you could argue that if Central Banks started injecting money directly into the economy in this way, there could be a risk of inflation. But this too would be easy to avoid by simultaneously giving the Central Bank the power to remove excess money from the system by imposing a simple flat rate financial transaction tax on all electronically mediated transactions in the relevant currency.

Financial transactions in the Eurozone are currently at least €1.6 quadrillion a year. And those numbers don't even include the massive quantities of Euro denominated transactions occuring outside the Eurozone. For example, around one third of the $5.3 trillion in Foreign Exchange that takes place every day involves euros - that's something like €350 trillion a year - 40% of which involves trading based in the UK. Taxing those transactions at just 0.1% could easily remove  €1 trillion a year from the system - plenty enough to remove any real risk of inflation caused by injecting €1 trillion of debt-free money into the economy every year.

But it is important to realize that the money injection at the level of individual citizens does not even need to balanced by removal at the top end. The fact is that we actually need something like €14 trillion of new debt-free money if we are to fix the debt crisis. So there is clearly plenty of scope for increasing the amount of debt free money in the system before causing problems.

In summary, I believe strongly that debt-free money injection via an unconditional basic income paid to citizens directly by the central bank may be the simplest way to fix the system for good.

Comments very welcome.