There can be no “winner gets all” in a really functioning democratic social structure.
Lack of confidence in the capitalist system before Covid-19. The global financial crisis of 2008 brought into sharp relief the widening gap between the prosperous and the poor in advanced nations. Almost immediately afterward, China’s state-controlled economy rose to prominence, posing a threat to the dominance of unrestrained free markets.
The accelerating epidemic has exacerbated income disparity in the United States. While unemployment in the United States reached historic highs, the wealthiest 1 percent saw their fortunes increase by 20 percent. To what extent the system can tolerate such cognitive dissonance before descending into anarchy is yet to be determined.
So, how did we end ourselves here? On Capitalism and Inequality: Progress and Poverty Revisited, my latest book, traces the roots of our current predicament back nearly 50 years. The background is too complex to summarize in full, but you can hear a shortened version of it on the audio episode of INSEAD Knowledge devoted to my book. Let it suffice to say that beginning in the 1970s, Wall Street speculation, heavily weighted in favor of those who already had a firmly planted stake in the system, took center stage, pushing aside the more benign aspects of capitalism, such as honest competition, a free market held accountable to human needs, and a bracing element of entrepreneurial risk.
Notwithstanding its imperfections, Dr. Jekyll’s capitalism rewarded initiative, skill, and dedication. It’s possible to think of the Mr. Hyde version as a high-stakes game of poker from which the vast majority of us have been financially barred. The top gamblers in today’s capitalism economy are coddled by the system, with massive windfalls going to them tax-free and taxpayer-funded bailouts for their losses. If popular dissatisfaction doesn’t put a stop to capitalism soon, the game itself risks becoming a formality, an excuse for oligarchy, as more and more resources concentrate in the hands of fewer people.
More funds added to the system
Adding additional money to the system is the method to ensure that the game will continue uninterrupted. This may be accomplished in a number of different ways. One solution would be to increase taxes on the wealthy, which is something that nearly all social Democrats continue to support. The difficulty is that taxing the wealthy is not only unpopular but also inefficient, which comes as a surprise to those who support the idea.
Borrowing and/or “printing money” (what economists refer to as “quantitative easing” or QE) is the next option for injecting more money into the game, and the hope is that the increased consumption that results from lower interest rates will generate enough economic growth to compensate for the inflationary effect. This is the next option for injecting more money into the game. Even though the banks who received the money did not utilize it to enhance the amount of lending they made to small companies, this ploy was successful in the United States for a few years. Instead, the benefits of quantitative easing went to hedge funds and private equity firms; hence, the majority of the gains ultimately went to the wealthy.
It is time to investigate an alternative method of injecting money into the economy, one that does not involve sending it straight through the banking system to the rich. It’s an ancient concept, but you might know it as the Friedman negative income tax or the Universal Basic Income (UBI). The single tax (also known as the impôt unique) on land is one of the many different models of redistributive tax that have been suggested in the past. It is also one of the models that continues to be brought up in current debates. Several prominent figures throughout history have advocated for the imposition of this tax, including Baruch Spinoza and John Locke in the 17th century, the French physiocrats in the 18th century, and Henry George in the 19th century. The crux of George’s argument was that money generated through labor ought to be in the possession of the worker, but wealth generated via ownership of land ought to be distributed equitably among all people as a source of universal income. His tax on land was proportionate to the extent of land involved (that is, wealth), and not to the amount of money brought in by the landowner.
Four reasons for UBI
According to Guy Standing, an expert in this academic subject who has been working in it for the past three decades, there are three fundamental reasons for beginning a UBI program. The first one is something he refers to as “social justice.” This involves acknowledging that the majority of one’s material well-being is due to people who came before them, regardless of the degree to which one has personally succeeded economically. The majority of the money held by today’s billionaires was not earned by these individuals; rather, it was obtained.
The second justification for standing is that individuals, regardless of their level of wealth, should be able to make their own choices regarding their financial situation without being subject to arbitrary conditions or being coerced by faceless officials or hierarchical “superiors.”
With a nod to Thomas Paine, the third justification for standing is the necessity to guarantee fundamental safety for all people as a fundamental human right. Notwithstanding the fact that some individuals who do not deserve it will be moderately compensated for not working, at a level that is almost equivalent to what they would need to survive, I agree with that reasoning. This is the price that must be paid for advancement.
In addition, I believe there is a fourth reason, and that is for reasons related to national security. In my opinion, the universal basic income is the only viable option for reversing the recent trend toward excessive economic disparity. If this pattern persists for much longer, the social and political repercussions will not only be extremely detrimental, but they will also be impossible to reverse.
Do you need any more justification for UBI? In my opinion, there is also an irrefutable ethical rationale for doing so. The renowned perspective of capitalism held by Milton Friedman—which was disproved by the Business Roundtable till very recently—was that the fundamental duty of firms was to enhance shareholder wealth. It’s possible the same thing may be said of societies. As we are all “shareholders” in the general welfare, we have a right to our dividends, which is our allocation of the overall prosperity. That’s one way to think about the UBI, at least.
How to pay for it.
In the United States, I propose that the government provide every citizen with a monthly stipend of around $1,000. Most progressives believe that higher taxes on the wealthy are necessary to fund UBI. Given the seemingly insurmountable political hurdles, UBI is dismissed as utopian idealism rather than a viable political platform. In any case, there are other potential avenues for financing to explore.
First, I propose enforcing a new excise tax on carbon emissions, with the levy falling squarely on the shoulders of hydrocarbon and embodied-carbon-containing goods manufacturers and importers (like plastics or Portland cement). The government could collect US$1 trillion per year in excise taxes, the most majority of which would come from taxes placed on carbon emissions, and this measure would reduce emissions by at least 10%. It’s possible that this may cause gas prices in the United States to rise to European levels. When emissions decrease, the excise tax rate will need to increase to maintain a stable income stream.
Increases in gasoline excise taxes would be met with vehement opposition if adopted unilaterally, on the grounds that they are “regressive.” Yet, most low-wage employees would be better off, rather than worse off, if this were part of a package in which most drivers also received a supplemental income (the UBI). Only the wealthy could afford such a price, with their many limos and private planes.
I suggest another another form of excise taxation, this time on the internet’s usage of the electromagnetic frequency spectrum. It should also aim to generate annual income in the trillions of dollars. A telecommunications business has exclusive usage of a frequency band (or portion of the electromagnetic spectrum) when it employs that band for commercial purposes. One efficient kind of economic rent tax is the auctioning off of licenses to utilize the electromagnetic spectrum. As the internet is a shared resource, reasonable fees are necessary to ensure that everyone has an equal chance to benefit from it.
Lastly, I propose implementing a VAT in the United States as a means of reducing the burden of taxation on the middle class. If implemented, this would have the same impact as a tax on consumer spending. Those with lower incomes would feel it less and those with higher incomes would pay more, just as was the case with the carbon price.
The influence of UBI
The following is an approximation of the economic impact of the UBI in tandem with the aforementioned three tax increases in the United States. The first noticeable effect of UBI would be a large rise in bank deposits. From what we know about low-income recipients, we may assume that they will prioritize paying off their expensive credit card and school loan debt (though maybe not all at once). Whatever was left over would be spent on necessities for the home, despite the fact that some of these items would be more expensive due to indirect carbon and EM spectrum tariffs. The private sector’s debt would decrease, while the public sector’s debt may rise by the same amount, potentially US$500 billion annually.
Some government spending would be reduced as a result of UBI, namely for welfare programs that would no longer be necessary and for security services like prisons and police. Tax collections would increase as a result of higher personal incomes being spent on goods and services. The net cost of the UBI is unknown, however it is likely to be less than the present intake. Yet, the net deficit may wind up being negligible or even positive.
This is, of course, purely conjecture. There is a pressing need for further in-depth and meticulous studies, and I would be happy to contribute to any such endeavor. Yet, we can declare with some assurance that UBI is the most practical approach to restore widespread trust to capitalism, and there are at least a few potential pathways for implementation. According to me, that’s a rock-solid base from which to expand.