How Negative Income Tax could lead us towards material abundance — Adam Smith Institute. 120 years ago American factories electrified their operations, triggering the Second Industrial Revolution in which steam engines were replaced with motors.
This general purpose technology (GPT) – a technology that can affect an entire economy, usually at a national or global level – created new advantages for factories and prompted the invention of new work processes, allowing for increased growth and productivity. Innovation researcher Erik Brynjolfsson outlines three major GPT since the 18th century: the steam engine, electricity, and the internet, and along with Andrew McAfee, has coined this era The New Machine Age and produced a highly praised book of the same name.
In this New Machine Era, they identify growing decoupling of productivity and employment: productivity is growing, but employment is decreasing. Correspondingly, wealth is increasing, but work is decreasing. A neoliberal case for a basic income, or something like it — Adam Smith Institute. If I’d never encountered the idea of a basic income before reading Laurie Penny’s recent article on it, I’d come away hating it.
For Penny, it’s about replacing capitalism with something better. For me, it’s about improving the capitalism we already have. Penny thinks that the idea is ‘blasphemy to conventional, liberal, “free-market” economists’. It’s not: we here at the Adam Smith Institute have proposed something along these lines for a couple of years, and Milton Friedman proposed a similar Negative Income Tax way back in 1962. I suspect her utopianism will be off-putting to most people. Will the Finns be the first to introduce a basic income? — Adam Smith Institute. Finland may become the first country to introduce basic guaranteed national income.
Although the final proposal will not be considered until November 2016, the basic income plan would replace existing social welfare benefits and instead hand out a monthly tax-free payment of €800 for every Finnish adult. According to the poll commissioned by KELA, the Finnish Social Insurance Institution, 69 percent of the population supported the idea of a universal monthly income of about €1,000. Would a basic income reinvigorate civil society? — Adam Smith Institute. I've long made the case for a basic income (aka a Negative Income Tax) on the basis that it would simplify the welfare system and make sure people always have an incentive to work.
My fear is that in-work poverty will be the challenge of our time, just as unemployment was in the 1930s and inflation was in the 1970s, because things that are raising living standards overall like globalisation and automation may be leaving behind people at the bottom of rich societies. Consider what options the former steel workers at Redcar now have.
But Charles Murray's argument for a basic income is different: My real goal with all of this is to revive civil society. Here’s what I mean by that: You have a guy who gets a check every month, alright. That's an interesting thought. I've always thought of a basic income as being a very good solution to "primary poverty", while perhaps risking exacerbating "secondary poverty". Free Market Welfare: The case for a Negative Income Tax — Adam Smith Institute. The government should replace tax credits, Jobseeker’s Allowance, the Universal Credit, and most other major welfare payments with a single Negative Income Tax, according to a new report from the Adam Smith Institute, Free Market Welfare: The case for a Negative Income Tax.
This Negative Income Tax (NIT) would act as a minimum income guarantee for all British citizens and be tapered away as people’s earnings rise through work. Britain’s existing welfare programmes are costly to administer, complicated to navigate, and designed for a postwar-style labour market that no longer exists, the paper argues. We need a Negative Income Tax, not a Living Wage — Adam Smith Institute. The new Living Wage rate was announced today.
I’ve written a bit about the Living Wage already. If it’s private, it’s probably not a big deal, although it could still lead to unemployment. I suspect it’s done by big firms that don’t have many low-skilled workers as a PR move but I quite like PR moves that involve paying low skilled people more. And I worry that people will generalize from those big firms to assume that the whole market could bear a mandatory Living Wage, which is almost certainly untrue and would be very harmful to many of the people it’s supposed to help. What’s more interesting is the problem of low pay in general.
So low pay may be a problem without any clear solution, for which most popular ‘solutions’ don’t actually work. The Negative Income Tax and Basic Income are pretty much the same thing — Adam Smith Institute. I’ve been talking about the Negative Income Tax lately, and equating it with the idea of a Basic Income.
I think most of the policies’ respective advocates would deny that they’re the same policy. In this post I’m going to outline why that’s incorrect and I’m happy to say that they’re basically the same thing. For the uninitiated, a Negative Income Tax is a form of welfare that replaces most existing welfare schemes with a single payment that supplements the income of the unemployed and low-paid. The payment is withdrawn as your earnings increase, ideally at a gradual enough rate that increasing your earnings (and hence reducing leisure time) is always worthwhile. An example: a £5,000 basic payment at a 50% marginal withdrawal rate (this means that for every additional pound earned, the worker will receive 50p less in NIT payments).
This idea was supported by Milton Friedman, among others, and has a reasonably strong pedigree on the right. The ideal welfare system is a basic income. The British government spends more on welfare than it does on anything else apart from healthcare.
The benefits system is arcane and unwieldy, a mish-mash of disparate attempts to address different social problems in a piecemeal fashion. It creates perverse incentives for those on it, such as people stuck in a ‘benefits trap’ where they lose almost as much money in benefits by working as they are earning, and distorts entire markets by inflating prices, as housing benefit does to the housing market. Most people agree that the system is broken, though solutions differ. The Universal Credit is a fundamentally good idea that is failing because of the difficulty of implementing successful piecemeal reforms to a system as complicated as benefits in the UK, and will ultimately probably not succeed in the way its architects intend because it doesn’t go far enough. For example, we could set a basic income of £10,000/year by using a cut-off point of £20,000/year, and withdrawal rate of 50%.