Capitalism Mandates a Basic Income Guarantee

Another line of thought appeals to considerations of freedom: everyone should have the material means to resist exploitative or immoral forms of employment. BIG has also been suggested as a solution to the vagaries of unemployment: everyone should have a safety net from the cyclical unemployment and technological unemployment caused by robotics.

Unsurprisingly, enthusiasm for BIG from the right is almost totally lacking. By “the right” I mean the economic right, rather than right in the sense of conservativism on social issues. Those on the economic right hold that capitalism is the best arbiter of distributive justice. Thus, there is a fundamental disagreement about the nature of justice. On the left, the assumption is that society has a general duty of justice to ensure some minimal standard of living for everyone. On the right, this assumption is denied: the right claims that there is no such general duty of justice. (To be clear, this is not to say that those on the right are against helping the needy, nor even to say that they are indifferent to the plight of the poor. But any assistance offered to the poor is thought of as charity rather than justice.) Rhetorically, the right says that the left’s conception of justice is simply a plea for higher taxes so that Big Brother can continue to coddle the lazy, crybabies, and crackheads at the expense of good hardworking folks.

Suppose we side with the capitalism of the right. What follows? The answer, surprisingly, is that BIG follows on capitalist principles as well. To see this, imagine a candidate, Frieda, runs for president on a platform promising to implement good capitalist principles, principles unencumbered by the social justice concerns of the left. If elected, she will run her presidency like a CEO of a Fortune 500 company. Like any good CEO, Frieda says her sole concern will be the bottom line, and so her stump speeches emphasize an unprecedented return on investment for shareholders. She points out that the U.S. has lots of assets at its disposal, and her job as a good CEO is to execute a plan to make a profit on these assets. Frieda is well aware that some revenue is already generated by charging tolls on public roads, collecting park entrance fees, etc., however, Frieda calls these sources of revenue “peanuts” in comparison to what the U.S. could make if run by a bold, dynamic, and decisive CEO/President. Frieda argues that the best source of revenue for the U.S. will be to follow the genius of eBay, Amazon, and other online market places, and charge a transaction fee (or “referral fee” as Amazon calls it) on purchases of all goods and services in the U.S. Frieda points out that good capitalists should leverage all their assets, and as eBay and Amazon have shown us, you can make money simply by owning a market place. The U.S., Frieda reminds her supporters, is the single largest market place in the world. There is a fortune to be made by introducing transaction (or referral) fees just like eBay and Amazon. If the U.S. imposed a referral fee of 15% on everything in its 19 trillion dollar economy just like Amazon and eBay impose on sellers, this would generate nearly 3 trillion dollars for shareholders.

While stumping, Frieda also addresses her critics. In anticipation of critics from the left who will say her proposal is regressive, since a transaction fee will would hurt the poor much more so than the rich, she readily concedes the point. Her reply is straightforward: the plight of the poor is not her concern as CEO, so if a transaction fee means that a poor mother must pay more for baby formula, then so be it. Not to seem too callous, however, she adds that if individuals are concerned about the plight of the poor, they can start a charity to help pay for the transaction fee. As CEO/President, Frieda’s only concern is the bottom line for investors, not charity.

Frieda also takes on the complaint that the proposed transaction fee on all goods and services sold in the U.S. is a forced fee, unlike the eBay or Amazon fee. She points out, quite rightly, that the transaction fee will apply only when someone uses the U.S. market place to buy something, just like on eBay and Amazon. If you don’t like the fact that Amazon and eBay collect transaction fees, then you should not use their services. Similarly, anyone who is not pleased with the transaction fees in the U.S. should not use the U.S. market place. Her retort is always, “Let the market decide”. If you see a better opportunity outside of eBay, Amazon or the U.S., then take your business there. If Putin offers you a better transaction fee than the U.S., then move to Russia. If you are simply concerned about the transaction fee and not the quality of the market being offered, then move to Somalia. Frieda goes so far as to offer a free one way ticket to anywhere in the world on the understanding that the recipient will never return to live in the U.S. She argues that getting rid of such crybabies, who don’t understand how capitalism works, will contribute to the bottom line. Most companies, she points out, have to pay something for garbage disposal.

We noted that Frieda promises to make a good return on investment for shareholders, but we have neglected to say who these shareholders are. Perhaps the answer is obvious; the shareholders are “we the people”. U.S. citizens own all public assets, including the U.S. market place. “We the people” would have shareholder meetings every few years to decide how to manage our assets. We could vote to pave over Yellowstone National Park—it is one of our public assets. This would be an incredibly stupid use of our assets, but the point is simply that as shareholders, we wield this power. Notice that unlike most publically traded companies, there is a very equitable distribution of shares: one citizen, one share. At the ballet box, a homeless person has as much say in whether Frieda is elected as do those rarified members of the 1% like Bill Gates and Warren Buffett.

Frieda’s plan, if instituted, will generate a yearly dividend for shareholders. Frieda promises to divide the nearly three trillion dollars equally amongst all shareholders: each U.S. citizen over the age of 18 will receive a dividend check of $10,000 a year with the additional half trillion or so reinvested for a rainy day, e.g., in case of a downturn in the economy. For the millions that show up to Frieda’s speeches, it is mind-blowing to realize that shareholders could make that sort of money simply by owning stock—making money without toil or sweat. This is because most haven’t experienced the true beauty of capitalism: making money simply by having money. Frieda promises a slice of capitalist heaven to all; making money simply by owning assets.

Now it will be thought that this is absurd since this doesn’t change anything. If everyone gets $10,000 in the form of a dividend, but the price of goods goes up by an average of $10,000 per person to cover the referral fee, we are no further ahead. What this objection misses, however, is that while the dividend will be cancelled out by the increased referral fee on average, some will be better off and others worse off under Frieda’s leadership. Consider a person who is penniless and homeless under present management. Under Frieda’s system, this person will receive a stockholder dividend of $10,000 per year. True, when the money is spent, 15% will go to cover the transaction fee imposed on all goods sold, but this person will still have $8,500 per year more than on the present system. Someone who makes a million a year will have $150,000 in additional transaction fees, but will receive a dividend of $10,000, so will be $140,000 less well-off per year.

So, although the effects on the entire system are a wash—there is no more or less money in the system as a whole—different economic classes will be affected differently. About 70% of the population will have more money in their pockets or the same amount of money. About 20% will pay somewhere between a few hundred dollars to a few thousand dollars per year more in transaction fees than they receive in a dividend. About 10% will pay more than a few thousand dollars per year more in transaction fees than they receive in a dividend.

If Frieda’s proposal is for a more capitalistic form of our economy, then what does this say about our present economy? The answer is simple: at present, we have a blended economy. Private ownership of capital is run on capitalistic principles while public ownership of capital is run on socialistic principles. Instead of charging as much as we can for our ownership of the U.S. market place, we by and large give it away for free like good socialists. Think how nice it would be if eBay or Amazon ran on socialistic principles: you would pay less for most items. The net effect of giving away the market like this, as we have seen, is that it benefits the rich and hurts the middle class and the poor. Or put the other way around, the poor and the middle class would be better off if we ran public assets on good capitalistic principles.

It is certainly understandable why the rich are in favor of this hybrid: it works in their favor. This is exactly the sort of thing we saw with the Great Recession. When the economy was on the upswing prior to the Great Recession of 2007-2009, capitalist principles were promulgated to enrich the 1% at the expense of the middle class and the poor. When the collapse of the financial market hit the economy hard, the government came to the rescue of the rich. To this day, in bars around Wall Street, one can hear drunken traders sing the ditty with the memorable lines:

privatize profits

and socialize the risk

this is how we fornicate the sheep

fornicate the sheep

fornicate the sheep

What is less understandable is why we are so willing to live the lie in a thoroughly capitalistic country when the truth is apparent to any wide-eyed sheep: we are capitalistic, when and only when, it benefits the rich. A more consistent approach to economic justice would see BIG instituted. For whether we take the left or the right fork in the economic road, all roads lead to BIG.