Martin Wolf, Tim Harford, and the Citizens’ Basic Income

One of my wilder dreams is that someone with real clout will pick up the Citizens’ Basic Income and run with it. Bearing in mind the forthcoming Swiss referendum, it would not take much for it to burst into the mainstream. Not many individuals have more clout than Martin Wolf, Chief Economics Commentator for the Financial Times. When I wrote to ask for permission to quote him on the cover of my book, he entered into more discussion than I expected from someone in his position. But he sees the Citizens Basic Income as ‘churning’ – giving to everybody only to take it back from some seems unnecessary to him. Mr. Wolf also thought that it was politically impractical, because if housing costs are included, the income tax rate would have to be at least 60%. In other words the idea is below his radar. As yet he just doesn’t see it as important enough to apply his formidable mind to, alongside the global economic issues he grapples with.

What follows is in effect an appeal to Martin Wolf. Why should he bother reading my stuff? For a start he is unusual among the circles he moves in in not being a climate change denier. He frightens me by his approval of geo-engineering as a way of prolonging economic growth, but at least he accepts the existence of a problem. But I have a potential ally: Tim Harford. Mr. Harford is on record as being a supporter of the Citizens Basic Income, and he is a colleague of Martin Wolf on the Financial Times. Do they never meet at the coffee machine? If I (or someone) can persuade Tim Harford, who tweets, to read this, who knows?

Who would vote for a party which proposes 65% income tax? There are two good reasons why large numbers of people might. Mr. Wolf’s high tax rate reveals the enormity of the poverty trap created by means testing. which is to all intents and purposes a tax. Withdrawal of a means tested benefit has the same effect as a massive tax on a low income. Everyone who does not qualify for a benefit pays this tax equivalent, but on a large income it is negligible. If Mr. Wolf is right about the 60% plus tax rate, that is tantamount to an admission that most people losing a means tested benefit are effectively paying a higher tax rate now.

All this is of course explained in Dynamic Benefits (published 16.9.2009 if you use the link), the first part of which is a devastating chapter and verse critique of means testing. The recommendations in the second part skilfully avoid the logical outcome – a Citizens Basic Income. They are the basis for Iain Duncan Smith’s abolition of means tested benefits, but the actual Department of Work & Pensions measures are considerably more malevolent than the original ‘Dynamic’ proposals, for example the ‘Bedroom Tax’. But if Martin Wolf has discussed these issues, I have missed it. Not quite his field.

But the other reason why people might after all vote for a higher tax rate than they have been used to, is climate change.  Might not something which allows an escape from a dependence on growth be a good idea? Per se, the Citizens’ Basic Income is neutral on ecological issues. Indeed, unless firmly tied to an ecological approach and policies, the poor would just spend the money confiscated from the rich. But even worse, in 1974 Keith Joseph (Conservative) produced a Green Paper on a Tax Credit scheme, which was in effect a Citizens’ Income with the purpose of facilitating maximum economic growth. My purpose is the opposite: to free us from a dependence on economic growth. The difference lies in the tax regime. Joseph’s scheme would not balance Tax Credits with taxation. A Green Citizens’ Basic Income would be balanced with a progressive tax structure, and also resource taxes. Curiously, I could not find a link to the Tax Credit Scheme on the web, even among Joseph’s archives. I did have proof, a physical copy, lost in recent removals.

But if  a Citizens Basic Income could go horribly wrong in the Green context, why do I insist on its importance? Until someone thinks of a better idea, it is the only one I know of that can allow individuals to contemplate the absence of economic growth – a recession – with equanimity. Although risky, a CBI allows an escape from a dependence on growth. Paradoxically, this opens up a strategy of not insisting on an immediate end to growth, even though at the same time it facilitates the notion that this might be a good idea if we want to stop damaging the ecosphere. Having firmly put down that marker, we can return to the social justice notion of not taxing the poor at higher rates than the rich. Although the Citizens Income needs to become a reality, this ‘thought experiment’ period is important. The political conflict in future will be between those who value nature, and oppose growth on principle, and those who, like Martin Wolf, want growth to continue on the back of technological innovation. But that debate can wait. What is urgent is something which will allow the population in general to see growth as an option, not a necessity.

But why is growth seen as vital anyway? Millions of species have lived without it for millions of years, with only brief episodes of new activity. What the mainstream needs to grasp is what happens at the end of such an episode, which is where we are now. I am not aware of any research investigating mechanisms by which pre-human species coped with the Tragedy of the Commons, which must occur whenever a period of expansion reaches physical limits. There are two features of the transition to a steady state economy which need to operate together: no one can afford to put themselves at a competitive disadvantage, but if you can reduce your own demands on the environment without doing that, then you increase your chances of being among the survivors of the ‘Tragedy’.

Whilst I cannot expect Messrs Harford or Wolf to spend too long on my appeal, there are a couple of aspects worth teasing out. All those on low paid, part time or intermittent work will benefit directly from a Citizens’ Basic Income. It will expose Iain Duncan Smith’s ‘reforms’ as not just malign, but the wrong way to get people to work, especially in a recession when jobs are scarce: persuasion, not force, as Aesop observed 3,000 years ago. ’ In a world of ecological constraints, the problem is not not enough workers, it is not enough work. But IDS’s victims are a minority. Why should anyone else be interested? Some of the better off who will lose on balance with a CBI may be selfish, but by and large they are not stupid. The principle of means testing being a real and oppressive tax should not be hard to grasp, despite its disguise having been effective for so long. The ‘thought experiment’ comes into play. It is the better off who tend to see more clearly that a lower ecological footprint might give their grandchildren a better chance of living in a habitable world.

Those who might be described as ‘capitalists’, or ‘the 1%’, are at present generally presenting as climate change ‘deniers’. I have a theory that many of them are not true deniers. If you think you can be in a dominant position when the crisis comes, you deny any such recognition, so that you can go Hell for leather to achieve that dominant position, as dictated by the ‘Tragedy of the Commons’. But a Citizens’ Income will ensure that a certain level of economic activity will always take place, provided a healthy ecosphere is still available. It opens up the possibility of a soft landing for businesses which I believe can only envisage a fight to the finish for dwindling resources in a deteriorating environment. A ‘Western’ culture which could take growth for granted is now global. Any expanding culture will be individualistic, competitive and aggressive. A culture trying to live within its environment will normally include a communal ethos. A Citizens’ Income can introduce this much needed element without necessarily involving any other changes.

Predictably, the onset of the ‘Tragedy of the Commons’ initially sharpens conflict. Those in a position of power are exploiting that power ruthlessly. Calls to smash Capitalism are more strident than ever, despite the stranglehold of the powerful rendering them less realistic than ever.

The Citizens’ Basic Income is widely seen as a major step towards social justice. This is of course my view. But many proponents have misgivings because it also has the approval of apologists for capitalism such as Milton Friedman. The reason he gives is that it removes the need for a welfare benefits system. As long as each side approaches the problem with a ‘conflict’ mind set, any support for a proposal by the enemy is evidence against it. An atmosphere of conciliation no doubt looks unrealistic at present, but if it were possible, each of the above views would be seen as being quite consistent with each other. This may hinge on my conjecture that many climate change deniers are nothing of the kind. If so, they will welcome a lifeline which offers an alternative to their current ruthless exploitation of both resources and people. Capitalists are stronger than ever, but they must recognize that it is not necessarily in their interests to regard the rest of humanity as prey.

As I say, among my wilder dreams is that Tim Harford recommends this blog post to Martin Wolf. A Happy New Year to all anyway.

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2 responses to “Martin Wolf, Tim Harford, and the Citizens’ Basic Income

  1. Why the need for a 65% Income Tax? No wonder Wolf baulked.

    It’s my understanding a CI merely replaces our current out of work benefits/tax credits/thresholds.

    Given the cost savings I thought one of the advantages of a CI was lower taxes?

    • Wolf includes housing benefit. The Citizens Income Trust have figures that don’t raise taxes, and indeed I point out that the CI must be affordable because it is only an amalgamation of actual taxes and the disguised, but just as real taxes caused by the withdrawal of a means tested benefit. If you don’t give everybody a chunk for housing benefit, you are left with a significant poverty trap, and all the problems the CI is meant to solve, and Iain Duncan Smith is solving by just abolishing means tested benefits. But if you do give everybody housing benefit, it has to be paid for. The better off still pay more, in some cases many times what the CI is worth to them. That is why Wolf calls it ‘churning’.

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