I Cannot Believe This…

I have liked a TYT video on economics though it has nothing to do with cronyism in the economy (the only point on economics I typically agree with them on).

Peter Coy, in a Bloomberg Businessweek article, states:

A movement to give every person an “unconditional basic income”—no work required—is gathering speed in Europe. In its biggest victory to date, earlier this month supporters in Switzerland garnered more than 100,000 signatures on a petition and managed to get an initiative onto the national ballot.

The Swiss ballot initiative, which isn’t scheduled yet, doesn’t state how big the unconditional stipend would be, but supporters have mentioned 2,500 Swiss francs a month, which is a little under $2,800.

I’m glad TYT, particularly Cenk, is being honest in this video. A guaranteed paycheck from the government wouldn’t necessarily stop someone from working outright, but it would serve as disincentive to work in numerous ways: 1) if you’re unemployed, you will not try as hard to find a job (as Cenk admits he did), 2) if you do work, you will not work as hard as you used to (because you will have to work less than before to earn the same amount of income), etc. It’s a productivity killer and Switzerland’s standard of living will go down over the years.

For a causal explanation: human beings purposefully act, choosing one action over another based on which action is valued more highly. An individual, in deciding whether/how much to work, weighs the marginal benefit an additional unit of labor gives him (choice of action #1) against the marginal cost of working that is his leisure (choice of action #2). Now, the law of marginal utility tells us the more units of a good a person has, the less he will value each unit. Therefore, as he receives a guaranteed paycheck from the government, he’ll tend to value the benefit less relative to the cost, and thus work less.

(For an explanation of the law of marginal utility, consider yourself having access to X # of units of water. Let’s say units are gallons, and you have 1 unit – in other words, 1 gallon. You’re going to use this gallon for the most important thing to you, which is probably drinking water: after all, you need to survive. Let’s say you get 9 more gallons. Maybe now you can use a gallon to take a shower. What the law of marginal utility states is that, as the number of units you have increases, the less you value each unit. In the previous example, taking a shower was obviously not as valuable as drinking water. If you had to give up a unit, you would give up taking a shower, not drinking water. You’d give up an activity with less value. In other words, you’d give up a unit being used for an activity with less value. But if you only had one unit, you’d have to give up drinking water. The unit for taking a shower is not as highly ranked as the unit for drinking water, and thus, the more units you have, the less valuable uses they will be being used for, and the less value they have.)

Some respond that individuals could be more creative if they had their basic living income provided for. But this doesn’t mean the laws of the marketplace go out of existence. Creativity will have to obey market forces – in other words, people who are creative still need to satisfy the needs of others in order to generate income from their activities. “Creativity” is just another way of saying risky behavior, and individuals with almost $3000 in guaranteed income would take many more risks, a good amount which would end as utter failures.

On the judgment side of things, I believe that this policy would have a particularly horrendous effect on Switzerland’s economy. $2800/month is a lot, even enough to survive off of. It’s possible you could see the workforce destroyed and the tax revenue necessary to pay out the $2800 become smaller and smaller, until it ceased to exist.

I get the argument that people’s basic living should be provided for them. “Human beings have a right to live and goods are not so scarce that we cannot provide for every person’s basic needs in food, water, and shelter.” The issue with this type of thinking is that such a policy of guaranteed income by the government would kill incentives. People don’t have to work anymore – therefore, some people will outright stop working, some people will not try as hard to find work, and some people will “be creative” – but even while engaging in these creative ventures, individuals will lack as much of an incentive to apply this creativity in such a way that they earn income from the market. Losses are now trivial because basic income has been guaranteed. Therefore, the money (in real terms) used to provide for the basic income of citizens will go down, year after year, until scarcity actually is a problem for even basic needs.

And as that happens, if policy does not change, people will starve, and the population will decrease. What’s necessary to maintain a population like ours is private property and the incentives that come with it. The reason poor people in third world nations starve and lack basic amenities is because they lack private property.

Photo Credit: Thomas Leuthard via Compfight cc

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Posted on November 8, 2013, in Economics and tagged , , , , , , . Bookmark the permalink. Leave a comment.

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