Remittances From Nowhere.

How a World Basic Income can be sort of mostly free.

The economic downturn associated with the Coronavirus is causing a humanitarian and economic disaster. Now is the time for a World Basic Income, paid to every human on the planet. It should be high enough to cover the cost of living, at least in the developing world. This payment would not just stave off hunger and extreme poverty, but also work as a general stimulus for the global economy, which faces a potentially catastrophic contraction.

While the greatest benefits of this payment would be felt in the developing world, where the increase in income would be bigger in proportion to current incomes, it would also provide important benefits to the developed world.

A WBI would pump demand into the global economy by raising the non-wage incomes of the population as a whole, including workers. This would reshape the global labour market, lessening migration pressures and the severity of cross border wage competition, because workers in and from the developing world, protected from absolute destitution, would be less inclined to work in appalling conditions for miserable wages.

There would also be a dramatic increase in consumer spending power in developing nations, which would increase the number of workers required to meet domestic demand for goods and services, meaning fewer still would be available to work producing exports to the developed world. At the same time the market for exports from the developed world.

This would compound the original effect, and further strengthen the position of workers in the US “rust belt”, and equivalent populations in other developed countries, whose jobs would become harder to send offshore.

And it would do this without the implementation of tariffs, which might spiral into trade war, further contracting the global economy. A WBI is a mechanism that can achieve the same goals in terms of protecting developed world jobs and wages, without adding to the contractionary pressures that the global economy faces.

A payment like this is not a new idea, it even has a dedicated NGO, simply called “World Basic Income”. They propose a payment of $30 a month. Which they say could be funded using “rents” on global commons like airspace, and “international taxes” such as a carbon tax.

But it’s a mistake to assume that we have to first “gather up” the money before we can pay it out.

Since the pandemic began, they are also starting to question this. Having recently pondered whether in “emergency times such as these, borrowing or currency creation could also be used to quickly generate the money needed.”

This is an encouraging sign. But they still seem to be of the view that money creation or borrowing as inherently problematic, if perhaps necessary given the current situation. This is the wrong way of thinking about it. Money creation and deficit spending are not signs of desperation, foolishness or failure. They are necessary tools for good economic management, in relatively “normal” times as well as emergencies. It’s not that, as it is sometimes put, “deficits don’t matter”, it’s that deficits are good. The theory behind this is a little complex but it can be summarised as it is here by Cory Doctorow:

Government debts are where our money comes from. Governments spend money into existence: if they “balance their budgets” then they tax all that money back out again. That’s why austerity always leads to economic contraction — governments are taxing away too much money.

There’s one other source of money, of course: bank loans. Banks have governments charters to loan money that they don’t actually have on hand (contrary to what you’ve been taught, banks don’t loan out their deposits).

When there’s not enough government money in circulation, people seek bank loans to fill the gap. Unlike federal debts, bank loans turn a profit for bank investors. The more austerity, the more bank loans, the more profits for the finance sector (at everyone else’s expense).

The empirical case is actually pretty simple, and arguably even stronger: The US government has run deficits nearly every year since the early 30s. For all its current woes, the US is in a far better economic state now than it was then. In fact some of the best years, like the “post war boom” were immediately preceeded by the highest levels of deficit spending (the largest injections of cash into the real economy).

The same is true for most developed economies. Governments always promise budget surpluses, but rarely deliver. And that’s a good thing, because what they practice is better than what they preach.

So when it comes to a universal basic income, even in the “good” times, the best answer to the question: “how will we pay for it?” is that, actually, we won’t.

At least not all of it, not directly, and certainly not up front. If we do pay for it up front, we suck as much money out of the economy as we pump in.

A “costed” or “revenue neutral” UBI plan would help protect the poorest from the effects of the crisis, but it would stunt the stimulatory effect we are also aiming to achieve. There would still be some stimulatory effect. Transferring income to poorer people leads to a greater portion of that income being spent, so the velocity of money (the overall rate of spending in the economy) increases, and with it GDP. But expanding supply and velocity simultaneously, as a fiat-funded UBI could, would work much better.

In essence, we should just get the money the same way we ultimately get all money: We just collectively believe it into existence. This has the advantage that it doesn’t require us to convince or compel anyone to pony up in advance. And it would mean we could pay a higher WBI, starting perhaps at US$1.90 a day, the UN’s “internationally agreed poverty line” , and then, when the sky doesn’t fall, rising further, perhaps to as much as five or ten dollars a day over the course of several years or a decade.

Of course no one can predict in advance how people, and therefore the world economy, would really respond to a payment of this level. No one knows what the ideal level for a WBI is. But there’s no reason to think it’s zero.

The global charity and advocacy organisation Oxfam doesn’t back a WBI, but does explicitly recommend a kind of fiat money creation, or something very much like it. In a recent media briefing entitled Dignity Not Destitution it lays out suggestions for responding to the hardship caused by the pandemic. The plan includes the allocation of a trillion dollars worth of Special Drawing Rights, which are interest bearing assets, a bit like treasury bonds, created by the IMF. SDRs are defined in relation to five major global currencies, and can be used by nations to pay back debts to the IMF, or traded with each other for liquid currency.

By rapidly increasing the supply of this “paper gold”, as they did following the 2008 financial crisis, the IMF could help nations around the world increase their liquidity, allowing them to spend money to help the needy. This has also been requested by a number of nations and the IMF has said it is “exploring” that option.

Here we see a pattern emerging at the global level which resembles closely that developing at the level of national policy discourse.

Modern Monetary Theory advocates like Stephanie Kelton argue that the US government cannot run out of money any more than a sports arena can run out of points. But they don’t support UBI, arguing instead for a Federal Job Guarantee. UBI advocates like Andrew Yang want a UBI but think they need to pay for it pretty much up front with increased tax revenues.

But a growing cohort of thinkers are beginning to examine what happens when these herecies intersect. UBI advocate Alex Howlett is one of them. He coined the term Consumer Monetary Theory or CMT to distinguish his view from MMT. Another is Geof Crocker, who talks of “Basic Income and Sovereign Money”. Martin Wolf, associate editor and chief economics commentator at the Financial Times, also backs both soft money theory and a UBI, as does Australian heterodox economist Steve Keen.

The four thinkers listed in the bottom right square all have unique perspectives, and among them only Howlett identifies their work with the CMT title. However it seems useful to me as an umbrella term for those who agree with MMT regarding the nature and constraints of government spending, but who promote a Basic Income rather than a Job Guarantee.

It’s important to note that both MMT and CMT do think tax policies matter, just not in the ways we’re usually told they do. One role they see for taxes that is relevant to this proposal is the idea that taxes demanded by a government in a specific currency help ensure the value and widespread acceptance of that currency, another is the way taxes help manage the build up of currency and the amount of spending in the economy to prevent inflation.

In conventional thinking, taxes fill a bucket, the “government coffers”, and spending is a hole in that bucket, through which money escapes. In soft currency thinking, spending is the inflow of money, the bucket is a flower-pot — representing the economy — which requires frequent watering. Taxes are the drainage holes, there to stop the soil getting too saturated.

If we were to look clearly at the flowerpot representing the world economy, we would see the soil is bone dry. It’s worst at the edges, where the dieback has already started, but the centre, where the roots are thickest and thirstiest, is not far behind. The plant is starting to wilt. The good news is that the water is free. It’s time to get the hose, attach a spray nozzle, and spray.

The Great Global Monetary Hack

The world lacks a true global reserve. The US dollar is the main currency of global trade, but that role is diminishing, and in any case it is managed by a government and central bank who are only mandated to pay attention to the needs of the global economy as and when these needs affect their domestic goals.

In terms of a truly global, globally managed, reserve, SDRs are the closest thing we’ve got. We can’t use them directly for a WBI, since they can only be held by nation states and other “designated holders”. But these are considered durably credible enough that their value held in 2008, even as the total stock increased roughly 10 fold, from around 20 billion to 200 billion. The additional trillion Oxfam have recommended be created, divided by 8 billion is $125 per person, or 34 cents a day for a year. It’s not enough. But we’re getting somewhere.

Since individual human beings cannot hold SDRs, which are, formally, not money. We could issue a new currency, tied to these. A People’s Bancor, in honour of Keynes’s proposed global currency.

The basic framework would be:

  1. The IMF announces it will be holding an auction of SDRs starting in say, three months time, and continuing at regular intervals from then onward, that these auctions will be conducted using the new currency: the People’s Bancor.
  2. The IMF creates digital wallets for the citizens of all participating nations and starts to issue these new digital credits (which may be cryptographically minted) at regular intervals directly to every adult individual on the planet.
  3. Governments exchange national currency to obtain PBs. Either directly or by accepting them as a means of (partially) paying (some) taxes. This would cause businesses, individuals and exchanges to gain confidence in the new currency.
  4. Governments buy SDRS from the IMF with PBs, which are then taken out of circulation.

Poorer nations, especially, could be guaranteed a certain quota at a set price, separate to the portion auctioned in batches.

Another way to validate this currency would be by charging global taxes in it.

A United Nations could create a world tax authority and through it could demand taxes in this new currency. These should be demanded, at least at first, from the national governments themselves, who would thus be compelled to buy PBs using local currency.

So long as the monetary metabolism can be kept active, substantially more can be issued in currency than is collected in taxes.

A carbon tax is, of course, an important idea. And so is a tax on military budgets, if you think about it. And isn’t this a great opportunity to go after tax havens and the many billions held there illegitimately?

We must avoid this temptation to fix everything at once, and stay focussed. The number one priority is for these global taxes to validate the currency. And we need it to happen fast. We don’t have time for nations to enter into complex multilateral bargains over the rules of such a system. We need something that is equally attractive to all parties.

What I suggest is that, at least at the start, we tax the money itself. At the end of each financial year the government could be liable for a sum of PBs equal to, for example, 20% of the amount received by their population over the previous 12 months.

As it happens, this stands in stark contrast to the position taken by Howlett, who as I mentioned before coined the term Consumer Monetary Theory. He says that “tax revenue is meaningless” and that we should therefore focus on taxing the specific behaviours and phenomena we want to discourage. Since we want economic activity, money is the worst thing to tax. This is a rule I generally agree with, but this is one case (and there are others) where it makes sense to make an exception.

By removing the complications implicit in attaching these initial taxes to anything in particular, we remove reasons for various countries to say no. If we view the government as an extension of the population, which it rightly should be, then all we are asking them to do is accept a dollar, on the basis they will later have to pay back 20 cents.

Imagine a simplified example where a country’s population receives 100 PBs a year in total.

Here’s how that would play out over the next twenty years:

As the graph shows, the national stock of PBs would grow over time as the amount received by the population outpaces the amount the government has paid in global taxes. So long as the rate of taxation is less than 50%, this will be the case.

This rate wouldn’t, obviously, be something that we could “set and forget” but would be a policy lever, similar to central bank interest rates, which could be adjusted in response to real world results. If the currency starts to lose value, the rate should be increased, if its value is too high relative to national currencies, it should be decreased.

Such an agreement would be most perfectly championed by the G20, then implemented by the IMF and UN in concert, with the IMF issuing the currency and the UN collecting (and destroying) it.

But any group of nations collectively representing a significant chunk of world product could also create their own version of this through a treaty outside existing global structures. This currency club could grow gracefully, one new member country at a time. Countries should be free to opt out at any time, making joining the obvious choice.

It would have to have a central administrative office, with dedicated staff alongside observers and advisors from member nations working to regularly assess the effectiveness of the current settings, and adjust UBI levels, taxes due, the number and type of SDR sales (assuming IMF cooperation), and so on.

Perhaps the best thing about this plan is the lack of downsides. It is, I contend, counterintuitively plausible that national governments would sign up for such a plan, especially as the economic crisis, likely to be the worst in a century, deepens.

If it doesn’t work, then the currency will be stupidly cheap and the participant governments will easily be able to get enough to cover their obligations.

If it does work, and the value of the currency holds, then their economy is experiencing a sudden inflow of valuable currency, equivalent to a steady and substantial increase in remittances. There would be, inevitably, some cost to the local governments, in that they would either exchange their national currency for PBs, or accept it in taxes (instead of their national currency). But every dollar, pound, yen, rupee or dinar spent in this manner would have many times the stimulatory effect of normal spending, since when you buy one PB, you validate the rest out there in circulation. They could also just just print the money with which to make these transactions, since their own citizens will in most cases accept this as payment.

Governments that didn’t want to do this, or couldn’t for some reason (A lack of their own currency, for example) could simply introduce a new tax on the wealthy and/or high income earners, payable in PBs. This would compel these better off members of society to exchange some of whatever currency they have for PBs. The effect of this transfer would be similarly multiplied as the other PBs in circulation were validated by it. Whether it is stimulatory spending, or this tax driven redistribution, you get much more bang for your buck this way than you would usually.

If it works too well, and the new currency is valued too highly against local currencies, making it difficult for governments to meet their tax obligations without inflating their own currencies, that means we can print and distribute more, until the price of a PB falls (while the value of the basic income increases), or lower these tax obligations.

This plan won’t solve every problem, but it would be the biggest economic stimulus, and the greatest step towards ending deprivation, so far in the history of humanity. It is of course optimistic to imagine that our leaders are capable of seeing clearly enough, and acting boldly enough, to set a plan like this in motion. But sometimes a crisis can bring out the best in people, and the economic crisis, which will extend beyond the pandemic, may not give them the option of sticking to conventional responses.

Why This Isn’t The MMT Moment

Modern Monetary Theory is right about the government’s capacity to spend, but dead wrong about how to use this spending power. A Job Guarantee won’t work. A Universal Basic Income will.

As economic activity plummets and joblessness surges, governments around the world have pulled out their proverbial check-books and begun spending at a level that would normally be considered to reflect the reckless abandon of drunken sailors on the last night of shore leave, but is increasingly viewed as necessary and prudent. Generally, this is framed as an emergency measure, with the expectation, spoken or unspoken, that when the crisis passes, some combination of tax increases, austerity, and the sale of public assets will be undertaken to right the ship and get the government on track to pay down the debt it is currently incurring.

But which crisis do they mean? Is it the narrowly defined pandemic crisis, which we are mostly assuming (perhaps optimistically, perhaps pessimistically) will end in a year or so, when a vaccine is expected to arrive like the cavalry. Or is it the economic crisis the pandemic has triggered, which might reasonably be expected to last years, as the bang created by millions of jobs disappearing all at once reverberates through the economy. Unless, of course, the government steps in with unprecedented stimulus that makes up for the pandemic shaped hole in our collective spending power. But when to step away?

The loss of jobs and income has been more rapid and dramatic than anything in history, including the Great Depression. And already, before the downturn, there had begun to be murmurs that, perhaps, the importance of this whole “balanced budgets” thing might be a little overstated.

Reality might be finally, violently, forcing its way into policy and public discourse, which has long been dominated by the (superficially convincing) idea that governments, like households, must “live within their means” by matching spending to tax incomes, or run out of money and “go broke” — an idea so widely accepted that the IMF has since the 80s made it a pillar of the structural adjustment programs enforced on borrower countries in the third world, and many countries and states, have tried to make it a constitutional requirement. The EU even had a similar rule, enforcing budgetary discipline on member states, but has been forced to trigger the “general escape clause”.

Let us hope that the escape is indeed general and lasting, and that governments don’t rush to lock themselves back in the prison of austerity at the soonest opportunity. These have always been terrible ideas, as the historical record shows. Even at the most superficial level, these ideas don’t hold up: It is possible for governments to run year after year of deficits, and still see debt shrink as a percentage of GDP. But whether this relative measure of debt even matters is also questionable, since governments can actually, contrary to the current taboo, simply spend new money into existence.

Modern Monetary Theory, a variety of post-Keynesian, soft currency economics, accepts all this. It doesn’t consider government deficits a recurrent failure of ill-disciplined politicians, pushing pain onto future generations, but as necessary and good. As its most prominent advocate (and economic advisor to Bernie Sanders) puts it “Government’s deficit is *our* surplus ”, with “us” here meaning everybody but the US government (so the US private sector, plus the rest of the world.)

And since the economic ideas that get used in a crisis are, so famously, those which are, as Milton Friedman put it, “lying around” at the time, Kelton and her ideas seem to be coming very much into favor.

It’s worth noting that the nature of this crisis, which involves supply shocks as well as demand shocks, makes it, in some ways, less suited to an MMT driven response than a normal crisis, which is often merely a contagion of falling demand through the economy. That MMT still has much to offer, despite this complicating factor, is a signal of how long and how badly the supply side of the economy had been favored by policy settings. MMT might still be, to some extent, fighting the last war. But that’s ok since that war wasn’t ever actually won.

So far, so good, right?

Sort of.

The MMT crowd is right that the government has far more headroom to spend, and better macro-economic (as opposed to nice-but-silly humanitarian) reasons to do so than their mainstream opponents think. But they are wrong about what to do with that spending power. They correctly understand that government spending is constrained by the economy’s available resources rather than by tax revenue. But their central policy proposal, a “Federal Jobs Guarantee,’’ is a terrible stinky heap of burning radioactive garbage drenched in awful sauce, sprinkled with bad. It’s unfit for purpose, now and later, on its own terms and on any reasonable person’s.

I don’t make these criticisms gleefully, as in general, I am sympathetic to the general thrust of their thinking. But a real friend tells you when you’re wrong, for your own good (and everyone else’s). This basket case of a policy would be a disaster if tried and could discredit the entire school which proposed it, leading to the macroeconomic baby being thrown out with the policy bathwater. MMT needs to be forcefully critiqued, and saved from this glaring flaw. Unfortunately, this flaw is one that most MMT advocates refuse to acknowledge, and will passionately defend. So it must be attacked with equal passion. It’s like the 6 minute back alley fight scene in They Live — they must, despite their protestations, be made to see.

Unfortunately, that won’t be easy. This policy proposal isn’t some early stage-skin cancer that can be easily cut off. It’s tied to macroeconomics deep in the guts of their thinking.

The FJG arises from MMT’s understanding of money. In MMT, money is simply a token used for paying taxes. Governments impose taxes to force people to earn money. As a result, everyone ends up needing a job. To put it another way, the government introduces money and taxes for the purpose of creating unemployment. They create this unemployment in order to get people to work for the government.

The monetary system’s original sin is that it creates unemployment. . . . Money is a public institution that is launched into existence by creating unemployment

Pavlina Tcherneva

The MMT perspective is that the government has made a mistake by taxing people into needing jobs without also providing jobs for everyone. The Federal Jobs Guarantee is the obvious solution. The government simply creates a job for anyone who wants one.

On the face of it, this story checks out. If the government imposes a universal tax payable only in government-issued money, then it forces everyone to go earn that money from the government, either directly (by fighting in the army, for example) or indirectly (selling food and ale to the soldiers on leave). The government, in this account, sets the value of the currency by setting the wages it pays for the labour it hires. The purchasing power of currency is thereby anchored to labour.

An adjacent school of thinking now emerging, Consumer Monetary Theory (CMT) on the other hand, remains agnostic about particular origin stories, which have partial and overlapping elements of truth, and focuses on the contemporary reality that the economy requires a standard unit of account in which to set prices.

Our dollars represent claim tickets against the economy’s production. Whenever we spend a dollar, we claim for ourselves one dollar’s worth of the economy’s productive output. Consumers are continually buying and using the goods and services that support their livelihoods. They’re redeeming their money tokens in exchange for the economy’s products

Alex Howlett

Money is what you buy stuff with, so it must be anchored to consumer goods and services. For a currency to be useful, its purchasing power has to remain reliably stable with respect to the kinds of things that people ordinarily buy.

It is, of course, true that the imposition of taxes is one important way that governments can validate the money they issue, and thereby mobilise a workforce paid in that money. But the mere imposition of taxes denominated in an arbitrary unit won’t transform that unit into the economy’s currency. If the government demands you pay your taxes in sandbags, you’ll start buying sandbags for tax payment purposes, but nothing much else will change beyond that.

Robbed of its theoretical grounding, the FJG can sometimes seem like a solution looking for a problem, or problems, to solve. Worried about food deserts? The FJG can fund and staff local community organic gardens! Worried about climate change? FJG can also be the green new deal. Child care affordability? FJG! Aged care? Let’s get those unemployed people wiping grandma’s butt!

FJG skeptics might respond that we can solve these problems using this crazy new idea called the “public sector” doing this crazy new thing called “hiring people” using these crazy new doodads called “employment contracts”.

“Sure fine yeah”, say the FJG advocates, “this is like that, but better!” they insist.

The regular old public sector, which hires only those needed to perform specific tasks and provide specific services, would leave out some workers. The job guarantee would hire anyone who needed a job, eliminating “involuntary unemployment” by acting as an “employer of last resort”.

The goal is to keep these people employed during rough times, with the explicit goal of releasing them again when the private sector is labour hungry enough to lure them back with better wages. Built into this policy is an admission that these are non-essential “nice-to-have” jobs since we can forgo them during boom times when the private sector is employing more people. Even in these boom times, though, the FJG would still play an important role, keeping employers honest and fair, by giving workers a permanent alternative.

By scooping up workers as they are discarded by the private sector the FJG could provide macroeconomic benefit, acting as an “automatic stabiliser”, preventing downturns, or at least preventing them from becoming self-propelling juggernauts, by giving jobs to those who get fired, sustaining their spending power when it would otherwise disappear. The idea is that this prevents a cascade of collapsing demand from ripping through the economy.

So how would that work in our present predicament?

Firstly, right now we want people to stay home as much as possible, which makes it more challenging to think up jobs for people to do. That might not be the case during the next big crisis, of course, unless it is. The next economic contraction might well be related to, or at least concurrent with, a climate change disaster, and having people stay home, off the roads and out of factories might be the grim necessity then, as well. But let’s leave that to the side

Instead, let us simply consider the sheer volume of new applicants would completely overwhelm the system. The existing welfare bureaucracy, which simply has to assess claims and authorise payments, not create jobs and place people in them, cannot keep up with the flood of new applicants for unemployment benefits. I personally signed up over a month ago, and am yet to hear back about my application, except a text message to the effect that I was in the system and would be called with more information, eventually. Similar stories abound worldwide, as a simple google search reveals.

The system cannot cope. And how could it?

Let’s imagine that administration systems weren’t, in normal times, labyrinth and opaque bureaucracies designed to moralistically separate the deserving from the undeserving poor, but efficient and streamlined systems that quickly and cleanly came to the aid of those in need. If they are set up to manage a monthly flow of claims in the tens or hundreds of thousands, how can they possibly deal with the sudden influx of millions, or tens of millions? They can’t, unless they are in normal times running at only 10% of capacity or less?

As Universal Basic Income advocate Scott Santens points out, the welfare system is facing a similar problem to the health system. A sudden flood of people needing help necessarily overwhelms a system calibrated for normal times.

This is true of conditional unemployment payments, which require processing by trained administrators, and would be even more true of even the most perfectly designed FJG. How can the same number of staff suddenly deal with ten times as many new applicants?

By the time the backlog has been cleared and people have been put to work, many rent checks will have been missed, many purchases will have been deferred, money will have not been spent, and much of the damage to the broader economy will have already been done.

So it’s a stabiliser. Right. And it works great except when you most need stabilization. It’s like a keel that works great except in exactly the conditions most likely to capsise the boat, or a hurricane shelter that’s only strong enough to withstand a light breeze.

And this macroeconomic failure is mirrored by a similar failure at the personal level: It’s not actually guaranteed, certainly not at short notice.

You have to successfully apply, which might be harder than you think.. You have to be placed. There is every reason to imagine administrative issues which will plague this system like they plague current welfare systems worldwide

The FJG is meant to give the average worker leverage, but how real is this leverage?

If you’re being treated unfairly or underpaid at your job in the private sector, you can, so the theory goes, can just walk out that door confident in the knowledge that, just as soon as all the paperwork is done, assuming there are no issues, in a few weeks time, maybe a couple of months max, you’ll be happily working away digging organic gardens in an old person’s home or whatever and able to start paying that rent that was already due last week.

Unless you mess up or someone thinks you did, or lies, in which case there will be some kind of appeals system with some kind of oversight or something. Look, don’t worry, we got your back, we swear. Unless we don’t, in which case it will be your fault, you voluntarily unemployed piece of shit.

Let’s assume for a moment, though, that through some alchemy, the FJG and its administrative organs are able to eliminate all administrative glitches and errors, and scale perfectly to match the fluctuating numbers of the newly jobless, as well as preventing corruption, wage theft and worker abuse throughout their various employment programs. There is still a deeper problem with the very concept of a “guaranteed” job.

For the “job” to be meaningfully deserving of that name, you have to be minimally good at it. You may have to pass a drug test or a “working with children” background check. You have to have a positive attitude, avoid foul language, and not make your co-workers uncomfortable. You have to show up on time, or your boss has to trust you, and believe your car really did break down. Any job is, and by its nature must be, conditional. If it’s a job it’s not guaranteed. If it’s guaranteed it’s not a job — it’s adult daycare.

There’s also an opportunity cost, which MMT ignores, implicit in having people be found jobs to do (rather than finding people for the jobs that need doing). It’s extremely unlikely that the jobs such a program provides will fully utilise the capacities of the people it provides them to. Worse, it will preclude them from developing those skills, by retraining, or starting a new business, or any other undertaking outside the immediate pursuit of waged labour.

It was while on welfare, only engaged in waged labour for a few hours a week, that J.K. Rowling wrote a novel that ended up being a billion-dollar franchise employing thousands and enjoyed by millions. Other writers, including many of those who go on to success, often depend on financial support of one kind or another. What does the FJG offer the aspiring novelist (or artist, or filmmaker)? A condescending smile, and a shovel or a mop.

Just as an FJG punishes and disincentivises these less obvious career choices, it also punishes non-career activity. FJG advocates will argue that activities such as child-rearing, or taking care of your own elderly relatives could be considered work under the program, often adding that the program would be locally administered, leaving the question of what counts as work to these hypothetical local administrators, in their serene objectivity and folksy wisdom. Word’s like “participatory” and “community” are often invoked, to make the whole thing sound less like workfare hell, but it’s all pretty vague.

Or, some other branch of the welfare system will take care of them, say MMT’s defenders. Same goes for the neediest members of society: the homeless, the mentally ill, and drug addicts for example, for whom an FJG does nothing. It’s not designed to. Of course, a lack of universality is part of the problem, especially considering how many things it is designed to do, and its prescription as an overall fix for the ills of contemporary capitalism.

And here we come to what we should be doing with all the spending power that MMT (and others) rightly point out the government has at its disposal, it’s that other idea that’s been “lying around” for a while before the crisis and suddenly gaining traction — but which Kelton and other MMT advocates have consistently resisted and attacked — a Universal Basic Income.

Developed economies, at least, are rich and productive enough that we could provide UBI at a level that provides what most people would consider a minimally decent standard of living.

With this in place, they wouldn’t have to worry about any application forms or proof-of-identity and address, or online systems or mean administrators or new jobs that they might not enjoy. They would always have the option of walking away — they might have to adjust their lifestyle, trading down to a smaller apartment or a less fancy car if they can’t find a new job soon. But the gun, loaded with destitution and homelessness, poverty and humiliation, for themselves and their families, would no longer be pointed at their heads.

Those with big dreams will be free to find out, that, actually, they don’t have a novel (or a screenplay, or whatever) in them. Unless, of course, they do.

Caption: Universal Basic Income left, Federal Job Guarantee right.

But that will be inflationary, MMTers say, in a way that an FJG isn’t. There are three reasons they give for this:

Firstly, a job guarantee “grounds” the value of money by equating a certain amount with an hour’s work. But this mistakes a moral impulse for a causal insight. I can declare this article to be worth $20,000 or a new car, since it represents many hours of reading and thinking over a span of years. But someone else has to agree to the other side of that transaction. If as a seller, I have many people trying to buy the same thing, it doesn’t matter which one of them worked for their money and who got it for free.

Secondly, they argue that a UBI increases spending power without increasing production in the economy, whereas a JG increases both. Or so the theory goes. But will these jobs actually produce desirable consumer goods or enlarge capacity in a meaningful way? Such a goal is challenging enough, without being tripped up by needing to fit the task to the workforce available, rather than the other way round. Just assuming that waged labour must = productive output and leaving the details to be improvised along the way is insufficient.

Will local governments start producing smartphones, sushi, and sneakers in significant numbers? Why not leave this to a private sector, stimulated by increased consumer spending power? Or will they be building new ports, rail and highway networks? Why not simply fund and staff these through the normal public sector mechanisms, rather than starting with a (wildly fluctuating) workforce with an arbitrary rather than appropriate skill set and working backward?

Thirdly, they argue, FJG is targeted, providing incomes only to those who would otherwise not have them, not everyone, so it doesn’t just increase spending power across the board, making it less inflationary. If we want income targeting, we can still have it in a world with UBI. We just do it through taxes. The advantage of this approach is that nobody falls through the cracks. We may fail to tax someone appropriately, but we’ll never fail to give money to people who need it.

There is also an argument that a UBI — often presented as a trap for the poor  and a gift to the landlords of the world – would actually have a uniquely deflationary effect on housing prices, which are an acute pain point for low and middle income earners. A UBI, set high enough, would make leaving the major labour markets possible for a larger number of people, freeing them up to move and creating greater seller/renter-side competition in the housing market. Replicating this same effect with a job guarantee — by creating jobs where people don’t currently live to incentivise moving there — adds another layer of complexity and difficulty to an already difficult process. Whereas with a UBI this benefit comes inbuilt. People can move anywhere and take their UBI with them. At least some of them will move (back home) where housing is cheaper.

Finally, if we have a problem with inflation, we use taxes to remove spending power from the wealthy and upper middle class, or could tighten monetary policy, which has been overly stimulatory as a way of propping up consumer spending power — a goal for which a UBI would be far more suited to achieve. But MMT advocates know this. And generally don’t consider inflation to be bogeyman that mainstream economists do — except when someone mentions a UBI and they need a reason to shut it down.

If you want to give everyone money, you can. The obstacles can all be overcome. It’s easy. The hard part is you have to want it. This is the real obstacle for MMT advocates, along with the mainstream economists with which they so often butt heads.

When viewed with the cynicism that only a heartbroken idealist like myself can muster, the arguments presented against the UBI look much more like rationalizations after the fact. The real reason why MMT advocates and others oppose a UBI is that, either consciously or subconsciously, they fear the idle, voluntarily unemployed, poor. They are more alarmed by the idea of some undeserving slob getting a free ride than they are of a deserving person being left out, even to the point of poverty and deadly despair.

There are also those who do not hold this belief themselves, on any level, but who fear its ubiquity in the population at large will make a UBI, and any theory or program of change it is associated with, a non-starter. It seems Bernie Sanders, for example, if not his chief economic advisor, falls into this category. Having said plenty of nice things about a UBI, but also that it’s “kind of a step too far right now for the United States.”

But that was before the crisis. Now he and many others are proposing temporary UBI or UBI-like policies, which studies now show have majority support even among republicans. This is an excellent start. Once people get used to these regular payments, they might more easily be convinced to make them permanent. Nobody outside the closed circle of MMT is talking about an FJG, and they shouldn’t be.

MMT needs to adapt, and stop tripping itself up with a dogmatic attachment to full employment, as a goal and waged labour as a uniquely valuable and fulfilling use of human time and potential, or be left behind, chasing 20th-century goals, as the world moves forward without them.

[this post is also available on Medium, if you’re into that sort of thing.]

Covid-19 is laying bare the fundamental stupidity of our economic system. There is a better way.

As some of you may know, I’ve quit journalism, blogging (and twitter) in order to focus on building a tool that I think can change journalism in a more profound way than any article or tweet I could write, and may have a broad range of other applications, all centred on transparency of process as a way to build trust. But in the recent crisis, watching governments fumble for responses while constrained by the straitjacket of neoliberal austerity thinking, I couldn’t help myself. First I wrote a blog post for The Greshm project, which is an excellent and original heterodox economics blog run by a guy called Alex Howlett (a name to watch) about the “soft currency” alternatives to this “hard currency” thinking.

Like any relapsed addict, though, I couldn’t stop at one drink. And ended up following it up with this reddit post taking those ideas and developing them further, especially in relation to a Universal Basic Income, which as many people are now saying, is by far and away the best response we can make to the economic fallout from Covid-19. It is also the response which allows us to get on with the business of fighting the pandemic (and/or climate change and other issues) without panicking too much about the macroeconomic consequences, since it acts as a shock absorber protecting households. After spending a whole night writing it and receiving a pretty solid response, I present it below for your consideration:

All around the world governments are trying to weigh the economic and real world harm of effective suppression/mitigation strategies vs the potential danger of not effectively containing the pandemic. Given current circumstances, and the assumptions they operate under, it’s a legitimately difficult decision. Poverty is a killer too.

But it doesn’t have to be this way. We don’t have to be stuck in this awful “Sophie’s Choice” dichotomy between epidemiology and economics.

Governments could and should be able to focus on dealing with Covid-19, (or Climate Change, or whatever else comes along) without worrying so much about how it will affect the rate at which people attend sporting events, visit fancy restaurants, or go on holidays. Those things should be nice bonuses, things we worry about only after we have made sure we aren’t going to cook the planet or kill millions of old people in a 6 month period, and that people aren’t stuck in deadly, grinding poverty, unable to access the basic necessities of life.

The reason this isn’t so is because of the ideological monoculture in which politics operates, and in particular two (interconnecting) core assumptions of that monoculture:

  1. Governments must balance budgets
  2. You can’t just give people money, they have to earn it through labour (except bankers, the very wealthy and business owners/shareholders – but you aren’t supposed to say that bit out loud.)

Right now in Australia, where I live, and elsewhere, I am sure, the government is taking less drastic action than many of us would like, because, in large part, they are concerned that the economic effects (of, for example, shutting schools and large workplaces) will be outrageously bad.

Let’s leave aside the possibility that there’s either an irrational attachment to economic indicators, or a corrupting interest in the fortunes of the shareholding class, and assume they are acting in good faith their main concern is the economic impact on ordinary people.

Leaving aside the specific shortages of medical equipment and staff we might face (more on that later – but no one is suggesting doctors and nurses stay home), there’s no concern that we will lose the capacity to produce the food, housing clothes and other basic necessities people need. The fear is people will lose income, as non-vital economic activity (tourism, gallery visits, dinners in restaurants, concerts, strip clubs, conferences, guerilla marketing, call centres, paintball and laser-tag) and that will cause widespread suffering, as the people who provide these services are pushed onto inadequate welfare payments, which aren’t really enough to cover rent, bills and food- let alone a netflix subscription, a smartphone, a new car, or a musical instrument. Then people who make and sell shows, smartphones cars and synthesisers have less money, and a wave of contraction rips through the economy.

One answer would be to increase welfare payments, and/or make them easier to get (easiest of all just give everyone a UBI then claw some of it back from higher earners with income tax increases, but more on that later). But governments are afraid to do this, because they are committed to “balancing the budget” – matching spending and taxes (as are many UBI advocates). The idea being that if the government spends more than it taxes, it will, like a household, “go broke”.

This is both superficially convincing, and widely accepted, but fundamentally untrue. Governments don’t need to tax to spend in the same way that planes don’t need to flap their wings to fly.

If you couldn’t see planes, but you were familiar with birds, the idea that planes had to flap their wings too would seem pretty logical. The reality is that for most of us (including, disastrously, most economists and politicians) the complex interactions of the central bank, the financial sector, the real economy and the treasury, are equally obscure, so the lie lives on.

But. It. Just. Doesn’t. Work. Like. That.

Explaining how something *doesn’t* work, it turns out can be incredibly difficult. But there have long been people who tried. I just recently wrote a blog about how their macroeconomic thinking could be helpful at the current juncture. But since that’s only part of what I want to say today, here’s a TLDR version:

These thinkers can be grouped together as “soft currency” thinkers, as they all focus on the elasticity of the money supply, and usually object to the fact that in our current system banks have an effective monopoly on money creation, through loans, which are the ultimate source of all deposits. Every dollar available for spending in the real economy has an evil twin, made of antimatter, owed to the banks. But it gets worse. As Steve Keen points out, banks charge more interest on loans than they pay on savings, so the only way for the overall money supply (and therefore the economy) to grow is for the rate of money/debt creation to constantly accelerate – with enough new money entering to cover the ever growing aggregate interest payments, and fund actual economic activity. This leads inevitably to disaster, when new loans cannot be created fast enough and it all blows up, like now.

That is, unless governments tilt the scales. Often they do this by simply running deficits, which they can actually get away with pretty much indefinitely, since the money they borrow and spend grows the economy as a whole, shrinking the debt relative to GDP and tax receipts. In the postwar years of American plenty, this is exactly what happened. The US ran deficits nearly every year between 1950 and 1981, with government spending stable or increasing as a proportion of GDP, yet through this same period had a decline in the government’s debt to GDP ratio.

But the most prominent modern variant of soft currency thinking, Modern Monetary Theory suggests going even further. Pointing out that the government, as an issuer of currency, cannot go broke, and advocating that it kick the wall between fiscal and monetary policy down, “print” (or electronically create) money and spend that directly. Stephanie Kelton, is probably the most prominent thinker from this school (Steve Keen is pretty much a school unto himself).

The critics of this theory usually focus on the dangers of inflation. But MMT’ers are not blind to this danger. In fact arguably they see the issue more clearly than most. Inflation, in the MMT picture, occurs when the amount of money entering the system outstrips the productive capacity of the real economy – when there is too much money chasing too few goods.

So far, so good. Except that right now, a lack available of money isn’t the only thing preventing economic activity. The virus is, too. Productive capacity is shrinking along with demand.

Here MMT, and much of the rest of soft currency thinking, is tripped up by it’s acceptance of the *second* assumption that You can’t just give people money, they have to earn it through labour.

Right now, from the point of view of fighting the virus, MMT’s flagship policy, a federal jobs guarantee, designed at achieving full employment, is a terrible idea.

There might be specific jobs (producing ventilators and face masks, for example) which have a net positive effect on fighting the virus, but overall, what we want is for people to stay home, stay away from each other, stay away from office buildings (and the filthy buttons in the elevators) stadiums and bars and restaurants and malls and amusement parks and so on. We want, ideally, all deliveries that aren’t immediate necessities like food or medicine to stop. We want, essentially, the economy to contract.

But we don’t want people to suffer. Some suffering – the denial of these non-vital goods and services, kids missing out on trips to Disneyland and adults missing out on nights at bars – is fundamentally unavoidable. But another kind of suffering – the staff at amusement parks and bars losing the spending power that gave them access to food, clothes and shelter – is both qualitatively different – and fundamentally avoidable.

Technology means that, as a society, we can easily create and distribute the essentials of a decent life, food, clothes, shelter, clean water, electricity, bandwidth and so on using only a fraction of the total available labour force. But if you can’t sell your labour, you are denied these necessities. So people have to find all kinds of non-essential, but still “valuable” things to do (in the sense that someone will pay for them).

And so we have derivatives traders, and a huge excess of cafes, and bands, all connected in a kind of pseudo interdependence. So if (leaving aside the complications of a pandemic) the derivatives trader has a bad day on the markets, and doesn’t go watch the band play at the cafe, the cafe owner and the musician have their access to basic necessities (a place to sleep, food) threatened.

Just. Give. People. Money. Then even if the economy does contract, it matters less, since a small portion of the economy’s output can guarantee us all a decent life – so long as we all have access to it.

Now MMT’ers, and others who object to a UBI will advocate a more traditional, means tested, selective welfare system – one which you have to make an effort to access, a glitchy process which will always exclude some (as anyone who has dealt with the welfare system knows), and which are almost always designed to incentivise the most rapid return to work possible. None of those things are useful unless having people in paid work is treated as a good unto itself, as the only legitimate way for ordinary people to get money.

But wage-labour is, as current circumstances demonstrate, simultaneously the most vital and the weakest link in the whole economic chain.

One argument against the UBI is that it will involve giving money to those already earning plenty of it. The simplest way to solve this is just to increase income (and/or wealth) taxes on those people. That way you only have to measure their income once, at tax time, not twice, at tax time and at the point of provision of welfare – as pointed out by Alex Howlett, and an obscure, heterodox and even to a certain extent DIY economist, who advocates Consumer Monetary Theory, which, as far as I know presents the only systemic and sustained attack on both, these toxic assumptions (MMT only challenges the first, and UBI advocates only challenge the second).

It is thus uniquely positioned to offer us a way forward from our current impasse.

Written in Stone: The Sydney Ducks

See Cassie findlay put our new research tool to work, capturing her research work on this history blog.

Cassie Findlay

The short piece below is a test of the Beta release of Write in Stone, a new tool for capturing and sharing research. To view the full Writeline for this story, or to rate the research, click on the widget. Feedback (on the tool, not my dodgy writing) is welcome! Email me at cassie (at)

The Sydney Ducks

440px-SanFrancisco1851a ‘Sydney Town’, looking north to Telegraph Hill, 1851.

It was only after I had been living in San Francisco for almost two years that I discovered the Sydney Ducks. From memory, it was in an Uber on the way to a trust in journalism event with Austin Mackell that I found out about them. At first, I didn’t believe such an excellent story could possibly be true. Not only was there a gang ex-colonials from Sydney that had roamed around in what is now lower Telegraph Hill but that they were truly…

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What I’m up to now – Building a research transparency app

I’ve basically stopped writing journalism for the time being. My last piece was an impassioned cry for progressives not to assume a Clinton victory, and to therefore hold their noses and vote for the lesser evil. We were in a situation where the parties are no longer converging on a neoliberal consensus but polarising faster than ever, especially in the right, which is in serious danger of being taken over by its most hateful and dangerous impulses.

By now there’s no joy left in telling people I told them so on this point. Just as there isn’t in regards to Egypt, or Libya. I even deleted my twitter account. I long ago decided I wanted to more than simply spew article after article into the internet’s gaping maw, with little or no reaction coming back.

So I’ve been involved over the years in attempts to upgrade journalism standards and methodology. The latest incarnation of this effort is called Stone and it is the worlds first research transparency system. Further explanations and early use cases will soon be added to our website.


You can also follow our progress on Twitter and Facebook.

Remembering the Ghouta massacre

Leila's blog

CM1cqBFWsAApCXxTwo years ago the Syrian regime dropped Sarin gas on multiple locations across the eastern and western Ghouta, an agricultural, industrial and residential district on the outskirts of Damascus. It was the deadliest use of chemical weapons since the Iran-Iraq war, the greatest single poisoning of civilians since Saddam Hussain’s slaughter of the Kurds at Halabja. More than 1,400 people choked to death in the attack – so many because people were sheltering from the artillery barrage in their basements, the worst place to be, where the gas sank and thickened.

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JAN25 piece on ImportantCool


Some of you may have noticed that this blog has been very quiet recently.

If you actually pay that much attention to my work, you may also have noticed I’ve been busy, along with a bunch of others, founding – a transparent worker owned news outlet that will, inevitably, take over the Internets.

Today IC is featuring my piece marking the fourth anniversary of the 25 January 2011, entitled What Went Wrong With Egypt’s Revolution.

Here’s a sample:

Despite the best efforts of the Western-facing Egyptian intelligentsia – alongside the Anglophone commentators with whom they overlap and intermingle incestuously – to obfuscate what happened and blame Egypt’s first elected government for its own demise, there is very little ambiguity as to what went wrong.

Inexplicably bewildered by predictable Islamist success at the ballot box, secularists rushed back into the waiting arms of the security state. They sought and found authoritarian protection from the electoral success of the Islamists, whose conservative populism successfully mustered feelings of national and religious pride behind a project of economic and socially centrist nation-building.

Secularists held mass protests demanding the removal of President Mohamed Morsi, the Muslim Brotherhood candidate who won the first democratic presidential election in Egypt’s history. In doing so they greatly aided the efforts of the deep state to create a sense of crisis that allowed the armed forces to step in, arrest Morsi and his government, murder their supporters en masse in the streets, shut down all sympathetic media and generally re-assert near-totalitarian control; public, religious and civic institutions were transformed into eviscerated mouthpieces for a mafia-style military government lead by a sociopathic man-child.

Please check out the rest, follow ImportantCool on Twitter and Facebook, and become a patron, which will give you a say in how this new media outlet evolves. There really is a great community forming around this project. Come and see.

Will be making a more long term decision about what to do with this blog later.


[PHOTOS] Egyptians Defy Military Regime And Show Solidarity With Gaza



Despite Abdel Fattah el-Sisi’s close collaboration with the Israeli Occupation Forces and siege of Gaza, Egyptians have staged solidarity actions across the country against Israeli aggression.

The actions have mostly been ignored by both the Egyptian and Western media, with some inside Cairo incitinghatred against Palestinians and political figures declaring “Israel is not the enemy.

[ESP] [FOTOGRAFÍAS] Egipcios desafían al régimen militar y muestran solidaridad con Gaza

A pesar de la estrecha colaboración Abdel Fattah el-Sisi con las Fuerzas Israelíes de Ocupación y asedio de Gaza, los egipcios han organizado acciones de solidaridad en todo el país contra la agresión israelí.
Las acciones en su mayoría han sido ignoradas por ambos, tanto por los medios de comunicación egipcios como los occidentales, con algunos dentro Cairo incitando al odio contra los palestinos y figuras políticas declarando “Israel no es el enemigo.”

[IT] [Foto] Egiziani Sfidano Il…

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Noam Chomsky on Egypt’s Coup

Below is a short email interview I conducted with Noam Chomsky regarding the coup in Egypt.

Q. Are you pleased or upset by the events in Egypt over the last month or so?

 A. Upset

How have these events changed the outlook for Egyptian democracy and the Arab Spring generally?

A setback, in my opinion, though many of the gains remain.

How would you characterise the relationship between the US, Israeli and Egyptian military/intelligence communities?

As far as I know, nothing significant has changed.  The US provides Egypt with substantial military aid, in the hope and expectation of having influence over its actions.  We have no detailed information about intelligence relations but they are doubtless close.  The Israel-Egypt security arrangements seem not to have changed materially.

How would you compare this to the relationship between the Muslim Brotherhood and any allies they have in Washington?

The Obama administration was mildly supportive of the MB government, which maintained the neoliberal programs that the US favors and the existing security arrangements, but the MB does not have close allies in Washington.

Do you see the events as a coup?


What actions specifically, if any, do you think Mohammad Morsi or the brotherhood took which justify the intervention by the military?

There have been “bills of particulars” offered by June 30th supporters, of varying credibility in my opinion. But I’ve seen nothing to justify calling in the military to overthrow the elected government, however flawed the elections or objectionable the post-election policies, and I expect that the faith now often expressed in the benign intentions of the military will prove severely misplaced.


Egypt: A Terrible Old Joke


I have been reminded recently of an awful joke about Egyptians that I cannot help but share.

It’s back in the days of Mubarak, and the US is worried about looking bad funding a dictatorship, so they tell Mubarak he needs to show everyone how tolerant he is of dissent. “But how?” he asks.

“Simple”, the envoy informs him,”just give some ground to a protest movement”.

“But there are no protest movements in Egypt!”, complains Mubarak.

“Well you’ll have to find a way to create one,” says the envoy with the finality of empire.

Mubarak and his aids decide, once the envoy has left, to put a toll on every bridge across the Nile, a pound every time people travel from East to West.  Nothing happens. So they raise the toll to 2 pounds, and charge it going both ways. Still nothing.

“Right,” says Mubarak “enough of this, we’ll put a soldier on every bridge, and as well as paying the toll, you have to get fucked in the arse by him before you can cross. Surely that will get them protesting.”

The next day, sure enough, a crowd forms outside the palace, demanding attention. Mubarak asks for a delegation to be sent in. They arrive, major secular leaders, Azhar Sheikhs and Coptic priests amongst them.

They are ushered in and take their seats before Mubarak’s desk. “Well?” he says,”What’s the problem”

The delegations spokesperson, in this version an established expert on nuclear diplomacy, speaks firmly, with all the conviction of a true Egyptian liberal:

“We demand more soldiers on the bridges. The traffic is moving too slowly.”