Managing the magical money tree?

(A copy of the latest London Futurists newsletter.)

“The problem with socialism is that you eventually run out of other people’s money.”

Any advocate of greater public funding for the welfare state has to be ready with an answer to the above remark, which is based on a TV interview Margaret Thatcher gave in 1976, three years before she became the UK’s Prime Minister.

Where will the money come from, to finance extended furlough schemes for people unable to work due to Covid lockdowns? What about the costs of Personal Protective Equipment, of mass vaccinations, of subsidies to airlines and other industries, of reduced government income from council taxes, and so on? Is there a risk of the entire country becoming bankrupt as a result? Never mind socialism, will even the current Conservative government “run out of other people’s money”?

Ahead of our London Futurists event tomorrow afternoon – held in partnership with Radix – let me briefly offer a few comments.

As a reminder, the speaker will be Geoff Crocker. As well as being the newest fellow of Radix, Geoff is a technology strategist, author, and advocate for both basic income and sovereign money. Geoff is the lead editor of the website “The Case for Basic Income” and also runs The Basic Income Conversation. The topic at tomorrow’s event is “Sovereign Money Creation and Basic Income”.

Alongside the many sad consequences of Covid, a new opportunity has arisen, which is a greater willingness to examine radical ideas for how society should operate.

Almost no-one says they want society, post-Covid, to go back to exactly how it was before the pandemic. Our collective responses to the pandemic and the associated lockdowns have started to open minds about different possibilities:

• People spending less time commuting, and/or working in offices in city centres
• More business – and also some pleasure – being conducted online
• People spending less than before on many types of goods and services, and thinking that, perhaps, they don’t actually need so much of these things as before
• Automation being brought in more quickly, to allow more work tasks to be completed without direct human involvement.

Together, lockdown and accelerating automation are raising the possibility that people won’t be able to earn income in the same way as before. Especially when people were working in what anthropologist David Graeber (RIP) memorably called “Bullshit jobs”, they’re in no great hurry to pick up where they had left off.

But if people aren’t earning salaries in the same way as before, how will they receive money in order to have a good basic quality of life? This question arises for people who are under-employed as well as those who are un-employed.

This line of thinking is but one of many reasons why more attention has recently been given to the idea of Basic Income – in which a certain level of payment is provided to everyone in society, unconditional upon their work status or other personal circumstances.

Again the question: how would such a scheme be funded?

Historically, suggestions have included tax-neutral schemes, special wealth taxes, new taxes on particular transactions (like high-speed financial transactions, or the emissions of greenhouse gases), taxes on robots, clamping down on tax evasion, and so on. Expect all such suggestions to be raised in tomorrow’s event. But expect, also, to hear about the idea of “sovereign money creation”. That’s the idea that sovereign states, such as the UK, can from time to time selectively issue additional money, without needing to worry about the concept of “balancing the budget”.

In this analysis, Margaret Thatcher was wrong to say that any money spent by governments had to come from “other people” via mechanisms such as tax or borrowing. Instead, with care, new money can be created, by fiat.

This proposal is sometimes criticised as imagining the existence of a “magic money tree”. It’s bound to lead to grief in the end, critics say. After all, look at Venezuela, Zimbabwe, and the German interwar Weimar Republic. They all printed lots of their own money, and ruined their economies via the resulting hyperinflation. Right?

My answer: it’s more complicated. Governments do, after all, create additional money from time to time, increasing the national debt, without any obvious adverse effects, beyond the psychological dread of seeing the debt reach large numbers.

So what’s going on? Can the “magical money tree” be managed, wisely, for good results? Can it be used to help fund a meaningful basic income? How does this possibility change our options for financial social support projects in the wake of Covid?

Click on this link to RSVP for tomorrow’s event.

And don’t forget to follow the links from there to the Zoom webinar registration page.

On a tangential note: which country do you think might become the first in the world to introduce a regular, nationwide unconditional basic income (UBI) payment?

Depending on the results of their 2022 presidential elections, it could be South Korea, if the present governor of Gyeonggi Province, Lee Jae-myung, wins that election.

Gyeonggi Province is the area around the nation’s capital city, Seoul, but excludes Seoul itself and the nearby Inchon. It contains major manufacturing plants for leading companies like Samsung and Hyundai. As the following six minutes video explains, Lee Jae-myung has championed a UBI scheme throughout that province. It initially involved just people in a particular age-range, but was extended in response to the economic disruption of Covid:

The scheme has some unusual features:

• The cash is restricted to be spent in local businesses, so that the local economy is boosted
• The cash needs to be fully spent each month, rather than accumulating in a bank account
• The way the cash is being spent is being monitored, and the rules of the scheme are adjusted in response, to increase the overall social benefits resulting.

To be clear, the amount of money paid to people every month in this trial isn’t enough for them to live on. For that reason, while this trial provides some useful information, it doesn’t yet answer questions about the viability of larger scale UBI schemes.

But these larger schemes may well come into existence as early as 2022, especially if Lee Jae-myung maintains his current apparent front-runner position in polling for which candidate should become the South Korean president that year.

Is it worth anticipating, in advance, what the upsides and downsides of such schemes are likely to be? Absolutely. That’s the kind of questions that London Futurists is designed to answer.

If you do join our event on Zoom tomorrow, you’ll have the chance to participate in the Q&A (text) window, providing your own questions, and voting on which other questions you’d most like the speaker to address.

// David W. Wood - Chair, London Futurists