Thursday, November 14, 2013

Basic Income

I saw an interesting post today on Facebook talking about a new method to jumpstart small poor economies. After watching the video of the people in India and thinking of how government spending is done today having some direct-to-citizen cash transfers makes sense to me.

The US government spends hundreds of billions of dollars on recipients, many of them extremely wealthy companies.

Seeing what is being done right now in Madhya Pradesh is stunning seeing how giving people these small gifts (100 Rials is just over $3.00 USD) turning their lives around. Not everyone is so wise, but given the amount of economic value added to these people's lives and the amount of change it makes for them, it makes sense for the government to do small things to help people become financially independent. When people are able to work to their full capacity we have a greater economy. When the average consumer increases his/her income there is a larger demand for normal goods which incentivizes producers of these goods to increase their demand. In economics there is a concept called marginal utility. As someone buys more and more of a good there comes a point where the value added decreases. When we spend hundreds of billions of dollars on (primarily) military contracts for these large companies it makes a very small impact on the economy because the people who own the majority of these companies have everything they want and have no incentive to buy more goods when their income increases. If I already can afford all the electronics, books, vehicles, and trips I want in a year, increasing my income is not going to make a significant difference to my quality of living or spending, so I will put it in stocks.

Investment is important, but businesses need both investment and demand. If no one else is able to purchase goods the investment is worthless. If businesses don't see demand for their services rise they will not grow. Businesses have to pay back the money that is invested in them at a future date (sometimes specified in bonds, sometimes not in terms of stocks). The money that they make from income is theirs after expenses. As a small business owner, I would prefer customers over investment after I meet my expenses.

A better solution would be what the Basic Income people are proposing and seeing the impacts it makes to people in India. Instead of passing out food stamps and assistance that is dedicated to some things it would be better to just give them cash, which is actually what Milton Friedman argued for and why we have an alternative minimum tax. If the federal government gave small businesses grants and state governments ensured that licenses are processed in a timely and efficient manner, our economy will be much better off. If you take someone who was making $20,000 a year and double their income you will find that their consumer spending will change in a far more significant way than someone who is making $20,000,000 a year. A $10,000 grant to someone working minimum wage who wants to start a business makes a huge difference to someone , while it would take a hundred times that to make the same proportional difference to someone making 1000 times that, which means it is a far less expensive method to boost our GDP. If we provided free education to every American (as I have posted in other blog posts) and we had 10,000,000 students, it would cost roughly $20,000,000,000. Lockheed Martin alone received $31,000,000,000 last fiscal year, excluding the other big fish of Boeing, Lockheed Martin, Raytheon, GD, etc. People who say we can't afford this just haven't seen the facts.

The government already gives small business loans, we should shift these to be grants which will be an even bigger stimulus to our economy.

As a sidenote, I personally suspect that the amount of money the government grants to these companies is caused by the enormous sum of money they pay to politician's campaigns, which is why I still want to have Occupy's goal of publically funded campaigns. These companies need to diversify away from military, there are many other things they are manufacturing because it is just too expensive to support such a complex.

The European Proposal:

American spending by recipient:

Major campaign donaters:

President Eisenhower:

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