Outside the Box

The people that get paid just to breathe

Once in a while you hear about a really radical idea. It may not be new. You may not even like the sound of it at first glance. But perhaps it hasn’t been seriously tried before and is worth a go. The Finnish government is starting an experiment to give all adults free money each month, just so long as they are still breathing. No one knows yet whether it’s a good idea.

The Finnish government wants to see whether giving all adults around 800 euros (US$868 dollars) each month is a good idea. That works out at 9,600 euros a year (US$10,413). To put it into perspective that’s 24% of the average income in Finland, according to Statistics Finland.

They’ll start with a small scale experiment, and depending on the results will roll it out to the whole country in a year or two, or not. But given that around 70% of Finns are in favour it seems likely to go ahead.

The concept of doling out money to everyone is known as “universal basic income”. Under this model all adults receive the same amount of money from the government. It doesn’t matter if they’re employed or unemployed. It doesn’t matter how much their earn or own. Rich or poor, young or old, everyone gets a fixed amount of money.

No conditions. Just money for existing within a set of political borders.

No questions asked. No tax deductions. No conditions. Just money for existing within a set of political borders.

If the Finnish paid 800 euro a month to their 4.3 million adult population then it would amount to an annual bill of 41 billion euros. That’s about a third of current government spending.

Obviously if that was piled on top of current welfare payments it wouldn’t be possible. Currently the Finnish government already spends about 45% of its budget on what it calls social protection. A lot of that is the cost of pensions, plus all the other welfare payments.

Finding the money is a question of cancelling many of the old and complex welfare payments, closing down obsolete government departments, tweaking taxes on the wealthy to recoup the money spent on them, cutting out costs of bureaucracy, and above all remembering that it must be kept simple. This is a management and implementation problem, no more, no less.

However, saying something is possible isn’t the same as saying it’s desirable. If it means vast numbers of new people loaf about at home instead of finding a job then it will be a failure. But on that basis current welfare systems are already failing. It’s worth trying something new. Only time will tell if it’s an improvement.

My initial knee jerk reaction to the universal basic income idea was to dismiss it. Isn’t it just rank political populism of the worst kind? But more thought and research has left me with an open mind, for now at least.

The main idea is to ensure a low basic income for everyone. This is most definitely not a ticket to a life of luxury. Most countries already subsidise the less well off in one form or another, but they use complex and convoluted systems.

So the most appealing aspect is to cut out complexity. Simplicity is always a worthy goal in its own right. That’s especially true if it cuts the bureaucracy that governments impose on their people.

If a vastly simpler tax code is desirable (and it always is), then why not a vastly simpler welfare system too? Anything that lightens the dead hand of government that constantly presses down on our shoulders can only be good for quality of life, and probably for productivity too.

The idea of a universal basic income, or similar, isn’t new. Thomas More (1478-1535) published a book called Utopia in 1516. It discussed giving everyone a “means of livelihood” to feed themselves, the aim being to cut theft and murder rates.

There have been many notable proponents of variations on the theme across the centuries. These include Thomas Paine, John Stuart Mill, Bertrand Russell, James Meade, and Milton Friedman. (You can read more about the history here.)

It’s easy to assume that this is a purely socialist concept, or even a communist conspiracy.

It’s easy to assume that this is a purely socialist concept, or even a communist conspiracy. But these days it finds support from people across the political spectrum.

Those on the “left” are never shy about handing out money. But at the same time those on the “right” like the idea of reducing government bureaucracy. Some of those concerned about rapid and expanding automation think handouts will be necessary as hundreds of millions of workers are permanently displaced.

Of course there are some people that think no one should get any kind of welfare payments, and everyone should be left to their own fate. But they are few and far between these days.

For centuries, subsidies have been passed from the haves to the have nots – either privately or via the state, and on both small and grand scales. Nowadays the process is mostly large scale and state organised.

People argue about whether the amounts are to too little or too much, and that’s not going to change. But the process happens in practically every country in one form or another.

The charitable interpretation is that humans care about each other, and don’t want anyone to starve. A more cynical view is that it’s about enslaving most of the population by making them reliant on government.

A purely selfish viewpoint is that no one wants to be robbed by hungry mobs when they set foot on the street, or murdered in their beds. Least of all the wealthy, which is why they pay for most of the subsidies via taxation. A capitalist perspective is the need for an educated, healthy and well fed workforce to keep the cogs of commerce turning.

The true motives are probably a little bit of all of these things, and more. So let’s just accept that welfare payments and other subsidies happen, for whatever reasons. They’re a fact of life. Unfortunately they’re administered by vast government bureaucracies.

There’s one thing that’s universal about bureaucracies, whether of the public or private varieties. If they’re left to their own devices they will seek out complexity with new programmes and policies. Complexity means self preservation to the bureaucrat. Bureaucrats are nothing if not empire builders.

Most welfare systems have evolved over decades to become complex. Often they are dysfunctional as well.

Most welfare systems have evolved over decades to become complex. Often they are dysfunctional as well. Many people end up with less money if they try to work more, as benefits and tax breaks are cut off.

Any radical attempt to cut through this morass looks like it’s worth a try. The universal basic income is about replacing most or all direct cash payments. (That’s as opposed to public services like state health care and education, although potentially they could be included as well.)

People get cash disbursements for being unemployed, for housing, how many children they have, state pensions, disability payments and so on. If many of these cash subsidies can be reduced into just one payment then surely that would be a good thing. Simplicity is good.

The gains from such a change could be substantial. First of all a lot of government departments could be shut down. Government workers would be released into the productive private sector, where they can create wealth instead of spending someone else’s.

At the same time those on the other side of the desk would have less form filling to do. They’d spend less time queuing in the government offices where they make their claims.

At the very least quality of life would improve. Perhaps economic productivity would go up as well. Those that want to work would have more time to look for it, and to engage in it once found – especially part time workers.

Also it has the potential to unleash a wave of creativity and entrepreneurial activity. Imagine if all young people get just enough from the government that they don’t have to worry about putting food on the table or renting a room. They could supplement that with a bit of part time work to make life comfortable. That would leave them free to use the rest of their time to work on their new business dream.

But that still leaves the question of the already affluent and the rich. Why should they get the same as everybody else when they don’t need it? Well, in reality they probably wouldn’t. But in the interests of having a simple system it’s worth preserving the illusion that they would.

The money paid to the better off could easily be recouped with simple changes to the income tax code. Either lower top rate tax bands or slightly higher tax rates for high earners would do the job. Easy.

It’s great that a whole country finally has the guts to give this centuries old idea a try (there have been small scale attempts before). I’m not saying it’s definitely a good idea. But it will certainly be interesting to see what happens, and whether it catches on elsewhere. Either way, the economic and investment implications could be substantial.

What do you think? Is free money for everyone a good or bad idea? As always, I’d be interested in hearing your views.

Stay tuned OfWealthers,

Rob Marstrand

robmarstrand@ofwealth.com

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Rob is the founder of OfWealth, a service that aims to explain to private investors, in simple terms, how to maximise their investment success in world markets. Before that he spent 15 years working for investment bank UBS, the world’s largest wealth manager and stock trader with headquarters in Switzerland. During that time he was based in London, Zurich and Hong Kong and worked in many countries, especially throughout Asia. After that he was Chief Investment Strategist for the Bonner & Partners Family Office for four years, a project set up by Agora founder Bill Bonner that focuses on successful inter-generational wealth transfer and long term investment. Rob has lived in Buenos Aires, Argentina for the past eight years, which is the perfect place to learn about financial crises.