How I Cracked the Code on Basic Income

This post was revised on Apr 9, 2019

Hi! I’m Alex. Welcome to Project Greshm. My goal is to fix the world’s economy using basic income: a regular income unconditionally paid to every individual person.

Alex Howlett Alex Howlett | Photo by Joe Baz | 2013

I like to understand how things work and I’m at my best when I allow myself to pull on interesting threads. My background is in software development, but for the better part of the past decade I’ve been pulling on threads in economics.

I first discovered the idea of basic income in 2011 when it occurred to me that eliminating copyright and patent laws would eliminate a large number of jobs without actually damaging the productive capacity of the economy. We would still have the resources to produce everything, but people would have less spending money without wages from the lost jobs.

The economy could still sustain the spending. There should therefore be some way to provide people with the money. The simplest way would be through an evenly distributed regular payout. I soon discovered that other people were discussing this idea and they were calling it “basic income.”

The best explanation of basic income I could find was a chapter by Philippe Van Parijs in a book called Redesigning Distribution. Unfortunately, I found most pro-basic income arguments to be neither rigorous nor convincing. Basic income proponents were—and still are—coming at the topic from a moral or social safety net angle. But the most mind-blowing part wasn’t that we should, but that we actually could be handing people this free money.

In the context of abolishing copyrights and patents, some level of basic income clearly had to be possible to replace the lost income from wages. But history is riddled with markets that disappeared because, unlike the intellectual property markets, they hadn’t been protected by regulations. Yet oddly we had never needed a basic income before. Or had we? How had we been getting away with not having one? How had history responded to job elimination?

Another question that initially puzzled me was: What’s an appropriate amount of basic income? We know we can scrape by with a basic income of zero because that’s the level of basic income we have now and the world hasn’t exploded yet. A negative basic income is also known as a “head tax” and we know those are bad. But what’s the optimal level?

I had to get to the bottom of these questions. Part of the problem was that I still couldn’t figure out how to fund the basic income. The numbers just didn’t add up. So, in 2015, I committed myself to studying economics more deeply. And as I learned more, the basic income picture came into focus.

My major insight came in April of 2015. At the time, I wasn’t actively trying to make basic income happen. Deep down, I naïvely assumed that automation would reduce employment and that basic income was therefore inevitable. Instead of fighting for a basic income, I just wanted to understand it better.

Having completed a couple of intro to economics MOOCs, I started reading about Modern Monetary Theory and Post-Keynesianism. Those guys believe some crazy stuff. I don’t agree with all of it, but their views on the national debt and deficit spending caught my attention. In particular, they pointed out that if the Treasury issues too much debt for the market to bear, the Fed buys up the excess. Deficit spending is therefore ultimately equivalent to printing money.

If we separate the two operations of taxing and spending, then, from the perspective of ordinary people, taxation is the destruction of money and government spending is the creation of new money. But does destroying money in one part of the economy somehow make room to create money elsewhere? By attempting to match spending with taxes, we behave as if it does, but why should it? Why should taxation make room for government spending? What does it even mean for the economy to have room for more money?

My aforementioned major insight came after learning that taxes do not ultimately fund government spending: Basic income has nothing to do with taxes. The optimal level of basic income is the amount of money the government can throw at the economy without causing inflation or other problems. As long as the additional consumer spending is matched by a commensurate increase in production, then prices will stay the same. Basic income is about activating productive capacity that would otherwise go unused.

I’d cracked the code on basic income. I was feeling confident. Now all I had to do was sit back and watch my prophecy come true. In the meantime, I wanted to make sure I had basic income down cold. I wanted to have an answer to every possible question.

So I decided to take the Economics of Money and Banking class on Coursera. If you want to be able to speak intelligently about basic income, you have to understand how money works. And if you want to understand money then this is the class to take. Understanding money gave me the tools to discuss basic income with just about anyone.

As I continued to pull on threads, I eventually discovered that basic income is not inevitable. And that’s because automation actually can’t reduce employment after all. In an efficient labor market, maybe it could. But we don’t live in a world with an efficient labor market. Instead, we use economic policy to make up work for people to do as an excuse to pay them. I used to believe that job losses would make basic income an obvious necessity, but I had it backwards. Instead, basic income will finally allow us to eliminate the jobs we should have been eliminating for centuries.

Earlier this year, in an effort to improve the intellectual discourse surrounding basic income, I began hosting a weekly discussion group here in Cambridge, Massachusetts. I even stream the discussions on YouTube. Unsurprisingly, nobody wants to watch 2-hour videos. But there’s important content in there that just isn’t being discussed elsewhere in basic income circles.

Over the coming weeks and months, I’ll be sharing with you some of the most important basic-income-related insights that have emerged from the discussion group and beyond. Enjoy!