Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


An Idea whose Time Has Come Again

The big challenge facing American capitalism today is getting all the people who are not participating in the economy to participate in it. The capitalist system is in the greatest danger when a sizable segment of the population is not benefiting from it.


The most recent data indicates that 23 million American households are receiving food stamps (now euphemistically called the Supplemental Nutrition Assistance Program, or SNAP). That means 23 million American families are not benefiting from the capitalist system; they are not making enough money to buy food. Millions of workers and even middle class people are turning to welfare programs designed for the desperately poor to survive because they have no choice.

This situation has occurred because of the changes our society has gone through over the past 30 years. Despite what politicians are telling us, the cause is not offshoring of jobs to China, a decline in union membership, or illegal immigrants. Instead, it is more fundamental and deeper rooted.

The real cause is the technological revolution of the past 30 years, the growth in the power and scope of information technology, has completely changed the workplace. Large numbers of paper pushing and clerical jobs are now done by computer programs. Much of the work in factories is done by automated machines. Capable corporations like Wal-Mart can leverage this technology to easily dominate entire industries and drive competitors out of business.
This revolution has touched every aspect of our economy except our social services system. That system still operates as it did in the mid twentieth century when it dealt with two kinds of clients. Those clients were:

  • Those incapable of working for a living because of desperate poverty, disease, disability, addiction, or discrimination. Under the traditional social services model, such people were looked upon as children that had to be “cared for” by bureaucrats.


  • Workers that were temporarily unemployed and needed temporary help until they could find a “good job.”

This reality no longer exists because the situation is far more complex. Traditional unemployment insurance was designed to tide a worker over until he could find another job or get rehired at the plant. Today’s poor person is likely to be working on a part-time or temporary basis. He or she has a “job,” but the job does not pay enough to cover all of the bills.


Another reality this system doesn’t address is the self-employed. A larger percentage of Americans is working on a freelance basis. A person in that situation might make $3,000 one month and $100 the next. Anybody who’s done it knows that a freelancer can have several lean months of little or no work through no fault of her own. Yet such a person cannot qualify for unemployment insurance because she doesn’t have a “job” even though she works and pays taxes.

An Intriguing Solution

There is an old idea that was widely discussed in the 1960s and 1970s that would reform the social services system to deal with this contingency. It’s called a guaranteed income scheme, and under such an arrangement, the government simply gives a lump sum of cash (or in today’s world, an electronic payment) to individuals if their income falls below a certain level. The idea is being raised again, particularly at TED conferences.

Those that would dismiss such an idea as socialism should know it was promoted by Milton Friedman and Frederich Hayek, the men who laid the philosophical basis for modern free market capitalism. Friedman and Hayek saw correctly that the capitalist system, no matter how successful, would never meet everybody’s needs all the time. The two great economists were proposing an alternative to the socialist welfare state and its massive bureaucracies—an alternative that we need to take a look at again.

Two Presidents, Jimmy Carter and Richard Nixon, actually proposed such a program to Congress, but it was rejected. Other famous people, including the Reverend Martin Luther King Jr., backed the basic idea. Yet the idea vanished largely because of successful opposition from the social services bureaucracy, which saw it as a threat to its existence.

Today of course next generation payment solutions such as PayPal, Venmo and Apple Pay would make it easier to distribute founds directly to the poor without much bureaucracy or expense. Since most poor people have smartphones they could simply use payment apps to get the money that they need and spend it.

Such a program would be a better solution than our current social services boondoggle because it would be simple to set up and to automate. All we’d have to do is set up a program that automatically deposited a specific amount of money in the bank accounts or digital wallets of those whose income fell below a certain level.

One way to do it would be Milton Friedman’s negative income tax proposal. Under that scheme, the amount paid out would increase as an individual’s income fell and decrease as it rose. We already have something similar with the earned income credit.

We could begin with a basic payment of $1,000 a month per individual. A person that made $15,000 a year or less would receive the full $1,000. Somebody that made $20,000 a year would receive $500 a month. Somebody that made $25,000 a year would receive $250, and a person that made $30,000 a year would receive nothing. It could be adjusted for those that have children.

Instead of evaluation by social services bureaucrats, the income payments could be based on your tax return. All poor people would have to do to sign up is file a tax return; since there are tax preparers in almost every strip mall in America, they should have no problem finding somebody to help them sign up.


Middle class people that wanted to sign up could simply go to a website and fill out a form. No stigma and no time wasted sitting around in the social services building waiting to tell a social worker that you’re broke and need help.

Yes this idea is radical, but a radical solution is needed. Millions of Americans are hurting because the system isn’t working for them. We need to fix the system now and not keep shoveling money into a system that doesn’t take modern realities into account.

We’re going to have to move to a guaranteed income scheme because technological change is not going to stop. More people than ever are going to be unemployed or underemployed in the near future. We’re going to have to do something for them or find ourselves living in something like a third world country.