Market Mad House

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

My Thoughts

Can Basic Income save Capitalism from Itself?

Followers of my writing might wonder why somebody who loves to write about stocks and the market is advocating basic income; which sounds like a socialist concept to many. The answer is simple I love capitalism and I want to see it survive.

Capitalism is the greatest wealth-generation mechanism ever created but it is deeply flawed. The great flaw in capitalist economies is that they cannot distribute wealth evenly or equally.

America’s high-tech market economy is a perfect example of capitalism’s flaws. It has produced the world’s richest man Amazon (NASDAQ: AMZN) founder and CEO Jeff Bezos who was worth an estimated $141.9 billion on 19 June 2018. Yet 40% of American adults would be unable to come up with an extra $400 in cash to meet an emergency expense, according to the US Federal Reserve’s Report on the Economic Well-Being of American Households in 2017.

Such flagrant income inequality should disgust and frighten us. Persons unable to pay their bills who hear about Bezos’ fortune will be perfect targets for anti-capitalist demagogues of the right and left. They will listen to every crank, fanatic, crackpot, and intellectual who screams that “capitalism is evil and must be destroyed.”

The problem in our society is that the benefits of capitalism are not widely distributed. Tens of millions of Americans have little or no stake in our capitalist economy, and no reason to defend capitalism or expand it. Those people may not join the mob that is lynching the rich and looting their mansions, but they will not lift a finger to stop the reign of terror.

Hardwired to Hoard

This situation occurred because of human nature, people are hardwired to horde anything that is essential to survival. For most of human history, food was in short supply. Persons who learned to horde food, and keep it for themselves and their families, were more likely to survive, have children, and pass on their genes.

When money appeared, and became critical to survival and success, those people started hording money. That gave those people another edge when capitalism evolved – they were more likely to have capital.

The hoarding instinct, as anybody who has ever watched Extreme Hoarders knows, is powerful and destructive. Our society is unequal because human nature dictates that those in charge of the system will rig it to capture and hoard as much of the wealth as possible for themselves.

This is why wealthy socialists; like windbag and filmmaker Michael Moore, behave just like the capitalists they profess to hate. Over the years, Moore has been accused of hiring cheaper nonunion workers; underpaying workers, not paying workers health insurance, and outsourcing labor to Canada.

Income Inequality not Capitalism is problem, Basic Income is the answer

The hoarding instinct explains why countries like the United States and the People’s Republic of China are suffering from horrendous income inequality in the midst of the greatest economic boom in human history.

The system is set up to maximize wealth creation, not to redistribute it. New mechanisms for redistributing the wealth to as many people as possible are needed.

Basic income would be among the best of those methods because it would redistribute vast amounts of money to large numbers of people quickly. More importantly, modern technology would allow a basic income to be distributed to almost everybody without the creation of a massive and expensive bureaucracy.

History teaches us that bureaucratic systems designed to redistribute wealth; such as Communism, socialism, and the welfare state; will ultimately will fail. One reason why such systems fail is that leaders will direct the wealth to the groups that will give them the most political benefit.

In democracies, like the United States, almost all the welfare benefits go to those most likely to vote; such as senior citizens, rural whites, veterans, and union members. This is why you see senior citizens driving new cars to the Social Security office, while poor twentysomethings are standing in line at the food bank.

In authoritarian states like China the benefits go those needed to keep the government in power such as the military, entrepreneurs, and party members. This is why one sees poor people sleeping on the street in China, while party members and generals are driving around in Rolls Royces.

The politicization of benefits is why merely increasing taxes does not end income inequality as many Democrats seem to believe. The tax money simply gets shifted around from one influential group to another.

Technology can create an Automatic Basic Income now

A basic income can be paid to everybody that meets a certain criteria, much as Social Security is in the United States. An example of this would be everybody that makes less than the average income in the United States (around $58,000 a year) or 200% of the basic income ($116,000 a year).

We now have the technology to automatically capture wealth and redistribute it as it is created. Basic-income blockchain platforms like Swift Demand and Horizon.Ngo are designed to automatically distribute cryptocurrencies as they are created.

A future solution might be an artificial intelligence that automatically collects a tax on stock or bond sales, factory production by robots, retail sales, investments, bond interest, lending, cryptocurrency mining, oil or mining royalties, ecommerce transactions, digital advertising sales, digital content creation, and data collection efforts as they occur. The funds collected would be automatically distributed to basic income recipients or invested in a sovereign wealth fund to finance future basic income payments.

Basic Income can save Capitalism

Such a system can help preserve capitalism by giving everybody an incentive to keep it going. If everybody is profiting from capitalism everybody will defend it.

The last century saw the collapse of states; like the Soviet Union, Czarist Russia, the British Raj in India, and the Ottoman Empire, that benefited tiny elites. Those empires fell because most of the people under them received no benefits from the system. In the worst cases the government actually stole what little people had to finance the luxuries of the rich which led to revolution.

The current capitalist system in several countries including the United States, the United Kingdom, China, and Russia is getting dangerously close to that paradigm. Politicians talking about radical wealth redistribution are already gaining ground.

A typical example of such politicos is U.S. Senator Cory Booker (D-New Jersey) a Democratic superstar and potential presidential candidate. Booker is now promoting a jobs guarantee, a bureaucratic system that would give every unemployed American a high-paying “no-brain, no-work government job with health insurance.”

The historical reality that such a system failed in Argentina, the Communist countries, and a number of European welfare states does not seem to bother Booker. All he sees is the votes he can buy with the guarantee. All those who vote for Booker will see is the government paycheck for doing nothing.

The guarantee would be financed by high taxes on the rich, which helps politicians like Booker by giving the wealthy more reason to contribute to their campaigns. The rich would write checks to Booker and his friends in Congress to get tax breaks to protect their money from the income tax.

A basic income would stop politicians like Booker, by giving average people a secure source of income that does not depend on a “job.” It would eliminate the massive welfare state, the dependence on jobs, and the fear and insecurity such institutions produce.

I support basic income because it seems like the best means of eliminating the economic insecurity that is undermining our democracy and threatening capitalism’s survival. There is simply no way that capitalism can survive without an effective mechanism for wealth redistribution. Basic income might be that mechanism.