Basic income


Prompted by a tweet on Y-combinator’s study on a basic income, I started pondering the notion of a basic income again. This has been on my mind lately since it seems like a cool idea and a pragmatic way to cut cost and boost the economy at the same time. One of the reasons this is on my mind is because I’m actively working to automate some of the more soulcrushing jobs many people currently have. If we take that away from people, what will happen to society?

The notion of a basic income has been floating around for a while. It sounds like a wild idea but actually makes total sense if you reflect on it a bit. If you accept the premise that we don’t let people starve, freeze to death, or die of treatable diseases, the leap to a basic income is not that much of a leap because we are effectively already providing it to most in the form of food, shelter and healthcare. Even the ones that receive nothing are generally not starving, can find shelter, and are typically able to get some amount of healthcare. We all pay for that through taxes, charity, insurances, etc. It’s just that we have a lot of hassle, begging, bureaucracy and stigma associated with depending on that. The idea of basic income is simply acknowledging the reality that the cost is there already and that a system that takes that as a starting point can be cheaper and more fair.

So, I did a bid of googling and stumbled on a baffling statistic provided by the Dutch government that totally backs up my hunch that this kind of thing might actually work:

Het totaal van de Nederlandse uitgaven aan sociale bescherming tegen ziekte, ouderdom en werkloosheid komt neer op 190 miljard euro in 2012 (het meest recente jaar waarover cijfers bekend zijn). Dat is ruim 11.200 euro per inwoner.

For you non dutch speakers:

The total of dutch expenses for social protection against sickness, getting old, and unemployment amounts to 190 billion euro in 2012 (the most recent year for which figures are known). That’s over 11200 euro per inhabitant.

That includes unemployment benefits, the state pension, healthcare cost, benefits for people that are not able to work due to sickness, and social welfare for pretty much anyone else unable, unwilling, or too old to work. In other words, the Dutch government spends an amount on helping a few million people in the Dutch society that per inhabitant actually amounts to a fairly decent basic income. Aside from a few homeless people, basically everyone is covered by this system already. People starving to death is essentially unheard off in the Netherlands (other than by choice).

I checked the math. 17M * 11200 is indeed 190 billion euro (NL has about 17M inhabitants). Where does all that money go? It’s obviously mostly not going to the people it was supposed to support. The word ‘overhead’ does not begin to describe how inefficient this sounds. Last time I checked state pensions and social wellfare was much less than 11200/year and unemployment benefits are in any case time capped and also have a hard upper limit. What am I missing here? 933 euro/month is a very decent income and would be a considerable upgrade for most.

I’d say cut that by one third, call it a basic income and lay off whatever bureaucrats we currently have overseeing the giving out of far less to some of our citizens. 620/month is still pretty good and the layed off bureaucrats would of course be covered by this as well. Maybe they could do something more productive/worthwhile that actually contributes to the economy instead of just moving pennies around in some government office.

While we are at we can abandon minimum wages (because basic income) and cut all corporate salary expenses by about 620 netto + whatever benefits else are being paid by the employer (typically about 2x the netto income). Think about that for a second, even the lowest paying job in the Netherlands sets the employer back by more than double what goes to the employed person and layoffs are still hard in the Netherlands so you are stuck with them forever. I bet a lot of corporations wouldn’t mind paying a little more tax on profits in exchange for decimating labor cost and more flexibility around hiring and firing. If we keep the tax free income limit that exists today you can double your income with a job that pays about 4 euro an hour, 40 hours/week before you even start paying taxes. I bet there is a lot of work that doesn’t get done today because it is not worth paying minimum wage that could suddenly become an attractive way for people to boost their incomes a little. Also, why cap this at age 67?

That could do wonderful things for employment and industry in NL. My guess is most people wouldn’t quit their jobs or stop being active. However, they would become more critical about the type of work they do (less of the soul crushing variety, I imagine). Self employment becomes a no brainer in this new type of economy and a perfectly safe economic choice instead of a huge financial risk. Also people currently doing worthwhile things for ‘free’ would now suddenly enjoy an income as well. I’m talking about volunteer work, parenting, taking care of the elderly, art, etc. Most of these people are currently dependent on welfare or some form of economic relationship with e.g. a ‘cost winner’, ‘sugar daddy’, or worse.

Total cost for this would be 130bn/year in the Netherlands. That’s literally everyone with the Dutch nationality. With A GDP close to 700bn that sounds doable. I’d say the same if it was double the cost but it seems 11,200x0.66x17,000,000 really is 125,664,000,000. Some more statistics on revenue. This document suggests a few interesting things: we pay more in social insurance 96M than we pay for income and profit tax combined. Also, VAT is about the same as both of those taxes combined (around 70bn). Apparently most of the revenue funds the 190M we are spending on social welfare. So we conveniently just wiped out about 1/3rd of that expense while simultaneously raising lower incomes (i.e. more VAT income) while cutting labor cost and increasing corporate profits (more profit tax). This is where my back of the envelope calculations have to stop but you can see where I’m going with this: this seems more than merely doable; it’s actually a net gain for everyone.

Am I being naive or are we just paying an insanely huge price for the illusion of a fair system today? If I look at my own situation, I’m pretty sure that health would be the only reason for me to retire from active life permanently. Though I could imagine taking a sabbatical and relaxing a bit more once in a while.