Benoit Hamon probably won’t be the next President of France, but as the French socialist party’s nomination for that role, he surely has some kind of chance, however remote. But whether he is elected or not, his big policy idea: universal basic income, may come into force – eventually.Frankly, Mr Hamon’s plan may well make sense in 15 years’ time. But probably not in the year 2017.
He wants to introduce basic pay for French citizens of 750 euros a month. There is more than one snag with the idea, perhaps the biggest is the cost. It has been estimated that the cost to the French taxpayer of such a scheme would be 480 billion euros – 22 per cent of French GDP.
Others don’t like the idea of paying people for doing nothing because they fear that they will do, err, nothing.
The first critique makes sense, the second less so.
The cost argument is simple enough. It’s a bit of a Homer Simson ‘doh’ argument. Lets’ say that you want to pay every citizen in your country a basic income equal to 25 per cent of mean income. And let’s say that half of the population work. Average income tax would have to be 50 per cent, just to pay for it. Doh.
You can play around with the assumptions, but whichever way you look at it, for universal basic income to be at a level that makes a difference to people, it would be expensive.
It may make sense, however, if you can show that universal basic income increases the size of the economy. Maybe, in 15 years or so time, it could indeed have this effect – more of that in a moment.
As for saying that universal basic income will make people want to stay at home and do nothing, well if you really want to restrict people’s income so that they only get paid for working, you would impose a 100 per cent inheritance tax rate, and tax property ownership so much that there is no financial gain from owning your home when it goes up in value. Truth is, people are motivated to work for lots of reasons, money is just one of them.
The existence of a universal basic income may enable people to focus on doing the kind of work that they enjoy – it may lead to more people wanting to be carers, for example.
It may even enable people to take more risks with their career, and support entrepreneurs during that period when their business is not making any money. In short, universal basic income could be good for entrepreneurialism.
But, it's expensive and that problem won’t go away.
But imagine a near future, say the year 2032, when the pace of technological evolution is so rapid that it destroys jobs faster than it creates them. Imagine that in this year, inequality is much higher than it is today and because the richer you are the more you tend to save, there is a massive savings glut, meaning deflation, ultra-low interest rates and lack of aggregate demand, leading to very low growth in GDP.
In such circumstances, it may make sense to pay a universal basic income and fund it by borrowing from the expected extra GDP that would be created. Or, it could be funded by printing money, which actually, is much the same policy as borrowing, just configured differently.
Universal basic income may not be practical today, but don’t bet against in, say, one and half decades from now.