Is a Citizens Income affordable?

Basic Income and Sovereign Money Seminar. Monday 10th August, 1830. Free online event. Watch the recording of this event.

Basic Income Conversation is organising a series of seminars convened by Professor Nick Pearce, director of the Institute for Policy Research at the University of Bath, where Nick leads a project on The Economics of Basic Income.

In this seminar economists Frances Coppola and Emma Dawnay join me to open a discussion on how sovereign money can fund a Citizens Income.

A Basic Income, or Citizen’s Basic Income, is a regular payment made to all qualifying citizens without means testing or work requirements. For a cash transfer to be termed Basic Income it should be:

  • Unconditional: It would vary with age, but there would be no other conditions: so everyone of the same age would receive the same Basic Income, whatever their gender, employment status, family structure, contribution to society, housing costs, or anything else.
  • Automatic: Someone’s Citizen’s Basic Income would be paid weekly or monthly, automatically.
  • Nonwithdrawable: Citizen’s Basic Incomes would not be means-tested. If someone’s earnings or wealth increased, then their Citizen’s Basic Income would not change.
  • Individual: Citizen’s Basic Incomes would be paid on an individual basis, and not on the basis of a couple or household.
  • As a right of citizenship: Everybody legally resident in the UK would receive a Citizen’s Basic Income, subject to a minimum period of legal residency in the UK, and continuing residency for most of the year.

Basic Income often faces the challenge of its affordability. Specifically, it is claimed that the amount of Basic Income proposed is either too low to be meaningful, or too high to be affordable. Basic Income advocates have therefore designed schemes to have a revenue neutral effect by a mixture of increasing tax and reducing other welfare expenditure. These schemes have to calculate winners and losers, often to a marginal net effect. Others have proposed extra funding for basic income by introducing new wealth taxes and eco-taxes. These schemes all work within the rules of current financial orthodoxy, i.e. that government deficits and cumulating national debt should be avoided.

At the same time, new developments in monetary theory challenge this orthodoxy. According to the advocates of ‘Modern Monetary Theory’, sovereign governments can issue money directly, without worrying about whether the associated government expenditure creates deficit. MMT thinking is well expounded by Randall Wray in ‘Modern Money Theory’ (Palgrave 2015) and by Stephanie Kelton in ‘The Deficit Myth’ (John Murray 2020). According to MMT, government deficits are no problem because they are balanced by other surpluses in the rest of the economy.

MMT advocates do not necessarily support Basic Income proposals, usually proposing to direct sovereign money to Job Guarantee schemes, a Green New Deal, and in the US to universal Medicare provision. So, it’s interesting to ask whether in fact Basic Income and some version of MMT fit together. This is the question I explore in my recent book ‘Basic Income and Sovereign Money – the alternative to economic crisis and austerity policy’ (Palgrave 2020), reviewed in the FT among Martin Wolf’s summer reading recommendations.

I define sovereign money slightly differently to the MMT school. I claim that governments can issue money without the sale of government bonds, and therefore without adding to the national debt which is expensive to service, and is ultimately non-repayable. In this model, technology drives productivity to a point where the economy needs Basic Income as part of consumer income and aggregate demand, and also needs sovereign money to avoid deficit and the austerity which goes with it.

Emma Dawnay developed an interest in sovereign money during her time working at the New Economics Foundation. Emma became a board member and international spokesperson of Monetäre Modernisierung which promoted the Swiss national referendum on sovereign money. She is an active member of the UK Green Party which has adopted sovereign money as policy.

Frances Coppola is the author of the Coppola Comment finance and economics blog, which is a regular feature on the Financial Times’ Alphaville blog and has been cited in The Economist, the Wall Street Journal, The New York Times and The Guardian. Frances is also Associate Editor at the online magazine Pieria and a frequent commentator on financial matters for the BBC.

Footnotes