Opinion

Quantitative Easing funding for a Citizen’s Income?

By Citizens Basic Income Trust 29th August 2014

On the 24th August Larry Elliott, while discussing the Eurozone crisis, wrote this in the Guardian:

In the US magazine Foreign Affairs, Blyth and Lonergan write that instead of pursuing policies that ramp up asset prices and make the financial system less stable, central banks should write a cheque to every household – or, if they wanted to tackle growing inequality, just to the poorest 80% of households.Unlike the banks, consumers, especially the hardest pressed ones, would spend rather than hoard.The ECB, in other words, could learn from the QE programmes in the US and the UK and become the guinea pig for what Milton Friedman called helicopter drops of money. Higher interest rates could be used to counter any inflationary pressure, Blyth and Lonergan say.
Using QE to fund a Citizen’s Income is a mechanism discussed on p.1 of Money for Everyone: Why we need a Citizen’s Income. It’s a good idea. The difference between the mechanism discussed in the Guardian article and that discussed in Money for Everyone is that Blyth and Lonergan’s suggestion is for a one-off cheque, whereas the Money for Everyone suggestion is for a weekly income for every individual. There is a considerable difference between these two approaches. Experience of the Alaska Permanent Fund Dividend, which pays an annual dividend to every citizen of Alaska, is that because it is paid just once a year citizens regard it as a windfall rather than as a contribution to the household’s weekly budget. A weekly income would contribute to a household’s subsistence income and would be used for food, clothes, housing costs, etc.

The two different processes result in different expenditure patterns and therefore in different effects on the economy. An increase in a household’s weekly income is likely to translate into higher consumption of basic goods and services and is therefore likely to benefit the local and national economies. An annual windfall is more likely to be spent on imported goods.

We have another suggestion to make in relation to Larry Elliott’s article. To pay the cheque to the poorest 80% poorest households will mean working out which those are. Existing means-testing administrations (for Jobseeker’s Allowance, Income Support, Working Tax Credits, Child Tax Credits, Housing Benefit, Council Tax Benefit, etc.) are unlikely to be able to do that job, so an additional means-testing administration would be required: an unnecessary and onerous burden both for households and for Europe’s national governments. To give an income to every household in Europe would be simpler and therefore cheaper – but we would still need to work out who was living with whom. Even simpler, and therefore even cheaper, would be to give a cheque to every individual in Europe: and once the process existsed, it will be just as easy to pay a weekly income as to pay a one-off or annual one.

A Europe-wide Citizen’s Income would be of substantial benefit to European society and to its economy, and to the economy and society of every European nation. It really is worth a try. We look forward to seeing more on this idea.

Footnotes