The fierce urgency for a guaranteed national income

By Beryl Wajsman on June 30, 2014

“We subsidize trains, we subsidize planes, why not subsidize people?” ~ Daniel Patrick Moynihan

The Basic Income Canada Network organized a conference over the weekend at McGill advocating for a guaranteed national income plan. The conference showed the practical path to getting it done. We need to, and can, do this. 

The broad principles for a Guaranteed Annual Income were first proposed by Daniel Patrick Moynihan, future UN Ambassador and New York Senator, when he served under President Nixon. They  came within a few votes in Congress of getting this done in the early 1970s. A GAI would replace other social security programs such as welfare.

The BICN’s general proposal would see a Canadian GAI of about $20,000 a year. Switzerland is expected to vote in a GAI by referendum this year of $35,000 (in Canadian dollar terms.) There is no more critical item on our social agenda than this. We need to get it done. In less than ten years almost one third of Canadians will be over sixty-five. Public pensions barely come to  $10,000 a year at best, and most people will receive much less. Two-thirds of Canadians have no private pension plans .

The idea has actually been successfully tried here in a four year experiment. The town of Dauphin, Man., was the subject of a government pilot project where residents were provided with a guaranteed minimum income from 1974-1978. The goal of the program, which cost $17 million, was to find out whether providing extra money directly to residents below a certain household income level would make for effective social policy.

The community's overall health improved and hospital rates declined during the period, according to a 2010 study by Evelyn Forget, a professor at the University of Manitoba, thereby generating savings from public budgets in addition to the welfare payments that were replaced.

Former Conservative senator Hugh Segal, who officially resigned from his post this month, argued for years in favour of the idea, saying it would provide more effective services at a reduced cost. Quebec's new minister of employment and social solidarity François Blais published a book in 2002 called "Ending Poverty: A Basic Income for All Canadians.

The reality in Canada is that almost a third of our urban households exist below the poverty line and the next third of working men and women are near “working poor” levels having no more than a few weeks of salary of disposable income. With people living longer, we face a demographic crisis where most of us will end up living in one room trying to survive on hopelessly insufficient government pension cheques that have barely kept pace with inflation since the 1990s. Some two-thirds of Canadians have no private pensions.

The system is broken. Almost a fifth of our tax monies go to fund state engineering and political pork programs that nobody’s vote ever affirmed. Meanwhile, real needs of real people are “benignly” neglected. And their major problem is the high taxes – in Quebec the highest in the west – that go to perpetuate a system that shells out money for votes in multicultural programs and ever-growing bureaucracies administering ever-increasing prohibitionary rule and regulation that expand the powers of politicians over our lives. Even most union economists will tell you that our high taxation is the leading cause of working poverty.

We have now lived through six years of economic stimulus packages sweeping the world in the wake of the 2008 financial collapse that happened because of no other reason than greed.  The money to save the world financial system was necessary, but leaves a major problem unresolved. Indeed, may have contributed to its aggravation. There is still the perpetuation of a false economy that has caused nightmares for tens of millions. We are all still in the thralls of a sea of individual debt upon which our funny-money financial institutions have thrived since the 1980s and have gotten all of us on the wheel. We the people are at fault too  for falling into the trap. But the trap was blessed by our governments.

Through the funny-money years of the eighties and the go-go years of the nineties, the money hustle industry created a new vocabulary. The fictional Gordon Gekko in the movie “Wall Street” was the model. “Greed is good,” Gekko proclaimed. “Greed built America!” The money hustlers put a twist on that. “Debt is good,” they proclaimed. “Never ending growth will pay the bills. Don’t worry. Be happy. Spend.” They lied. Too many bought into the lie.

Home ownership became a “right”. As did the second car, the third vacation, the boat and the country cottage. Mortgages were an “asset”. Borrow as much as you like. Shares were not debts owed to stockholders. They were trinkets to dole out to the public to raise IPO capital just as Peter Minuet used trinkets to buy Manhattan from the Indians. Everything became worthless because everyone knew the price of everything, but none knew the value of anything. The idea of living within one’s means was considered “unfashionable.” Those who did were considered as not understanding the “new economy”.

Debt became a commodity. New games called derivatives were invented . Bet on anything. Any war, any event, even the weather. Well, a Ponzi scheme is a Ponzi scheme whether in the twenties or today, and suddenly everything old was new again. The new “economy” that is.

A bubble built on bad bets, bad debts, and a self-delusion that made Sisyphus pushing the proverbial rock up the mountain look like an iron-headed realist. Okay you might say, but didn’t we have the same scams leading to the crash of 1929 and the depression that followed? And didn’t FDR’s stimulus packages – the national recovery programs – work? The answer to both questions is no.

It is true that the scams and schemes of the twenties blew the lid off the economy and sucked capital out of businesses much as today’s shenanigans did. The critical difference is that in the thirties though money was lost, productive capacity remained. The factories and assembly lines were there. The assets of what is called the “real” economy continued to exist. The United States, Great Britain and even Canada to a point, were the productive nerve centers of the western world. We made stuff! All that was needed was a stimulus – an injection – of capital that had been lost in market speculation to restart the engines. Today is different.

We don’t make most of the stuff anymore. The productive capacity is in China, India and points east. Yes the United States is the largest economy in the world. But again, vocabulary has been perverted. It s size is not measured by what it produces – once called value – but by what it consumes – today called price. In other words, unlike the thirties, there are precious few economic engines to stimulate anymore. As just one case in point, people like Japanese cars more than American.

What we do have, and what these stimulus packages are trying to save, is an economy that creates debt and hopes to keep it going with ever higher fees and interest payments. The hope behind these packages – both infrastructure spending and tax cuts – is that it will enable people to keep paying interest on existing debts by having temporary project jobs and  encouraging them to spend their tax savings on more consumption acquiring more debt still. The prayer the policy makers are chanting is that some new industry will arise – like the internet in the nineties – to save their collective skins before the massive printing of money creates uncontrollable hyper-inflation. Here’s why there is faint hope for that.

The model of FDR’s nineteen thirties reconstruction that governments of the left and right are using to achieve the above did not have within it three malignancies that plague the west today. First, only some 20% of North Americans owned their own homes. Second mortgages were almost unheard of, and first mortgages were given under strict borrowing guidelines with equal equity ratios. There was no such thing as 5% down to buy a home. It wasn’t considered a right. Today’s mortgage debt is so huge that no government can print enough money to cover it. When Fannie Mae and Freddie Mac went under, the debt they had underwritten was conservatively estimated at $5 trillion. That is $1 trillion more than the budget of the United States of America.

Second, credit cards didn’t exist in the thirties. The amount of personal consumer debt in North America is almost on a par with mortgage debt. In Canada alone there is $30,000 of consumer debt for every man, woman and child. Third, the thirties did not have broad-scale sector-wide union agreements in place. Agreements that today leave little wiggle room as workers are rightly furious at seeing the “masters of the universe” enrich themselves beyond the dreams of Croesus.  President Obama rightly labeled as “shameful and outrageous” the news that Wall Street had paid out $18 billion in executive bonuses one year after the first bailout monies were handed out. 

Did this disaster come on suddenly? No. It was about to happen in the 1990s, but the internet industry created a new centre of productivity. Did governments learn and tell their citizens to “cool it”, start saving and get out of the bubble? No. Most followed the lead of the United States that in 1999 abolished the Glass-Spiegel Act. That 1933 piece of legislation was critical to FDR’s restoration of the financial system. The Act mandated the separation of commercial banks from investment banks and set up firewalls between banks, insurance companies and brokerages. Financial services companies had to stick to their knitting. Other western nations followed America’s lead and tore down the barriers that

for more than sixty years had protected consumers.

Suddenly financial behemoths sprang up that combined banking, insurance and stocks. All money was played and the big push for more equity capital sucked from the public became a stampede. That led directly to the dot.com bubble of the first years of this decade. Today’s crash should have happened then for the second time. But American Federal Reserve policies of cheap money kept the game going.  One problem though. Since the west wasn’t producing anything but puff, where to raise sovereign debt to finance the cheap money policies? China of course. Since China was producing –and saving in its centralized Stalinist manner – it ended up holding up to a third of western debt. A situation that continues today and is pushing us toward a precipice overlooking a chasm even more frightening than the financial crisis. 

So what is to be done? We do need a stimulus. But a stimulus for people not for profit. We need, as a friend of mine reminded me, a paradigm shift. To accomplish that we need statesmanship. And we need our leaders to look not to 1933 for solutions, but to 1973.

In 1973 two disasters happened. OPEC was created and America went off the gold standard. The economy went into a spiral and worse was foreseen. President Nixon, the man who it was said was the only American politician who could go to China without being labeled a Communist, did another surprising turnaround. He called in Moynihan, a Kennedy liberal policy specialist,  to come up with a plan to protect people from potential economic disaster that could last a full business cycle. Moynihan devised a plan for a Guaranteed Annual Income. He famously quipped, “We subsidize planes, we subsidize trains, why can’t we subsidize people?” The plan, that would have created a floor 15-20% above poverty lines, almost passed the Congress. It is the model for today. Everyone in government should be forced to read his “Politics of a Guaranteed Income.”

Why do we need it? Because the suffering is greater than we are told. In addition to the poverty and pension issues I have mentioned above, the current unemployment rates we read about are only those people still on the rolls. The percentage of able-bodied Canadians who can’t find work, but are off the EI rolls, is approaching 20%. In the US it is approaching 15%. And those numbers are climbing. Great Britain has poured out 23% of its GDP in stimulus dollars with little to show for it. That’s far above the 13 and 11 per cents Canada and the US have done. Stimulus dollars won’t save failing industries and shouldn’t save the fast-buck artists. But these dollars should save people. They should be used to cushion people’s lives until there is a real recovery, not a fleeting recovery. But for even this stimulus to work we need one more ingredient.

We need our leaders to morph from politicians to statesmen. They need to find the courage to speak the hard truths of what brought us to this point and tell their citizens that things must change. That, in the words of Edward Abbey, “Growth for the sake of growth is the ideology of the cancer cell.”  That consumption for the sake of consumption is quicksand. That living within our means is “in”. That we can rebuild at lower levels, and that’s okay. It may take three years, or five or seven. But that at the end of the day we can finally defeat the threat that Bobby Kennedy warned of forty years ago. The revolution of rising expectations.

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