“The Basic Income Guarantee and Monetary Reform: A Tale of Two Ideas”
A speech to the U.S. BIG Network Annual Conference in New York on February 23, 2007, by Richard C. Cook
Today I am here to talk about another of my interests—the link between proposals for a Basic Income Guarantee and monetary reform.
Before I worked at NASA in the mid-1980s, I was a policy analyst at the U.S. Civil Service Commission, the Food and Drug Administration, and the Jimmy Carter White House under his special assistant for consumer affairs, Esther Peterson. After NASA, which I left soon after the Challenger tragedy, I spent twenty-one years with the U.S. Treasury Department. I retired in January 2007 after thirty-two years of federal experience.
While I am new to the U.S. BIG Network, my interest goes back a long time. When I worked at the Carter White House, I was organizing a study group on monetary reform, which was to include income policy, when Carter was voted out of office in favor of Ronald Reagan in 1980.
The election of 1980 was a watershed in U.S. history. It was a takeover of the policy apparatus of government by the extreme right-wing. This affected every aspect of American politics and culture. Those of us who remained in government but still believed we had a positive role to play in supporting the progressive aspirations of the American people thereafter kept a low profile.
Later on, even the Clinton administration made many accommodations to the conservative attitudes which had entered public life with the Reaganites and with the Republican takeover of Congress in 1994. Some Democrats tend to romanticize the Clinton years, forgetting that the economic recovery of the 90s was fueled by foreign capital and ended with the bursting of the dot.com bubble and a stock market crash. From the standpoint of overall government policies, we have lived in an atmosphere dominated by the conservative ideology for a full generation.
I believe that today we are finally seeing the pendulum swing back in the direction of more progressive attitudes as the conservative ideology crashes into ruins. What that ideology has left us with are economic, ethical, fiscal, and military disasters.
My experience in government long ago led me to the conclusion that the most important economic issue facing the world is income security and that it is the job of government, acting as the custodian of what you can call the commonwealth of American citizens as defined in our Constitution, to safeguard it.
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I said income security, not job security. People in this room know the world of difference between the two, as few others do. As many have come to realize, real job security is extremely difficult to achieve in an era where technology has made so many jobs obsolete and where the rapid pace of change has destroyed the typical career patterns of a generation ago. Lately I have been reading articles by a man named Marshall Brain who says that by 2030 robots will take over fifty percent of the jobs in the U.S. economy, and I agree that the potential is certainly there.
So a basic human right to income security cannot and should not be linked with an imperative that everyone be engaged in earning a living all the time. While more can always be done to foster job creation, it will never entirely solve the income security problem. Welfare-to-work is not the answer.
I believe, as I think many of you do here, that the right to income security must be viewed as an absolute. This right, I believe without apology, is ultimately based on a spiritual value, that every human being who comes to life on the planet has a right to a minimally secure existence, which governments exist to ensure. I believe that income security is what people must have to express their right to “life, liberty, and the pursuit of happiness.” Without income security, that is a hollow phrase.
These values are being threatened in today’s political, economic, and social environment as never before in U.S. history. Conservatives have wanted us to believe that eliminating much of the social safety net in favor of unbridled economic license, sometimes called “market fundamentalism,” would “lift all boats” and allow individuals to prosper in ways not possible under the shelter of the welfare state. This has obviously not happened.
We have more than forty-five million people without health insurance, thirty-five million without enough to eat, increasing poverty, and a declining standard of living for all but the most wealthy. After a period of decline, violent crime is increasing. The housing bubble has burst, leaving millions of people facing possible loss of their homes. The federal government, with a current debt approaching $9 trillion and $44 trillion in unfunded liabilities, has been declared bankrupt by economists close to the Federal Reserve. Meanwhile, our public infrastructure is crumbling, with a maintenance deficit of over $2 trillion.
After a generation of conservative rule, and in spite of three years of a balanced budget at the end of the Clinton presidency, public finance in the United States today is in crisis, if not total collapse. A quarter century of politics devoted to the dismantling of social welfare programs, privatization of public assets, huge tax cuts for the wealthy, continuing export of manufacturing jobs, deregulation of the financial industry, and gigantic expenditures on the war machine have eroded the ability of the federal government to do anything meaningful about income security.
If you set this crippling of government against such facts as the $53.4 million 2006 bonus given to the CEO of Goldman Sachs last December and the ongoing attempt by the Bush administration to conquer the Middle East by military force, you get a vivid impression of a society racing over a cliff.
The article by Paul Krugman, the New York Times’ economics columnist, in Rolling Stone magazine last December entitled “The Great Wealth Transfer,” portrays a society that has fallen from its status as the world’s greatest industrial democracy to one that is beginning to resemble a banana republic oligarchy, with a ruling class that is unbelievably rich and a population that is sinking toward a state of debt slavery and economic peonage. The facts are undeniable and well-documented.
So where does the Basic Income Guarantee fit into this gloomy picture? In the near-term, Congress, having returned to Democratic control, may raise the minimum wage a dollar or two an hour. The ongoing fall of the dollar will promote exports and so be a factor in job creation, though these jobs are low-paying and have few benefits. A Basic Income Guarantee is not on the horizon.
Yet I don’t believe the situation is hopeless in the long run. We have some examples to point to that over time could get people’s attention. One is the Brazilian experiment.
The other ray of hope is that the dire economic situation can act as a stimulus for progressives to start challenging economic fundamentals. Here is where I think the Basic Income Guarantee movement could benefit by looking at what is going on in monetary reform, because any push to enact a Basic Income Guarantee through income redistribution is likely to face insurmountable obstacles. We are not going to get middle-class citizens to give up their mortgage deductions, for example, so the poor can get a break, when they know that what Lou Dobbs calls “the war on the middle class” is real and that it threatens their own financial existence.
Of course there are potential tax sources that could pay for at least a partial Basic Income Guarantee. Obviously, one would be to roll back the Bush tax cuts altogether. Another would be to slash defense spending a couple of hundred billion dollars a year. Another could be to shut down all offshore tax havens, as suggested by economist Michael Hudson, the ones that effectively reduce or eliminate taxes paid by corporations, the wealthy, or organized crime. Another would be a universal land use tax as advocated by the Henry George movement. Yet another would be to raise taxes on capital gains and interest income.
If one took the matter seriously, raising a quarter of a trillion dollars or more annually through restructured taxation to pay for a modest negative income tax would be no trouble at all. Not only would it not detract from the economy, it would produce a huge economic boost by injecting purchasing power at the consumer level where it would be spent on goods and services rather than inflating more asset bubbles. But can this be accomplished in today’s political environment? Probably only if the voters elect a truly progressive president and Congress in 2008.
But we should also examine where the monetary reform movement can enter into the picture. Monetary reformers challenge the dogma that the only ways government can acquire money to disburse are through taxes and borrowing.
The thrust of the monetary reform movement, as least that segment of it not devoted to the introduction of local currencies, is to shift the power of influencing the creation of wealth back toward the government.
One way to do this would be to create a federal authority charged with rebuilding the nation’s physical infrastructure through long-term low-interest loans. This is what Roosevelt did during the New Deal with the Reconstruction Finance Corporation. The current LaTourette/Kucinich bill for a federal infrastructure bank would allow for the insertion of money for investment at the state and local levels and would also create new jobs. Such a bank would act as a major economic stimulus.
On the side of money and credit, the Federal Reserve System has long operated by alternately stimulating and slowing the economy through its regulation of fractional reserve banking and through actions affecting interest rates, but never in ways that have proved truly effective. This is because attempts to use liquidity to manipulate economic growth are always tied to the creation of credit that must be repaid with interest.
In my opinion, it would be much more effective for the Federal Reserve simply to give away money, as it went a long way toward doing with the slashing of long-term interest rates leading to the housing bubble. Hundreds of billions of dollars were pumped into the economy, but now the bill is coming due because of the enormous inflation of housing prices that have left society as a whole much worse off than when the bubble began. But the bubble can be viewed as an income program for homeowners and speculators with a substantial multiplier effect for the entire economy. According to investment analysts, fifty percent of U.S. economic growth in 2005 was due to the stimulation of the housing market.
As I indicated, it would have been simpler if the Federal Reserve, or the U.S. Treasury, simply gave away money, and what I would like to suggest is that we begin to think about issuing a Basic Income Guarantee without charging any cost at all to the federal budget through what has been called a National Dividend.
This is not a frivolous suggestion. It was proposed by Major C.H. Douglas and the Social Credit writers of the 1920s and began a political movement which has continued through today in Great Britain, Canada, and New Zealand. This would be money creation at its simplest and most direct, similar to the Greenbacks legislated by Congress during the Civil War. Then, Congress authorized expenditures in the amount of $450 million, and the government simply spent the money into existence.
It was a system that worked remarkably well, one which the bankers have propagandized against ever since. Greenbacks still made up a third of the U.S. currency into the early years of the 20th century. Few people know that FDR also had Greenback authority, though he never used it. It was money supposedly created out of thin air, a true fiat currency, and if people tell you that the Greenbacks caused inflation, they are wrong. What is truly inflationary is debt-based money created by the Federal Reserve. In fact, since 1965, the dollar has lost over eighty-five percent of its value.
I would strongly recommend that Basic Income Guarantee proponents study the Social Credit ideas carefully. This is what first got me interested in monetary reform back in the late 1970s. What C.H. Douglas was saying was that in a technologically advanced economy, production is always ahead of the income available for consumption. He said that there is no way that the population of a nation can ever earn enough money to purchase what industry can produce. There is lag time and there are many inefficiencies in the distribution system. Also, there must be provision for household and business savings. This was why Keynes advocated government deficit spending in order to reconstruct the economy on the demand side.
In other words, in order to consume the production base and keep the nation’s workforce employed, the government must introduce purchasing power. Simpler, more direct, and less prone to inflation would be to issue what Douglas called a National Dividend at the start of each year to everyone, without means tests, without distinction as to whether you work or not. It is a Basic Income Guarantee. Remember, this was suggested in the 1920s. In fact, Douglas had succeeded in reconciling the capitalist system to principles of economic democracy in a way that all previous European thinkers had failed to do, including Marx.
Douglas’s ideas also had a strong ethical underpinning in that they postulated that the production of wealth was not just a result of the utilization of private resources or capital but of the brainpower and labor of the entire nation. People make things in a social context. All members of society contribute in some small way to the cultural fabric within which wealth is generated. So all should share in the benefits of a National Dividend.
Of course Social Credit was opposed by conservatives of every stripe whose highest value was private property, private ownership of everything of value, private creation of money through bank loans, and the exclusive claim to the profits from private enterprise.
Keynesianism did not last. It was succeeded by the attempt by the Federal Reserve to manipulate the economy through targeting of the money supply, a practice known as monetarism, one which has failed miserably, the latest fiasco being the aforementioned housing bubble. Reagan-era supply-side tax cuts, along with those of George W. Bush, were an attempt to compensate for the failure of monetarism to boost demand, but the problem again was that there has not been sufficient purchasing power except through increased household debt, a fact every economist recognizes.
So I would conclude this brief presentation by suggesting to the Basic Income Guarantee community to look seriously at monetary reform, especially the Social Credit ideas, for a theoretical underpinning of Basic Income Guarantee proposals that I believe can work in tandem with meaningful tax reform. Again I mention the writer Marshall Brain, who advocates an annual stipend for every citizen as their share of societal wealth. A figure of $10,000 per year would likely be adequate.
Such a stipend can be issued to individuals as a credit or voucher against future production. It would be a simple, effective way to introduce liquidity into the economy, far better than the debt-based system of fractional reserve banking that leads to profits for the banks at the expense of everyone else.
At the same time, it is important to keep the pressure on Congress and the political system to think about a Basic Income Guarantee when they think about income and tax policy. Any progress in this direction is worthwhile. It is also critical to work toward making a Basic Income Guarantee part of the progressive political agenda. See, for example, an article in The Progressive a few months ago by editor Matthew Rothschild entitled, “Our Sinful Economy.” It is essential to have workable proposals ready as our economy continues to stumble into the crises that are inevitable given the huge problems that exist with income maldistribution, the continuing decline of the social safety net, rising crime statistics, and the collapse of the ability of the federal government to meet the needs of the nation through the budget process.
It can be pointed out to progressives that the monetary reform movement can show that a Basic Income Guarantee is not only ethically and spiritually the correct attitude of society but that it is also an economic necessity. Two books on the subject which I strongly recommend are The Lost Science of Money by Stephen Zarlenga, head of the American Monetary Institute, and The Grip of Death, a Study of Modern Money, Debt Slavery, and Destructive Economics by the British author Michael Rowbothan.
Books such as these can provide help for the badly needed progressive consensus of what coherent alternative we can offer to the disastrous state of the nation and the world today. We are clearly witnessing a worldwide class war, where, as U.S. billionaire Warren Buffet has said, "There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning." I believe that a Basic Income Guarantee, combined with monetary reform, shows this war to be totally unnecessary.
One final note. You might reasonably ask why haven’t such monetary reform concepts as Social Credit and the National Dividend been adopted or even seriously studied by mainstream economics? The answer is obviously political. Mainstream economics is dominated by concepts favorable to control by the private financial industry. The last thing the bankers want is money in the hands of the rank-and-file of society that is not tied in some way to a monetary debt. That this can be done easily and simply is the best-kept secret in economics history. But there are economists who support these ideas. In fact, during the Depression, a majority of U.S. economists supported something called the Chicago Plan that would have revolutionized banking and finance in this country. Monetary ideas that may seem revolutionary and that would be characterized as such by the financial establishment, to real monetary reformers look simple, logical, and fair.
And there have been times in American history when people were bolder and understood much better the consequences of our being what President Martin Van Buren called a “bank-ridden society.” Jefferson saw control of the economy by banks as the death-knell of freedom. In an 1802 letter to Secretary of the Treasury Albert Gallatin he said:
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
Then during the last third of the 19th century we had the Populist and Greenback parties which focused on monetary issues. There was William Jennings Bryan’s “Cross of Gold” speech when he ran for president in 1896. But with the passage of the Federal Reserve Act of 1913 the door of monetary progressive politics was slammed shut and has remained tightly fastened for almost a century. Progressives everywhere should be prying that door open again if not resolutely kicking it down.
Thank you for the opportunity to meet with you at this important forum, and I look forward to many future encounters.
Richard C. Cook is the author of Challenger Revealed: How the Reagan Administration Caused the Greatest Tragedy of the Space Age (Thunder’s Mouth Press). He is currently writing a book on economic and monetary reform. His website is www.richardccook.com.
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