Editor’s Note: In an effort to center New Economic Thinking in the discussion of the COVID-19 crisis, we’ve curated a list of Evonomics articles relevant to this moment—including this one. Check out the full list here.
2016 November 28
Lately there’s been renewed discussion of universal income: regular cash payments to everyone, regardless of race, gender or need. Past proponents of the idea include the revolutionary Thomas Paine, civil rights leader Martin Luther King, Jr., free-market economist Milton Friedman and President Richard Nixon. Today’s interest has been sparked by the income stagnation experienced by America’s middle class and working poor, and by the persistent slow growth experienced by our economy.
The idea finds support across America’s ideological spectrum in an era when hardly anything else does. Liberals, or at least some of them, like it as a way to preserve our middle class when jobs no longer pay enough. Conservatives, or at least some of them, like it as a way to reduce dependence on our byzantine maze of welfare programs.
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But universal income is expensive and quickly runs into the stumbling block of how to pay for it. Its wide appeal is checked by an equally widespread aversion to taxes, especially for the purpose of redistributing income. Fortunately there’s another way to pay for it: universal income can come from universal assets, a.k.a. our common wealth.
The wealth we inherit and create together is worth trillions of dollars, yet we presently derive almost no income from it. Our joint inheritance includes invaluable gifts of nature such as our atmosphere, minerals and fresh water, and socially created assets such as our legal and financial infrastructure, without which private corporations couldn’t exist, much less thrive. If our common assets were better managed, they could pay every American, including children, several hundred dollars a month.
Consider, for example, the limited capacity of our atmosphere to absorb pollutants that cause climate change. By charging polluters for using that scarce asset, we can both protect our climate and generate dividends for everyone. Other forms of pollution could be similarly priced. And we could charge market prices for extracting resources like minerals and timber from public lands that are now leased to private firms cheaply in sweetheart deals. Making polluters and extractors pay, without abandoning regulation, would provide market-based incentives to respect nature.
And that’s not all. Universal assets include gifts of society as well as nature. An example is our legal and financial infrastructure, without which the private fortunes of billionaires would be impossible.
Here’s what investor Warren Buffett once said to Barack Obama: “I was lucky enough to be born in a time and place where society values my talent, and gave me a good education to develop that talent, and set up the laws and the financial system to let me do what I love doing — and make a lot of money doing it.” When asked how much of his wealth was created by society, Buffett says “a very significant percentage.” Nobel economist Herbert Simon was somewhat more precise. “If we’re very generous with ourselves, I suppose we might claim we ‘earned’ as much as one-fifth of our income. The rest is patrimony associated with being a member of an enormously productive social system.”
Currently, those who benefit most from our socially built assets pay almost nothing to use them. But that needn’t always be the case. We could charge for using key components of our legal and financial infrastructure; for example, modest transaction fees on trades of stocks, bonds and derivatives could generate more than $300 billion per year. Such fees would not only generate income for everyone; they’d discourage speculation and help stabilize our financial system. Similar fees could be applied to patent and royalty earnings, which are returns not only to innovation but also to monopoly rights granted and enforced by society.
Here’s the bottom line. It would not be difficult to create a portfolio of universal assets that could pay, say, $200 a month to every U.S. resident with a valid Social Security number. Such money could be wired automatically to everyone’s bank accounts or debit cards, with virtually no bureaucracy. It would be paid to everyone as joint owners of our universal assets; it would be paid by those who use these assets in proportion to their use. These payments would not be a taxes accruing to and spent by government, but rather payments to all of us for value generated by our jointly owned assets.
If everyone received regular income from common assets, would anyone have an incentive to work? Unless the asset-based income were improbably high, most people would still want to work to earn better livelihoods. Sure, some people might be freed from the need to do work they really hate, but that’s a good thing. Others might be freed to do work they really love, even if it doesn’t pay all that much. That’s a good thing, too.
In the game Monopoly, $200 is the amount every player gets for passing Go. Such cash infusions aren’t bad for the game; instead they help all players play the game. The same would happen in our real economy if everyone gets infusions of $200 a month. The extra money would relieve some burdens of working families and heighten their chances for success and satisfaction. And it would stimulate our economy without higher debt.
The gifts of nature and society will not come to us as gifts from our political leaders; we will win them only if we join together to claim them. Fittingly, we can do that by using another asset we won the same way: our democracy.