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Varoufakis is mistaken: a basic income would be a step in the wrong direction

The basic income is attractive: it’s individually empowering, it crosses ideological borders, it’s a technocrat’s dream… but it would have terrible social and moral consequences: xenophobia, inequality, and a rise in the power of Big Businesses.

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Photo: “We don’t worship work: basic income”

A few days ago, Yanis Varoufakis defended the idea of a universal minimum income independent of work and social coverage, the basic income, as the structural reform needed to end the crisis.

The first thing to do with Varoufakis, as with anyone who makes an argument, is to understand their frame of analysis and its objectives. The center of Varoufakis’ economic thought is an old idea that has tortured many of the great economists of history, like Ricardo, Marx, or Keynes. The idea is simple and powerful: crises happen because, by itself, capitalism is unable to create an effective demand capable of absorbing all of its production.

Varoufakis’ critique of Keynes

keynes por eliot fryFor Keynes, the main way to escape from this tendency is rebalance the relationship between consumption and investment. The way is monetary policy—making credit more accessible to produce inflation and incentivize families to spend more before their savings lose value—and, as an exception, public spending, making the State a substitute for the nonexistent increase in family spending. But in general, Keynesians have also applauded redistribution of rents (which might or might not mean direct public expense). Basically, the Keynesian solution consists of using the State (the central bank or government apparatus) to turn chronic over-accumulation into effective demand, preferably from families, but also from the State. In reality, Keynes didn’t care how that was produced, with a “New Deal” or with a “welfare State,” but it’s logical that in the postwar consensus, Keynesianism converged with social-democratic models.

What Varoufakis tells us is that this model isn’t going to work any more. On the one hand, it’s the legacy of neoliberalism, financialization, that makes it impossible to significantly expand credit even more.

roboadvisorOn the other hand, there’s a peculiar idea: that the robotification of services through Artificial Intelligence represents a new kind of innovation for him, a new way of increasing productivity in which—according to him—for the first time in history, unemployment created by the conversion of the affected sectors (services) wouldn’t be absorbed over the long term by new sectors (we’ll comment later on this idea). This structural trend of growing unemployment would make social security systems as we understand them today nonviable, which is to say, labor organized via the State that makes payments towards the pensions and health expenses of not only active workers, but pensioners and the unemployed. The global result, Varoufakis tells us, is Keynesianism’s vision of hell: an insurmountable imbalance between savings/investment/accumulation and family and State consumption (effective demand) that produces a permanent deflationary trend.

ocuppyBut, following Keynesian logic, given that those who have the least are the ones can save the least, creating a minimum income that’s delinked from work, “just because,” would increase effective demand without substantially increasing savings (which equals investment, or what the Marxists would call “accumulation”). To put it crudely: everything distributed through the minimum income would become consumption without affecting investment and savings. The economy would grow again, and would do so in a much more balanced way. The amount of the minimum income would become a simple, standalone lever, and the economic planners of the twenty-first century would play with it in very much the way the central bankers of the twentieth century played with interest rates. That way, a minimum equal income for everyone, Varoufakis tells us, is the most effective way to confront the deflationary trends that manifest capitalism’s inability to balance itself.

varufakis planbAt this point, the idea of the State giving up insurance systems (health, unemployment, retirement) and a part of social policies (direct grants for social inclusion) in favor of a equal minimum universal income for everyone is already sufficiently justified for him. As of this moment, the discussion is settled, and the rest of the arguments are already merely “politics,” enticement, rhetoric, or making the case. He makes this quite clear in his presentation. After the description of the problem of the crisis and the reasoning of his solution, he puts all those arguments into a little box that he calls “narrative” and instructs the audience on how to use it. And that’s where Varoufakis is mistaken.

He’s thinking not like the good economist that he is, but like a typical economist of a financial institution, or like a consultant for an international organization, providing a solution to a single problem—the deflationary trends that weaken growth—without considering anything else. He’s not thinking like Keynes thought, except insofar as Keynesians now run the World Bank and other temples of the “international class.” And he’s wrong because the impact and social meaning of public policies are measured by much more than their effect on interest rates.

What would Europe be like with a basic income?

communard-manifestoFirst off, there’s a series of important economic critiques of Varoufakis’ argument. By centering on the monetary aspect of the crisis, he leaves aside the transformations in the productive base of capitalism, the seeds of which have been there since its origin, and which financial capital only magnifies. What’s more, he’s missing something fundamental that Mason and Bauwens could see: that the reduction of optimal productive scales—of which AI is a part—together with distributed networks, provide an opportunity for a profound change in the economic system: going from producing value to producing abundance. As a result, he doesn’t see the most basic thing: just because big businesses aren’t going to absorb the surplus of labor that they themselves produce, that doesn’t mean that this surplus is going to be permanent, or that the working class has no other alternative than living life subsidized by State rents.

But beyond theory and the existence of alternatives that go beyond Keynesian patches, the narrative of the “guaranteed minimum income” (previously known as “basic income”) hides a good part of its moral, social, and political costs.

The loss of the centrality of work feeds xenophobia

nacionalismo griegoTo begin with, it places most of the middle class and the working class in a situation of direct dependence on the State. The logic of the public insurance system was that the State administered pension, health, and unemployment funds. But these, in the end, depended on labor. As says Varoufakis: “labor insured itself.” By becoming a purely redistributive system, disconnected from work, the center definitively becomes the State. But the “really existing” State is not a universal State, and not even a “universalist republican State.” It is fundamentally and universally a nation-State. It is the kind of State that manufactures national identity and is legitimized through it. In the nation-State, being a citizen is the result of having its nationality, which is why it’s inherited from parents. That’s why hundreds of thousands of Argentines, for example, vote in Spain, even in local elections, without having ever resided there and without anyone minding much.

nacionalismo dinamarcaThat perverse logic, which questions the citizenship of many who contribute and exalts that of many others who haven’t so much as visited, would be reinforced in the world of the universal minimum income. In the world of the basic income, it’s not creative citizenship—what you contribute to society through your work—but national identity that guarantees you a minimum income. As Varoufakis himself says, in a regime of “guaranteed minimum income,” it’s the transfers from the State that make you a citizen, independent of your contribution. To me, that seems like a true moral perversion. But its political consequences are still worse.

inmigrantes europa fortalezaThe Europe of the basic income would no longer be the Europe that considers migrants on the basis of what they contribute to social security, but a double-walled Europe that would see migrants as more people the “social dividend” that Varoufakis talks about has to be distributed to. They become competitors in the zero-sum game that the distribution of a given benefit always is, and not as workers whose work creates value and supports everyone’s social security and pensions.

One of the main reasons that racism is growing across Europe is the loss of the centrality of work, due to the increasing importance of grants and social assistance to many precarious families. That’s why the narratives of the extreme right are again gaining traction in the working class. Do we want to reinforce them?

prioridad nacionales inmigracionThe story that Varoufakis proposes puts us in a world where xenophobic narratives would be legitimated. It’s no coincidence that the country where we’re seeing the most openly discriminatory and xenophobic public policies is Denmark, where the link between work and public rents is already almost non-existent. It’s hard to believe that someone like Varoufakis doesn’t see the causal relationship between change in the narrative that’s fundamental to redistribution and the growth of an ethnic and xenophobic nationalism.

Basic income at the cost of more inequality?

desigualdad gini españaBut he also doesn’t seem to realize, as we’ve seen in the Swiss campaign for the referendum, that it opens the door to a brutally regressive tax system and an exponential rise in inequality.

In Switzerland, the promoters of the referendum proposed to finance the basic income with a VAT of 50%. That’s very high, they recognized, but they assured us that there would no longer be an income tax or social taxes, that fraud would automatically be reduced, and that there would be less interference in prices mechanisms, which is why the economy as a whole would be more efficient and competitive. That’s all true. But there’s a problem: someone who has little income spends it all on survival. They pay 50% in taxes on what they earn. But as income increases, the percentage that we use for consumption is smaller and smaller. The percentage they would pay in taxes is the same. It’s the drama of indirect taxes. They’re regressive, which is to say, the more you earn, the smaller the percentage of your revenue you have to pay. Indirect taxation favors inequality, taking proportionally more from those who most need that money. So, the weight of modern tax systems falls on direct taxes, in which each income “bracket” pays a higher rate than the one below.

irpf 2015It wouldn’t necessarily have to be this way. A basic income can be built on a more balanced tax system, but advocates of the basic income can’t just gratuitously advocate a move to a tax system based only on indirect taxes. They know that superimposing a real basic income, equivalent to a minimum wage, on a system of direct and progressive taxes would raise fiscal pressure to the point of making most small businesses nonviable, which would drive unemployment up.

Why is the basic income an attractive strategy?

varufakisThe basic income is an attractive proposal because fits very nicely into the spirit of our time.

On the one hand, there’s the argument from individual empowerment, which is very important. The social experience of unemployment, with all its stigma and guilt, makes it odious for us to deal with the State, and even more so to tell some functionary about our misfortunes, to have to bear the scrutiny of a functionary or a family doctor to get sick leave. The basic income is as desirable as the abolition of customer service by telephone operators. It has the same kind of attraction that makes more and more people replace visits to their bank with a web page or an app.

On the other hand, it’s something “new” that can apparently overcome wearisome partisan divisions. The libertarian Right sees it as a corrected and expanded version of school vouchers. The new Left sees the centrality of the State as an acceptance of its values, and believes it’s found the alternative to the European social/Christian democratic model that was so rattled by neoliberalism.

It’s also logical that it would attract technocrats and academics, and even some critical economists as well-liked as Varoufakis. The idea of reducing the central part of social policies to a redistributive variable (the amount of the minimum equal income for everyone) opens up not only a theoretical playing field in macroeconomics, but the possibility of an independent agency that sets it the way central banks set interest rates. The economy and economists would return to the center of practical economic policy, and politicians would see their power reduced in favor of analytical arguments.

There’s no doubt: the basic income starts with good intentions. And yet, it would be a grave mistake.

The hidden face of the basic income

ofertas por catastrofeThe main problem with the basic income is that it would mean the definitive end of the centrality of work in the social narrative. It’s not just a moral problem, it’s that we will only be able to win sovereignty over the economy if we take the other path. In this, Mason is completely right to once again defend the theory of labor value, even if only to put work, the transformative capacity of our species, at the center of the social and economic problem.

If worrying about the end of the centrality of work sounds too philosophical, its direct consequences are quite practical: the rise of the centrality of the nation-State and national identity in daily life, with the consequent legitimization of nationalism and xenophobia.

And if this wasn’t enough, a very possible reinforcement of the rising trend of inequality because of the kind of regressive tax system proposed as fiscal base of this model. And if it tries to balance itself, which seems inevitable, there will be a still greater reduction of the SME and freelancer community and jobs, to the benefit of Big Business.

In summary, it attacks everything in the world we live in that makes it possible think about and work for a good society that can advance towards overcoming scarcity and inequality.

Varoufakis is mistaken. Very much so.

Translated by Steve Herrick from the original

«Varoufakis is mistaken: a basic income would be a step in the wrong direction» recibió 37 desde que se publicó el Martes 24 de Mayo de 2016 . Si te ha gustado este post quizá te gusten otros posts escritos por David de Ugarte.

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