In the last few weeks a lot has been said about Libertarianism and the Basic Income Guarantee (BIG). This includes Matt Zwolinki’s column piece ‘The Libertarian Case for a Basic Income’, Ash Navibi’s critical response, and John Danaher’s 3 part series on ‘Libertarianism and the Basic Income’ (Part 1, 2, and 3), and many other articles quickly accessible via Google search. However, a recurring basic assumption through many of these writings are that a BIG requires coercive redistribution. This is never challenged. However, a BIG can be provided without coercive redistribution, if the right revenue streams are tapped.
What is a Basic Income Guarantee?
A basic income guarantee provides to every citizen an unconditional income. Everyone, rich or poor, full-time worker, part-timer or unemployed, is provided with a regular stream of money. This can provide for, or help provide, for the necessities of life, and helps people who are unemployed, have to care for others, or wish to take a risk on an entrepreneurial venture. Even if one cannot receive sufficient income from work, they are still given enough to meet the needs of life. Those left jobless are not forced into homelessness.
A BIG holds advantages over conventional social welfare programs. Since there it is universal, without means testing, there is no disincentive to work harder and earn more income, where that might otherwise push an individual’s income beyond the means test. There are no cases where it is not worthwhile to work due to welfare, and people become dependent on the hard work of others. There is also no stigma behind receiving the BIG to meet your needs, as everyone receives it.
If a BIG did require forced income redistribution, I would find it difficult to reconcile with a libertarian viewpoint. Libertarians believe in the free market, and in low taxes, and raising income taxes to fund a basic income would be a very difficult proposition. But we need not raise income taxes. We simply need to tap unearned income.
Abiotic nature, including all of its resources, services and opportunities, are scarce, and we cannot expand or increase them. Nature was not created by humans through labour; it existed before us, and we came from it. We cannot create more of nature. To use land, probably the most significant aspect of nature,as an example, land reclamation projects simply take from the seas and oceans to create more buildable land, and are economically viable in very few situations. No nature can be added by humans.
Living organisms, such as plants and animals, are not fixed in size since they reproduce. Plants and animals whose reproduction we can control may be considered capital, as they are taken care of through human labour and other capital. What I call nature is usually referred to as the economic factor of land, which includes much more than the common notion of land as the dry surface of the earth.For the sake of simplicity, when I refer to nature, I do not include organisms we breed.
As a result of the scarcity of nature, the value of nature rises immensely, in line with economic activity. For example, as the population and economy of a settlement grows, as the settlement becomes a large city, land values rise immensely. A small block of land in a city such as New York is worth much more than an enormous plot of farmland in the interior of a country.
Rents (Unearned Income)
When individuals are given rights to the gain in land value, heavily guarded as ‘private property’, we have given them unearned income, also known as economic rent (as opposed to wages for labour, interest/capital yield for capital, and profit for enterprise).
There is no basis for property rights in that which cannot be created through labour. The purpose of private property is to protect that which an individual has made through their own effort and hard work, and provide incentives to produce. When Alice is paid $20 an hour for their work, this is what her employer judges to be the value of her work to them in the market. They may use that money to buy an amount of goods and services equivalent to the goods they produce or services they provide (taxation complicates this).
Since individuals do not create land through labour, and can’t be incentivised to do so, property rights to land values are not justified. All that is needed is the possession of land, the exclusive right to land, protection against others intruding in your land, and the right to the wealth produced on that land, in return for a charge based on the value of that land.
What I have just suggested is often called ‘land value taxation’, or simply a ‘land tax’. However, these names are inaccurate, as a tax usually refers to a forced payment made to the government, without any particular good or service in return (government services received are rarely in proportion to taxes paid). However, a charge based on land value, is a trade, a purchase of the exclusive rights to land in exchange for a fee. If you do not wish to pay the charge on your land, based on its value, you may give it to others. Land not in prime locations that is excess to economic needs, which nobody competes for, has no value, and so it may be used for free, without the payment of any charges whatsoever. This revenue tool may be more accurately called ‘land value capture’.
Other than land value capture, revenue tools that capture nature’s rents rather than hard work include a carbon price for using the atmosphere to dispose of carbon (as well as similar charges for other pollutants). Whether or not global warming is real, caused by humans, and worth fighting, it is worthwhile to charge a price for the earth’s services when the atmosphere is used to dispose of pollutants.
Mining and extraction companies should also be charged royalties or severance taxes equal to the value of minerals in the ground, which is equal to a normal profit rate subtracted from profits of mining companies. Most companies buy at a price, add value, and sell as a higher price, but companies that extract minerals, oil and gas do not pay a price for their products, which they sell for a considerable profit. Mining companies deserve the value they add to minerals by taking them out of the ground and making them usable, and a return to their capital, but not unearned income from natural resources.
There are also numerous smaller rents, such as water rights charges, fishery license charges, and so on. Altogether, these rents likely have enough value to fund a fairly-sized BIG, and remove all taxes on labour and capital as well. This provides more incentives to work, overcoming any discouragement to work that a BIG would bring. This double bonus of a basic income and no taxes would dramatically increase economic growth and wealth, and entrepreneurialism, as we will see later.
Those on earth, including the human race, as well as other animals and plants, have a common right to the value of nature. We are created from nature, a part of nature, so we have the rights to the fruits of nature. Since, we are the most advanced and intelligent race on this planet, humans have a duty to administer the rights to nature. The fruits and value of nature are to be used to benefit all people, rich or poor, elderly, young or yet to be born for a hundred years, as well as other species inhabiting the earth.
An organisation or organisations representing all people should take care of rights to nature. It would administer nature’s resources, services and opportunities, and revenues from trades for the above three fruits of nature. These organisations might be democratic governments that truly represent their populations, or trusts with a duty to manage nature, whichever is more achievable and suitable.
Remember that the enforcement of property rights requires a governing body, just as a BIG does. A basic income funded from nature’s revenues is no less laissez-faire than letting owners of nature become rich off unearned income. Both require government action, and in both cases the income is not from work. The only difference is that a BIG benefits all, while leaving unearned income to owners of nature benefits only a select few. A BIG is not income redistribution, it is just distribution.
The term ‘predistribution’ is sometimes used, referring to an economic system that prevents the privatisation of unearned income, and ensures a fair wealth distribution in the first place. This means that individual incomes vary only as individual labour contributed to the economy varies. This is much more efficient than redistributing income, which entails greater adminstrative costs.
The Basic Income Grant Helps Entrepreneurs
In fact, a basic income promotes libertarianism and the free market more, as it encourages entrepreneurialism. To start a business requires a significant amount of starting capital. If Bob can use a BIG to meet their daily needs, then the money he gets from working can be saved. Enough money can be saved for Bob to start a business. Had there been no BIG, Bob would likely still be working for someone else, simply trying to make ends meet, without enough money to realise any entrepreneurial aspirations. Rather than creating jobs, he would have taken a job.
Income during the early stages of a business is often small. The Bob’s income may be too small for him to survive, or live in reasonable comfort. A BIG supplements a small business owner’s income, allowing and encouraging entrepreneurs such as Bob to stick by small businesses, and allow them to grow.
An entrepreneur takes on risk. They risk failure. With a BIG, the failure of a business is no catastrophe. If an unsuccessful business leaves Bob without income, a basic income can help him survive, while he finds a job. Bob may start another business, likely a more successful one, since he has had the opportunity to learn from his mistakes.
In any case, there is plenty of justification to support entrepreneurs with a BIG. Entrepreneurs obviously create jobs. While people will no longer have to work with a BIG, the sheer abundance of jobs that will result will likely encourage many people to work anyway. After all, human wants are unlimited. But when a business fails, this provides information on what works and what doesn’t for a business. To use the language of Nicholas Nassim Taleb’s book Antifragility, fragile units (businesses) make for an antifragile whole (economy). ‘The fragility of every startup is necessary for the economy as a whole to be antifragile, and that’s what makes, among other things, entrepreneurship work: the fragility of individual entrepreneurs and their necessary high failure rate.’ Mistakes made in business help the economy run smoother. The economy improves with individual failure.
However, the benefits of mistakes do not always flow to the same people who made those mistakes. A entrepreneur starting a business may look at past businesses similar to theirs that failed, to know what not to do. That person has benefited from the errors of another person. This happens more if a failed entrepreneur can’t start another, more successful business, having learned from past mistakes. A BIG allows entrepreneurs who have made mistakes to get back on their feet, and create new, better businesses. It also compensates those who have failed for the benefits their mistakes have on others.
A Basic Income Guarantee does not need coercive redistribution. It is very much compatible with libertarianism, if funded from capturing unearned incomes. It helps the free market function better and promotes entrepreneurialism, economic growth, wealth generation and job creation.