In which I agree with Borepatch

Milton Friedman - Negative Income Tax

Who disagrees with Tam, but only because she quotes P. J. O'Rourke. Some people are ruining this country under the guise of progress. I'm thinking we need a Negative Income Tax.

We developed all these fancy labor saving devices to make people's lives easier, but what many of those machines have done is they have replaced zillions of factory workers. Those factory workers lives are easier now that they don't have to work, but their lives are also much harder now because they don't have any income to pay for their living expenses. What automation has done is make lives easier for the people who own the machines.

Maybe we need to adjust corporate tax rates based on how many people are employed. Every time you reduce your work force, your tax rate goes up. But our tax code is already horribly complicated, so I don't like that idea. Tax accountants and lawyers are probably in favor of new tax laws, it makes their job more secure.

I like the idea of a negative income tax. We could get rid of welfare, pensions, Social Security, minimum wage requirements and all the other social support programs and just replace them all with the negative income tax.

If a quarter of the people in the country need support (80 million) and they each need $500 a month, that comes to $500 billion dollars. That's a chunk of change but far less than these stimulus bills that are getting passed, and it's probably less that we are already paying out for our patchwork system of ritual humiliation at the hands of bureaucrats.

Negative Income Tax

Sometimes it is called a reverse income tax. The idea is to make sure everyone has enough to live on. It's kind of like welfare that way, but the amount doled out depends on how much you make. If you don't have a job and are not earning any money, you get the basic amount. If you get a job and start making a little money, the amount of your dole goes down, but the sum of the two, the earning from your job, and the amount doled out to you from the government is more than the base amount.
    As your income goes up the amount you get from the government goes down until you get to some point where the dole from the government goes to zero. If your income continues to go up, then you start paying taxes.
    I don't know if a scheme like this would actually work, meaning would civilization collapse? Would the government go broke? Would everyone quit working and we'd all starve to death? I don't know, but I don't think so. I think it might actually work. There are couple of points in this scheme's favor that even Republicans might like:

• No more minimum wage laws. Everyone gets enough to live on, so any money you earn would just be gravy. A job that paid $1 an hour could still get you $40 a week, which is enough to keep you in beer or cigarettes. If you want beer AND cigarettes you are going to have to step up to the bar and look for a job that pays $2 an hour.
• No more unemployment compensation taxes.
• With everyone getting enough to live on, there would be a bigger demand for the everyday products that businesses are so good at producing.

It might also help with problem of people being homeless and with the skyrocketing cost of rent. If you have a guaranteed but limited income, you are going to look for a place you can afford to live. There are thousands of towns in middle America that are shrinking because there are no jobs. You can bet the rents in those places are going to be much lower than they are in the big cities. So this negative income tax might lead to a rebirth of small town America. If people start are leaving the big cities for the small towns we should see a reduction in traffic congestion in the big cities. Good news all around.

For the graph I just picked a couple of values I liked. I used a value of $12,000 a year ($1,000 a month, about what a minimum wage job pays) for a subsistence level and $25,000 a year as the cut-over point between getting assistance and paying taxes. The blue line indicates wages being paid. The area under the red line indicates how much you would be bringing home. The red area is what goes to and from the government. To the left of the 'Minimal' point the red area is the dole that comes from the government and to the right it indicates taxes paid to the government.

Another advantage of this scheme is that we could eliminate all those 'jobs programs'. No need start up some government scheme because of all the jobs it would provide. We could go back to trying to be efficient.

Now some people are lazy and don't like to work. Some people like to keep busy. Some people like to make things. If our automated factories that employ one person out of a thousand can produce everything we need, why do we all need to be working? When I was a kid our future was supposed to be a life of leisure. Production was booming and becoming ever more efficient. Maybe it's time to start reaping some of those rewards.

If the IRS is able to track down and squeeze some of those scofflaws who were revealed by that Panama bank hack, we shouldn't have any trouble making the weekly dole-roll.

Previous posts on Negative Income Tax.
New York Times article about the Panama bank hack.
Wikipedia's article about the Panama bank hack.

Reverse Income Tax

Given the current state of our economy, I'm thinking that a benefit system that paid you in inverse proportion to how much you made might be a good way to help the unemployed and help get our economy moving again. I'm thinking a good balance point would be $25,000 a year. Below that you would get underemployment benefits, above that you would pay income tax. I don't know how much you need to survive these days, but I'm pretty sure you can do it on $1,000 a month. So if you earn nothing all year, you would get $12,000. If you earned $50,000 you would pay $12,000 in taxes.
     Before you get on your high horse and start belly aching about welfare queens, I'd like to make a couple of points. One is that we are currently spending a trillion dollars a year on welfare. Someone (I've lost the link) worked it out that that comes to $20,000 per person, so a family of four would be getting $80,000 a year. I'm pretty sure that isn't happening. Most of it is eaten up by the bureaucracy that administers the umpteen zillion programs that disperse all this money.
    Secondly, this is supposed to be the age of leisure. We aren't supposed to have to work so much any more. I mean that's why we have been automating our manufacturing, so people wouldn't have to do those repetitive manual labor type jobs.
    Increased automation means that every job now has a much higher capital investment associated with it. Capitalists are not going to invest millions of dollars in a new factory that will employ at best a dozen people if it is not going to make a profit, and if they do they will probably do it in China, which won't do us any good.
    People need something to do. If they don't have something to do, they will find something, and some of those somethings are liable to be very destructive, and they will not necessarily be confined to the person doing the destruction. Any kind of job is better than leaving idle hands. Even a make-work job is better than sitting around and watching day-time TV.
    There are numerous small businesses that could benefit from paying low wages. Businesses that might be marginal would have a chance to prosper. Businesses that can't afford to invest millions of dollars in automation. I'm thinking small, family farms, for one, but I think there are any number of small businesses that would benefit. I'm talking really small businesses, businesses with maybe a dozen employees, not small businesses as defined by the SBA (Small Business Administration) which is anything with less than 500 employees.
    I think something like this could be a great benefit to our country. It would put more people to work and it would put more money in their pockets, which would mean that more money would be getting spent, which would be great for our economy.
    I doubt whether anything simple like this has a chance of being implemented. Even if you could get a bill introduced in Congress, the politicians would twist it into some convoluted mess that would be unlikely to benefit anyone except their constituent bureaucracies.
    I was talking to Jack about this the other day and he tells me that Milton Friedman suggested the same thing once upon a time (1968).

Wikipedia article on Negative Income Tax

Don't Blame The Economy, Blame The Drugs

The Drug Lords: America's Pharmaceutical Cartel

Newsletter from Senator Jeff Merkley (D - Oregon) got me stirred up enough to respond. Here's a copy of what I wrote:

The biggest problem with drugs is that they are illegal. Suicides are tragic, but sometimes it is the best option available. If accidental overdoses are a concern, perhaps labeling the drugs with a 'do not exceed' message might help.
I don't know, but I suspect that the worsening economic situation is behind the increased suicide rate. A negative income tax might help with that. Making vacant houses available to the homeless might help. Promoting primitive farming, ala the Amish, might help more people become self sufficient, which might help.
Drug addiction is not necessarily a medical problem. Many people think it is, but there are reasonable people who disagree. Now I wonder if there is any correlation between being a drug addict and committing suicide by deliberately taking an overdose of drugs.
The DEA is an abomination and should be dissolved. Anyone who wants to keep drugs illegal is either a moron or they are they are part of the American Drug Cartel.
The media talks about the drug cartels in South America, but they are small fry compared to the American one. I do not recommend picking a fight with them, they are vicious and would not think twice about killing anyone who opposes them if it would help maintain their grip on the drug market.
Don't support them with feeble minded legislation that add new restrictions to drug distribution.
Do not forget that the pharmaceutical industry is part of the American Drug Cartel.

Update March 2020 replaced image that disappeared when I added a new label, which led to Blogger complaining about some html construct, so I clicked Fix it and Blogger fixed it but good.

The Biggest Criminal

Milton Friedman Pontificates

Bayou Renaissance Man has a post about crime wars, i.e. wars being conducted by criminal organizations. They differ from conventional wars only in that the participants are not 'legitimate'. Looking on Reddit for a relevant discussion I came across the above quote, which echoes my feelings on the subject. It's a sad state of affairs when the people in charge of making the laws, laws that we all are trying to live under, are the biggest criminals of all.

I've heard of Milton before, but I've never quite figured out just what was so special about him. I mean he blathered a bunch of blather about money, but so what? Everyone blathers about money. So I looked him and read enough of Wikipedia's article about him to find this passage, which gives a pretty good summation of the man.

Friedman was an advisor to Republican President Ronald Reagan and Conservative British Prime Minister Margaret Thatcher. His political philosophy extolled the virtues of a free market economic system with minimal intervention. He once stated that his role in eliminating conscription in the United States was his proudest accomplishment. In his 1962 book Capitalism and Freedom, Friedman advocated policies such as a volunteer military, freely floating exchange rates, abolition of medical licenses, a negative income tax and school vouchers and opposed the war on drugs. His support for school choice led him to found the Friedman Foundation for Educational Choice, later renamed EdChoice.

Age of the Unicorn

Galleria Vittorio Emanuele II In Milan

The Nation has a story about the surge of hugely valued venture capital funded start-ups. The huge value is totally pie-in-the-sky. Anything's value is determined by what someone is willing to pay for it, and while some people might claim to be willing to pony up a huge amount of cash to purchase this thing, if the thing is not for sale, does their offer even count? No, it doesn't.

What I see is a group of people with a great deal of money who are willing to bet on some long shots. No surprise there, that is what venture capital is all about.

The other thing I see is that they are doing some really trivial things (like order a taxi with a smart phone) that are taking advantage of the huge pool of underemployed young adults. Would you rather make $200 a day driving a cab for 12 hours, or spend 8 hours over a hot grill and make $100? This is stuff that could have been done 50 years ago, except everyone was busy making real money back then. These guys are finding niches in the existing market and exploiting them. Nothing wrong with that, but it is not going to cause a fundamental change in our society, which is what we really need.

What would make a huge, positive difference would be the negative income tax. If everybody was getting a subsistence allowance, we could eliminate:

• welfare
• minimum wage laws
• unemployment compensation

and all the bureaucracies that go with them.

The Republicans would love to see the minimum wage laws go away. The pay for a lot of jobs would drop to $1 an hour, but if you add that to your weekly dole you'd at least be able to buy beer on the weekend.

Then again, it might be the end of civilization as we know it. But I kind of think we are on the road to hell now, so trying something radical might be a good idea.

Rent

Abandoned Apartment Building

I am not seeing any effects from the pandemic, other than less traffic on the highway, lower gas prices and more pedestrians out wandering around. Okay, there's a queue to get into Home Depot, there's sneeze shields in front of the cashier at ACE Hardware, and you can only get carry-out at Skyline Restaurant. But if the rumors are true and many businesses have shut down, then those businesses are unlikely to be able to pay their rent. Likewise all those people who have been laid off and who don't have six months pay saved, which is most everyone (if rumors are to be believed), then they aren't going to be able to pay their rent either. Which means something bad is going to happen to the real estate market. Landlords / mortgage companies are within their rights to evict people who aren't paying the rent, but it they do that, where are they going to find new tenants? Downtown Portland was having trouble renting store fronts before this happened.

If large numbers of people default on their mortgage / rent because of this pandemic, it is going to crash the commercial and low end residential real-estate markets. We are liable to see some weird stuff happening, like nationalizing apartment buildings, or mandating rent forgiveness or something. I expect landlords, if they aren't freaking out yet, will be soon. I know a negative income tax sounds a lot like socialism, but it might be a way to keep cities of homes from turning into cities of homeless.

Downtown

Older son and I were walking in downtown Portland this afternoon and we hear this guy talking loudly a few paces behind us. His language is foul and more than a little offensive, but kids these days, what are you gonna do? At first it sounds like he is talking to someone on a cell phone but it soon becomes apparent he is talking to himself, or the world in general, so that squashes any plan I might have to speak to him about his language. I mean, you never know how a conversation with a lunatic is going to go, and this guy sounded righteously angry. I can sympathize, I get angry enough to curse loudly on occasion, but I try to restrain myself when there are other people around. He followed us around a corner and when we came to our destination we stopped and pretended to have a conversation until he had gone by and on down the block.

We passed another guy lying in a doorway, covered with blankets, coughing his lungs out and smoking a cigarette. There were a couple of people sitting on the sidewalk near where I parked my car when I got there. They were lying down and covered with blankets when I left around 3PM. Are they sleeping this early because it's warmer during the day, or because they have nothing else to do?

I wonder about the homeless. I used to think that at least some of them were just down on their luck, but lately I am thinking that perhaps they just aren't up to dealing with modern life, that they are lacking some ability and that lack prevents them being able to keep a roof over their heads. Of course the ability they are lacking might be the patience needed to deal with the welfare bureaucracy, and I can't say as I blame them.

I still think that a negative income tax might be the solution. I came across a YouTube video the other day that was basically supporting the same idea, but something about the presentation just rubbed me the wrong way. It was full of how it would help the poor, and it just sounded like so much garbage. I couldn't watch the whole thing.

And then there is parking. I was able to park on the street in a space that is a loading zone six days of the week, but not on Sunday. But after 1 PM you have to pay ($4 for 2 hours max), at least according to the meter maid who was working nearby. I've spent $10 on parking in Portland this month, which is kind of a trivial amount, being as today's dollar is only worth a tenth of what it was 50 years ago, but the hassle of having to figure out whether you need to pay or not as dictated by signs, signs and more signs, and having to fiddle with the meters and little bits of paper is super annoying. I tell you, it keeps me from going downtown unless I have to.

Oppression

Keep Portland Tiered

The bottom tier of society has been hit with a triple whammy since I graduated from high school fifty years ago. First Nixon opened China. Might have been good for the Chinese in mainland China, but it killed the heart of US manufacturing. Second was automation. The third is this pandemic. No wonder there are riots. There are a whole bunch of people with nothing to do and nothing to lose. The business about bad cops is just an excuse.

Ignoring the underclass is what enables the communists to get a toehold and start their revolutions. That's what happened in Russia a hundred years ago. Recently we've seen it throughout Latin America and in Southeast Asia. Capitalism has its faults, but Communism is much worse.

A negative income tax might help. Or maybe we should bring back the ancient Egyptian's sun god and go back to building pyramids.

P.S. As I was driving into Portland Friday I saw a wedding cake delivery van with the slogan 'Keep Portland Tiered' emblazoned across the back. It's obviously a play on the popular slogan of 'Keep Portland Weird'.

Oatmeal does Tesla

I came across this yesterday, but I can't figure out where I found it. One of my usual haunts I suppose. It's an entertaining story even though I disagree with just about everything he says, mostly on account of the price tag, but also on the basis of it can't be a real car because it doesn't have a real engine and it doesn't burn gasoline, but that's just my 60 years of being in thrall to the American automobile industry. (I'm not sure 'thrall' is the right word, but work with me here, alright?)
    On one hand you could argue that gasoline engines are superior to battery powered electric motors because electric cars need to get their power from the grid, which requires huge infrastructure investments in the form of coal mines, railroads, power plants and power lines. All gasoline powered cars require is a few gallons of a liquid fuel. This comparison breaks down when you realize the massive infrastructure that is set up to supply those few gallons of fuel: supercomputer powered geological exploration, multimillion dollar drilling rigs scattered all over the world, a fleet of supertankers and thousands of miles of pipelines, huge, complex refineries, and lastly a fleet of tanker trucks and filling stations to actually deliver the product.
    Having to plug in the car every night when you get home would be annoying, especially if you park on the street and you have to unroll your extension cord because you rolled it up in the morning and stowed it so the local pick-up-everything-that-isn't-nailed-down crew don't walk off with it during the day. Still, it might be better than having to drive to the filling station once a week. On the other hand there is the death of a thousand cuts. Yes, it's only one little chore, but it's one more little chore, and if you are already at the end of your rope, do you really want to have to deal with it?
    Perhaps one of these days they will come up with better batteries, or some other magical electricity producing box (Hey! How about a Honda generator?) and the daily charge routine will go away. Or maybe your employer will install a charger at your parking spot at work, one that automagically plugs itself in when you pull in and disconnects when you leave. (Why don't we have automatic filling stations? The auto industry is slacking. Nothing new there.)
    Then there's the whole getting-away-with-murder business. Electric cars don't use gasoline, therefore their owners don't buy any gasoline, which means they aren't paying any road use taxes! Unfair! Strike! Strike! Strike! If there were more than 2 or 3 of these things on the road this argument might carry some weight, but as it stands I find it hard to get worked up over it. After my initial outrage, anyway.
    And what about air pollution / emissions? Electric cars don't produce any emissions directly, but the coal burning power plants that supply most of our electricity certainly do. Some of these power plants are far away from city centers so you could say we have the benefit of spewing our nasty, poisonous gases in somebody else's backyard, and since no one lives there, at least no one important, it's okay. On the other hand when my Uncle first moved to New Mexico you could see clear to Taos from Los Alamos, or some other ridiculously long distance. Then the Four Corners power plant set up for business and now you are lucky if you can see Santa Fe. You can't actually see smog, it's just that the air is not near as clear as is used to be.
    If the atomic power industry hadn't been beset by political infighting they might have been able to deliver on their promise of power too cheap to meter, or at least nuclear power plants that still produced power instead of being shutdown, mothballed and demolished. But that's America for you. Can't do anything without some shitheads pissing in the pot because they are not getting the biggest share.

The biggest problem with electric cars is that if they become successful they are going to make entire industries obsolete, which is going to throw more people out of work. Yes, new industries require new workers, but we see how well that has been working out. Not. If anything we need to go back to mechanical lifters so you would need to get your valves adjusted monthly, which would put a whole boat load of people to work, but then some wise guy would invent self-adjusting lifters and that would be the end of that. Oh, wait, that's where we are now.

The only solutions I can think of are:

• Negative Income Tax, which has a snowball's chance in hell of being implemented.
• Primitive farming. The Amish seem to be doing very well.
• Pyramids. The ancient Egyptian civilization lasted for thousands of years. Maybe we should follow their example.

Rich and Poor

Bureau of Engraving and Printing, Washington D.C. circa 1918

"The growing divide between the rich and the poor" is a common complaint these days. The implication is that some people have too much money, other's don't have enough, and something should be done about it.
    "The growing divide between the rich and the poor" is not a problem. What matters is not whether we all are equal in terms of buying power, but whether we all have enough to live our lives as civilized people. When people don't have enough, when they are marginalized, oppressed, crushed, disenfranchised, driven from their homes, etc. etc., that's when the Communists can gain a toehold.
    Communism as it is practiced by those who call themselves Communists, is not really communism. As some of us have learned, it is really just a gang of thugs, much like the Mafia, only writ large. Could it be that the growth of the gangs in the USA might be engendered by the same kind of problems that make good breeding grounds for Communism? I think it is.
    I imagine being rich is kind of a pain in the ass. Yes, I know, somebody famous once said "I've been rich and I've been poor and being rich is better"*, but you have to constantly be thinking about your money and what you should be doing with it, where you should invest it, who is trying to steal it. Now some people might take to that kind of agonizing like a duck to water, they might actually enjoy it. Me, I find it tedious and boring. Fortunately there are things like Mutual Funds that remove most of the day to day agony.
    Being rich requires paying attention to your money. Stop paying attention and all that money will wander off. And what do you do with a billion dollars anyway? I mean after you've bought your fancy car, boat, house, airplane? You invest it in something that  you hope will make more money. Which means that most of the money that the rich have, which means most of the money in the world, is tied up in real estate and infrastructure and and organizations that are actually producing something. It's just sitting there, working, being watched by all those concerned.
    Now you could redistribute that wealth, give all the employees a share in the companies they work for, but that would be a temporary fix at best. All that wealth is going to migrate from those who are not paying diligent attention into the hands of those who are, and we will be right back where we started.
   A negative, or reverse, income tax might be the way to give those on the bottom a boost. I don't really like the idea of giving people something for nothing, it sounds like every bad, socialist, idea I've ever heard. On the other hand we are producing more stuff with less labor than ever before. If we give the poor some money, they are going to spend it on stuff, which means demand will go up, which means production will go up, which means employment will go up, which means we'll have fewer poor people. Or we might just all collapse into the fetid swamp of hyperinflation. I mean it's hard to tell. The future is cloudy, I cannot see.

* Mae West, Sophie Tucker, Joe Louis, Bessie Smith, David Lee Roth, Beatrice Kaufman