Over the last few months there has been a topic discussed among libertarians that has resulted in the typical “infighting” between us. That topic is the one being addressed today which is the Basic Income Guarantee (BIG) as outlined by Matt Zwolinski. There have been a number of responses to this, and we will not be trying to beat a dead horse by addressing it, but help try and lay to rest the fallacies outlined by Zwolinski that even some libertarians want to adopt. For many libertarians, Zwolinski is prominently known as he has notable credentials, including the running of Bleeding Heart Libertarians and several pieces on Libertarianism.org, where the argument for a basic income appeared. Since I am the type of individual who cares more for ideas and propositions versus who said them, I am not arguing that Zwolinski should be dismissed altogether as an intellectual, but the proposal in question is one I’d suggest to dismiss or be highly skeptical of.  As my friend Matthew Pritchard of Vulgar Libertarians summarized in his critique of Zwolinski’s proposal, I agree that it was particularly damning of his motives that he admitted the proposal is neither ideal nor practically possible. He had no rational reason for proposing it, other than creating the impression that there was a libertarian argument for a basic government income.

 Zwolinski’s argument for a basic income is broken up into three sections in an attempt to justify his proposal. Here at We the Individuals, we will respond to each of these proposals to argue that this concept is neither economically coherent nor actually a libertarian argument by any traditional understanding of the term.

1.  Zwolinski’s first argument for the Basic Income is that “A Basic Income Guarantee would be much better than the current welfare state.”   Here he argues that it would be more efficient and more like a market (by letting the poor determine what they “need” instead of the government). Insofar as this goes, this is true. His proposal would eliminate the current welfare state with all its bureaucracy and hullabaloo and replace it with his basic income.  Sounds good, right? I will admit, less money being stolen, er… “redistributed” would certainly benefit me, and anyone else. However, I would argue that it is certainly not ethically better. The argument put forward is that it would achieve better results. And maybe it would. But “preferring better results to worse results” isn’t exactly uniquely libertarian – it is simply pragmatism, not libertarian (or even other) ideals. What we seek is not simply “more efficient” aid to the poor (or defense, or police, or mail, etc.), but a private system that is not funded by taxation. Having more efficient government programs might temporarily reduce taxation, but in the end it opens us up for ever greater government transgressions against private property. Further, if we make it far enough to eliminate all welfare programs, why replace it with another. It makes more sense to end them all and replace it with nothing.

Additionally, the difficulty of getting assistance, even as small as it might be now, does provide an incentive to get off assistance and find work. Currently, there are already people that refuse to get off assistance, and even have additional children for the purpose of receiving it.  The simpler it is to obtain this aid, the greater the “free rider” problem becomes.

Now, in response to what I stated, a proponent of this program, or Zwolinski himself, could claim they have a hard time understanding how a libertarian would not view a smaller welfare state as ethically better than a larger one. If a basic income involves less theft than our current welfare state, less bureaucracy, and less paternalism, isn’t that morally better than a system with more of these detestable things? Sure, it may not be ideal, but a system can be morally superior to another without being morally perfect.  Are we simply engaging in a utopia fallacy here with our objections?

This challenge is simple to rebut.  First of all, a basic income involving less theft is a big, big if. We are talking about the government here. The same organization that overspends on just about every project, that has no way of measuring efficiency (profit/loss, economic calculation, prices), and so on. Second, systems, institutions, even people aren’t good or evil – actions are. A given system may institutionalize more or less evil than another, but a system which institutionalizes evil … institutionalizes evil. If the proposal is “steal less money”  then yes, less evil is being done. If the proposal is “guarantee everybody $40k a year and I think that will probably require less theft”, that isn’t the same thing.  Any final results regarding the size of government theft will be indirect, and there are no guarantees that we will in fact have a reduced taxation burden.

2. Moving onto his second argument, Zwolinski claims the BIG “might be required on libertarian grounds as reparation for past injustice”. This fails for a number of reasons. This one is an ethical argument – on collectivist ethical grounds, and I don’t have to tell many libertarians where that leads. A libertarian system of reparations for past injustices would be almost the opposite of this, with much given back to those from whom much as been taken, and at whose expense? The richer you are, the more money has been stolen from you, and who will pay for those reparations but those from whom less was stolen? Nozick’s solution is pure bunk on libertarian grounds and certainly on any individualist grounds. Hoppe’s is much better. If the current distribution of property is unjust, as it certainly is, the solution is to have each unit’s rightful owner make his claim. If I, as the heir of a victim of eminent domain a hundred years ago, can show that a plot of land is rightfully mine, let me do so, and that’s why title insurance was invented. That is, we have a dispute and a good way to resolve the dispute. If “we” start moving property rights around without a dispute, we’re right back to political wealth redistribution based (we’re left only to hope) on some bureaucrat’s rule-of-thumb sense of justice. Even if you start with the ludicrous assumption that anyone empowered to do this can be counted on to at least try to do it according to libertarian principles, his only choice would be to go bowling while market institutions rectify the problem through dispute resolution.

Further, not all poverty is a result of harm imposed on a person. Poverty is the natural condition of mankind. It is the escape from poverty – even to the level of “poverty” seen in the West now – that is utterly abnormal and the result of capitalism. Just being poor does not indicate that one is owed reparations for any harm.  Also, just being rich (or middle class) does not indicate that one owes reparations for harming someone. If someone made $45,000 a year in their blue collar job, that does not indicate they had taken anything from anyone. Nor would an unemployment and lack of income give evidence that they are owed anything, either. As such, we cannot justify giving “reparations” in the form of a basic income for anyone and everyone.

Lastly, if the state steals from A to give to B, it is not “reparations” for it to steal from B to give to C. Reparations go to the individual wronged. Not an entirely separate person. This cannot be ensured in a program such as this. This is akin getting robbed by a thief, and the solution would be to let that thief rob someone else, so he can pay me (or someone else entirely!) “back”.

So really, if we seek reparations for past wrongs, we must demonstrate that a) the individual paying committed the wrong and b) the individual being paid was the one wronged. This proposal would do no such thing, unlike the desocializtion proposals of Rothbard and other anarcho-capitalists.

3. His third argument states, “A Basic Income Guarantee might be required to meet the basic needs of the poor”. This is a libertarian argument how? Even if this is correct, it’s the same argument behind the social democratic welfare state. Libertarians do not consider one having a right to have their “needs met”. Such would be historically absurd, and necessarily violate the right of others to their liberty and property. No “right” can logically enslave a man – that is an absurd contradiction.

However, it is not even the case that the BIG is required to meet the needs of the poor. Without the state, the basic needs of even the poorest individuals would be met quickly and directly by charity, a reduction in state theft of resources, and overall productive growth. The state does not eliminate poverty. It prevents its elimination through taxation, wealth redistribution, regulation, protection, and a myriad of other policies that all directly hamper sustainable economic growth and the end result of its welfare programs simply incentivize the poor to remain so. A basic income guarantee would not change that.

Before moving on to the next part, which invokes the likes of Hayek and Friedman as justification without adding any rationales to the argument (as such, these are simply appeals to authority) for his proposal of a BIG, we should look at the economics effects of it. Zwolinski would argue, and we will use an example to simplify, that if you sit at home on your lazy bum all day, you get $10,000. If you take a job that pays $40,000, then you get the $40,000plus the $10,000. Of course, proposals will vary, and on some proposals you might have to pay some taxes on the benefit if you start working. (Zwolinski references the idea, however, as saying “[m]ost proposals specify that income earned on top of the grant is subject to taxation at progressive rates, but the grant itself is not.”). I think Zwolinski would agree that there are some disincentive effects there, but nothing more serious than the disincentives that go along with form of taxation. On the whole, though, the basic income does significantly better at providing benefits without a strong disincentive than the current welfare system does.

In response to this though, I would need to ask who he is taking the money from, to give every single citizen $10,000? If the State takes $10k from me to give me $10k, what’s the point?  In the system he describes, labor is still “crowded out” in the same way there’s relatively little room – but still some – for private school solutions in a world where everybody has access to public schools they’re already paying for whether they want them or not and will have to continue paying for even if they choose private schools.

The wage at which I’m willing to work in this system is likely lower than what it would be in that other system. That advantage is mitigated, if not obliterated and then some, by the fact that you’re talking about a significant multiple of the tax revenues required in order to sustain the BIG, because you’re paying it to everybody. To give $20,000 to 200 million American adults comes to fourtrillion dollars, considerably more than the total federal tax receipts for 2013,even if you assume 100% efficiency in the process of extracting and redistributing that money.  Income taxes currently amount to only $1.8T, and the federal government only pulls in $2.5 trillion total now.  So, what would my tax rate be, and what economic impact would that have? It depends on how you structure the taxes, but the more you levy them on the rich the worse things get in one direction, and the more you spread them out the worse it gets in other ways. Sure, the $20k mentioned is arbitrary except that maybe, somewhere, somebody who owns his home outright could actually live on it.  Even at $10k you’re already talking a much bigger program than the whole welfare state in all its current glory. And note that all this assumes that only adults get the “basic income”. If you say it will be $10K for each person, you’re talking almost $3.2 trillion and rising as population grows. I must also note that in 2007, the total household income of the entire US was around $7.7T, which would mean that such a redistribution of wealth would amount to ahuge part of the economy, around one-third of all yearly individual income at minimum.

Any basic income would require far more in taxation, and not just from the rich, to provide everyone a set sum of money. Even a poverty level of $10K a year would require roughly $1.75 trillion in tax revenue given current population size and demographics.  That’s if you took a figure for the adult population of the US being around 175 million people.  This does not account for simply using a “tax credit” of some sort for people that actually work – although it would amount to the same thing. (A deduction instead would mean a far heavier punishment for working). However, the census figures around 240 million adults (over 18), which would be closer to $2.5 trillion. Implementing it as a deduction or tax credit, while cheaper, is also fanciful, even though you’d hear that often. A lump sum at the end of the year is not useful as an “income” (how will I pay rent between now and when this kicks in?), and a deduction would heavily disincentivize work as each dollar earned would simply diminish how much you get (like unemployment benefits disincentivize finding part-time work). A basic income “per household” would be cheaper (only 115,226,802 of those), but then the poverty level would be higher at somewhere around $15K (due to more people in the group, with an average household size of 2.6 persons), resulting in around $1.7 trillion.

Additionally, the basic income guarantee is more efficient than the current system, as it eliminates bureaucracies that determine who exactly is eligible for aid. While that sounds good at first, what it really means is the state more efficiently robs people and redistributes- which makes it difficult to address an unsubstantiated assertion such as the basic income but subjective value is one thing for starters. One individual elsewhere in the country spending $10k on what he would like is nothing like me spending $10k on what I want. That’s before we get into financing the massive bureaucracy that redistributes the money, or the government’s famous habit of spending far more than the market price on everything it buys. Also what would otherwise have been done with that money and those scarce resources by people in pursuit of their own satisfaction rather differs from that of politicians or other individuals. Let’s assume the State gives me one million dollars to spend as I see fit, no strings attached. Let’s also assume it’s done with 100% efficiency, by executing a transfer from the account of a random rich guy. This is no improvement to the economy relative to leaving it where it was, for the guy who earned it to do with it as he saw fit.  Simply my goals are met, while he bears the cost of losing out on what he could have done.

Further, while we have eliminated the bureaucracies that would determine who is eligible for food aid, what that can be used for, and so forth, we arrive at another problem.  How do we get this basic income to individuals?  Not by mail, as many people – particularly the homeless – have no standard mailing address.  By direct deposit?  This arrives at further issues, regarding the “unbanked” and others who don’t trust that system (and additionally opens one up to errors).  Such problems, in government hands, can only be “solved” by additional bureaucracies, so the benefit to eliminating them is less than it might appear at first blush.

I wager that Zwolinski has many things to address with his proposal. Some would argue, “It’s better than what we have!”. While that may be true in principle or intent, it is quite the contrary when you look beyond face value. Some would argue that it is “pragmatic”. However, the problem is that what people call pragmatism generally isn’t. They think the “idealistic” goal is either too hard to achieve or goes too far, so they “pragmatically” advocate things that aren’t going to work at all, at best. Regarding the basic income though, to make it happen we’d have to entrust politicians with the power to take however much money they see fit and then do with it… what we hope they’ll do with it, which I believe is no less stupid and futile than last several centuries of arguing about what we’d like people to do with their arbitrary power. Again though, it could work. Let’s imagine that for a moment though. Say, you are a politician wanting to pass a bill that would eliminate the entire welfare state and replace it with Zwolinski’s proposal. First of all, as much as I would like that idea, it would never happen. There are too many special interests involved that would fight tooth and nail to prevent it. If anything, it would just be another welfare scheme on top of the current one. So there goes one factor out the window. After all, you’d be asking the state to limit itself.

Second, what would be left of the bill wouldn’t make it past committee. The original draft would be loaded with special interest deals and pork spending, thus resulting in what is left over to be an abomination of the original bill. Plus, there is the economic calculation of it, which I cannot stress enough. The government has no predictive abilities, markets do. And even when they do, they have no good solutions. Prices are a reflection of cumulative estimations of future risks, demands, and production. The funny part is that government never has any foresight. I love the government solution to everything- let’s give a few people all the monopolistic power and unlimited revenue and have them solve the problem! The tragedy of this is that knowledge cannot be centralized, a Washington bureaucrat has no clue what the preferences of people are in Texas, Oklahoma, or even right down the street. It would be fairly absurd for me to spend my roommate’s money and expect to make the same decisions he would have, it is far more absurd to expect a bureaucrat in DC to know all the preferences of everyone in America, and then make a one-size-fits-all solution to a problem. Government is people spending other people’s money. Since taxes are not the product of government labor, the lives of those who decide how it gets spent (government officials) aren’t at risk when it’s spent inefficiently. Market forces, such as profit and loss, are not present in demonstrating the desirability and effectiveness of decisions and solutions. A private individual has a strong interest in spending his money efficiently, because if he doesn’t, he risks losing his investment and his livelihood. Government does not carry this risk. The value of an activity is subjective, so it is different from person to person, place to place, and over time. A hundred men of average intelligence have more knowledge distributed across them than the most intelligent expert. (It is this distributed knowledge is communicated to other individuals in the form of prices.) So … gov’t experts, lacking knowledge of individual preferences and lacking the broad knowledge resident in the market, will choose to spend money on activities which create less value or, often times, destroy value, no matter their intentions.

Welfare programs, including the basic income, are a misallocation of resources. You’re stripping resources from those that create wealth, thus, negatively impacting their ability to create wealth. The creation of wealth means an increased carrying capacity for jobs and greater availability of goods and services to poor and rich alike. If institutionalized unemployment and expensive goods and services are your goal, there is no greater way to achieve that goal. If I purchase a good or service, I am taking money earned through voluntary exchange and using it for my chosen purpose. When government buys a good or service, it is using money gained through involuntary exchange towards its chosen goal. Government, in of itself, is a disruption of natural resource distribution processes in the market.  There is not much that people would choose to do that government does, and what they would choose to do is done poorly by government due to a lack of price signals and competition.

Contra Hayek

Libertarians are individuals who promote the ideas of liberty, freedom, and voluntary association.  Put simply, a libertarian is one who promotes exchange brought about through one’s own choices and eschews compulsory or obligatory demands and responsibilities.  It would seem, therefore, a libertarian would also take issue with taxation – a levy imposed upon individuals; failure to remit tax payments results in punishment and legal consequences.

In “Why Did Hayek Support a Basic Income“, Matt Zwolinski presents a reconstructed argument based on statements made by Hayek in order to present an argument supporting a guaranteed minimal income.  Zwolinski’s presentation of the libertarian position does appear in agreement with one rejecting coercion and force.  The concept of negative liberties is brought forth quickly, assert that what “Hayek thought what freedom meant, at least in its relevant political sense, was essentially negative at its core.”  Negative liberties, as contrasted by positive liberties, is central to libertarian philosophy: ours is a philosophy promoting the removal and absence of hindrances and restraints.  This “freedom from” allows individuals to pursue their own means and ends, allowing a spontaneous order to emerge from the successes and failures of action.

Zwolinski also describes several characterizations of a market under the regulation of government: Failure to abide by government decrees and interference results in harsh punishment designed to incentivize compliance in most individual.  When the opportunity cost of seeking restitution against perceived unfavourable government fines and levies is perceived to be too great, individuals may opt to simply comply with the fine.

Coercion is expanded in two ways – presenting several examples in which employees are described as unable to demand favourable working conditions, firm management take advantage of some asserted disparity in exchange position by imposing draconian workplace environments.  We are to read about such examples and recoil in disgust.  Surely, though we are opposed to positive liberties, such abuses in the market cannot be allowed to persist!

Zwolinski now presents the main thrust of his argument: these examples of “market failure” justify the position of a basic income guarantee – a safety net that individuals who are unable (or unwilling, as will be addressed) to meet ends in a stateless society could utilize to maintain a more appropriate standard of living.  Many well meaning ends are presented: a guaranteed basic income could allow individuals in an otherwise unfit market to opt out, to allow individuals requiring additional training to pursue educational or vocational training without the fear and risk of catastrophic financial ruin, to allow individuals who could otherwise only pursue wage labour to start entrepreneurial projects.  It allows individuals otherwise unable to opt out.  It apparently allows these individuals to be “free”.

At this point, the anti-taxation libertarian should be jumping up and down.  “Taxation is coercion and theft!” is a common mantra heard by libertarians.  However, instead of addressing the libertarian’s concerns of taxation, Zwolinski instead presents an alternative evaluation of taxes.  Taxes, when levied by slavemasters and monopolists (and unionists, and worker co-operatives, (even the Quebec Maple Syrup cartel) are “bad”, but taxes levied to give a universal safety net is not “bad”.  Zwolinski also believes that coercion cannot be eliminated, which makes his understanding of a free market quite telling.

In economics, safety nets act as a subsidy for individuals.  They free up limited resources and capital for leisure while still satisfying higher demand priorities.  Matt Zwolinski has presented a justification for welfare on emotional, preference-based grounds, completely ignoring the economic consequences of such a program.  Any taxation program must exist by distorting free market pricing signals – individuals left to their own devices will make exchanges and will spend and save money in order to pursue profitable ends.  The focus in a free market is subjective profit, and the spontaneous order that emerges from this exchange results in capital and money moving to individuals who are able to satisfy consumer preferences, and takes capital and money from individuals who are unable to satisfy consumer preferences.  This is how the market “regulates” itself.

In any taxation model, the pursuit of profit is abandoned in exchange for the belief that a central firm is capable (regardless of willingness) of allocating resources better than a deregulated market with unhampered price signals.  Furthermore, what Matt Zwolinski has conveniently avoided is explaining how exactly a central firm will be capable (again, even with the most well meaning ruler) of allocating resources with hampered price signals.  Prices are important in a market because they provide information on the underlying reality.  Trying to obtain information about reality without price signals is extremely difficult and nearly impossible as the possible factors increase.  It is not a simple matter determining what information is relevant, where the information is found, or whether gathering non-price information is a useful surrogate for price signals (it’s not).  Central planners who hamper price signals through taxation end up finding the information gained from prices to be unreliable, and the result of even the most well meaning planner amounts to guesswork.  The future is already uncertain – removing useful information from the available tools is unhelpful.

In Zwolinski’s defense, he presents a glib example of a non-taxation model for a guaranteed minimum wage.  However the example is still a form of redistribution via taxation – by socializing profits from selling natural resources and depositing the profits into a community account.  Whether natural resources are completely controlled by the government or by redistribution of profits, the end result is still the same: it is not a direct tax, but price signals are hampered.  Furthermore, without the profit motivation inherent in free markets, resources are misallocated and there exists little to no disincentive for operating at a loss.  What would be the proposed backup plan should the natural resource firm not turn a profit?  Taxes.

Going back to the definition of a safety net as a subsidy, we cannot make the conclusion that subsidies are inherently “bad”, nor can we assert that safety nets ought to be absent.  Safety nets merely subsidize individuals’ higher demand priorities, and while it may result in a dependence on the safety net, attacking safety nets for promoting ‘lazy’ behavior is not a useful position.  In a free market, private charities offering safety nets can certainly exist, and it is through this channel that we can offer an alternative for Matt Zwolinski.

Private charities operate differently than tax funded firms.  Specifically, they are profit oriented, since operating at a sustained loss will inevitably result in bankruptcy and failure.  Profitable action can be achieved through coercive or “criminal” means, but without state sponsored safety nets able to distribute resources from individuals who otherwise would not exchange with the charity, behavior deemed unprefered by customers and donors will affect profitability.  This incentivizes private charities to not only be efficient with capital usage, but to operate in a way that benefits others.

The private charity’s profit motivation also affect its recipients. Individuals who wish to receive aid from a private charity have an incentive to conduct exchange in a way that is also mutually beneficial to the charity – a charity can choose to operate at a loss, but it cannot do so indefinitely.  This pressure for mutually beneficial exchange not only benefits those engaged in trade, but puts pressure on charities to efficiently and effectively allocate resources and capital.  Other individuals in the economy benefit from well managed resources.

Incentives aside, it is curious that Matt Zwolinski is promoting a guaranteed income.  Regardless of the mechanism that is used to fund a basic income gaurantee program, the results will always be the same.  We can see the issue more clearly by examing negative income taxation:

Negative income taxation is basically a progressive tax gradient that doesn’t stop at unemployment.  The labor pools available to employers at each pay grade for every industry shift down at the low capital level and shift up at the high capital level; basically more lower skilled people are available to work lower capital assisted jobs.  This encourages employers to employ lower skilled labor at lower wages.  On the flip side, we have two forces acting on high skilled labor:  Low skilled or medium skilled people perpetually locked in low capital assisted jobs unable to become high skilled or get assisted with more productive capital because employers are incentivized by the tax system to use these lower skill production functions.

The second force are the taxes themselves: the progressive taxation problem.  It diminishes labor pool availability of high skilled workers at a certain pay so that only the most highest skilled workers get employed.  Basically, due to money allocated in taxes, the employer has to bid at higher rates to attract productive labor.

It is certainly admirable to advocate for safety nets for individuals on hard times.  But Matt Zwolinski’s suggestion of a guaranteed minimum income will have incredibly destructive results.  The middle class will cease to exist, and wealth disparity will increase due to the pressures inherent in such a system.   The idea is rife with good intention, but is  ill-conceived, and demonstrably disastrous.

In closing, instead of justifying his position by an appeal to prominent libertarians, Zwolinski should argue the position based on its merits- if any.  Instead of advocating for a governmentally ensured “basic income guarantee”, Zwolinski should be pushing for private solutions to the problems facing the poor.  Some may contend that approach is too idealistic. Is it? 10 years ago, for instance, the idea to “End the Fed!” was hardly even fathomable, let alone auditing it. Yet, there is strong momentum for concepts like those, so there is no reason why private solutions such as charities, mutual aids, and so on couldn’t have support behind it. I won’t go as far as making the claim that Zwolinski is “not a real libertarian” or “revoke his libertarian card”, but it does him no justice to argue for a proposal that is demonstrably not in line with the basic libertarian principles of private property and individual action. That’s no good if our end goal is to eliminate the state as unjust. If you want to advocate change, then you most certainly must argue hypotheticals. If one change is better than another, which market based ones are, it is utterly insensible to argue that it is “hypothetical”, particularly when your own proposal is just as hypothetical and also (as demonstrated above) logically unsound.  One comes off simply as a hypocrite if you talk about limited government, but when someone proposes an actual limitation you prefer to “solve” the issue by “tweaking” government power over nominally private property.

Jeff Peterson II

We the Individuals