Free money for all could jumpstart the economy: Don Pittis

If someone handed you a bundle of free cash, would you stop working?

Perhaps that's what has happened to our economy. As governments create more and more free money in the form of no-interest loans and inject it into the financial system, companies have stopped investing in the future.

Instead, as Edward Luce noted the other day in the Financial Times, companies are pouring hundreds of billions of dollars into share buybacks that produce nothing. Except higher share prices, and therefore higher executive bonuses.

"If you need an explanation for why the top 0.1 per cent is doing so well," says Luce, that is where to look. Luce's solution is to change the rules so that executive earnings are based on something other than short-term share prices.

That's one solution. But a bunch of very smart people think there is another way to solve our economic problems in Europe and North America: Stop handing out free money just to rich people, and instead start handing it out to everyone.

Yes, to everyone.

A wild idea

For many of us steeped in the conventions of Economics 101, it sounds crazy. But there are many who say it is not just a good idea. They insist it is absolutely essential if we expect our developed world economies to survive and prosper in the face of radical change.

• Desperately seeking economic health in the era of free money: Don Pittis

Early economists such as Robert Malthus referred to a "natural wage rate," which was just barely enough for subsistence. In his model, people worked to keep from starving, and those who did not earn enough died, thus limiting the total labour supply.

This "Iron Law of Wages" has been watered down over time, but if you look at recent comments from U.S. Republicans including on the sterilization of people receiving welfare the idea is far from dead.

That is why something called the Universal Demogrant seems so wild. Because what it entails is handing out about $18,000 cash to every citizen of working age.

The $18,000 number pegged to one of the measures of poverty was proposed by demogrant advocate Richard Pereira, a former House of Commons researcher now studying global ethics.

He says handing out free money will actually save money.

"Look at how much money it costs to ensure someone is down on their knees and so desperate, and their assets almost wiped out, before they can apply to welfare," says Pereira, pointing to the huge bureaucratic costs of means testing. "These resources can be redirected to a demogrant."

Effectively the demogrant is just one form of guaranteed annual income (GAI), famously promoted by former Canadian Conservative senator Hugh Segal. The amount of money involved and the details of the system for distributing it are slightly different in every plan.

Segal prefers the GAI to be based on a "negative income tax," or "income top-up" of the type that cut poverty among the elderly "from over thirty percent to under five percent without the hiring of additional civil servants largely because the tax system was the chosen delivery instrument," he wrote in a piece for Huffington Post.

As the Conference Board reported this week, the growing income gap between rich, old Canadians and poor, young Canadians means it may be time to take Segal's advice and distribute the wealth more generally.

No stigma attached

The advantage of the demogrant is that it comes without a stigma. Every person of working age would get the money. But as with the existing Canadian universal demogrant known familiarly as the"baby bonus" not everyone would be able to keep it.

As a person's income grows, the income tax system ensures they would gradually get to keep less. That keeps the costs down without discouraging people from trying to earn more.

As well as wiping out the bureaucracy of welfare, as Pereira suggests, there are other cost savings. The young would be some of the biggest beneficiaries. Students could use the money to pay for their education, thus eliminating student loan programs. Students from poor families could afford to take courses to improve their skills.

The old age security system could disappear. So would the baby bonus itself. The demogrant would supplement government programs such as minimum wage, EI, CPP/QPP, disability allowance all resulting in bureaucratic savings.

But going back to my original question: if you got free money, would you continue to work? Experimental programs, including one in Dauphin, Man. in the 1970s, show that the answer is yes.

As Pereira points out, scratching out a living on the demogrant alone (which some suggest would vary with local living costs) would mean you could never have a house or a car, or any of the minor luxuries we all expect.

But there is another reason to introduce the demogrant. And that isthe changing nature of work in the automated age.

Martin Ford, author of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future, worries that we are on the way to a world where robots do most of the work, driving up unemployment to levels never seen before.

"How do we get an income into people's hands so that they can survive, so that they are not on the street?" Ford asks.

He says an economy needs more than the invention and manufacture of products. Someone has to buy them. And those buyers perform the important function of selecting which technologies are most workable and effective.

"The market, where people go out and make purchasing decisions, [is] very important to driving our economy," says Ford.

At some point, he says, we may have to give people an income just so they can continue to perform that essential task.

"If not, then there simply may not be enough people out there to really create that market."