Thursday, February 18, 2016

Powerful Political Forces are Aligning Behind Minimum Income

Basic income is where the government gives all citizens a set amount of money. It's a topic that Canada's ruling party endorsed before they came into power, and which Canada's largest financial news paper is discussing:
It is not a new idea, much the opposite. Its many champions include American Founding Father Thomas Paine, on the grounds that everyone is entitled to share in general prosperity. He thought the state should pay citizens a bonus, perhaps on their 21st birthday, which would minimize the “invidious distinctions” between rich and poor. Unlike his other views, it did not catch on in America.
But it became unusually popular over the past year in Canada, with top-level political support everywhere from Alberta to Prince Edward Island and official Ottawa.
A socialists pipe dream, you might say. But, it may be an idea's who's time has come as the threat of deflation appears once again as the situation may be arising where the interest of socialists and central bankers are aligning behind this policy.

The last financial crisis taught central bankers that they need to act fast and inject liquidity to fight deflation and stave off severe recession. Central banks have adopted very unconventional policies, like negative interest rates and quantitative easing. With these weapons deployed, would central banks be out of 'bullets'?

No, because they would still have Milton Freidman's famous helicopter money drop. Previously, this took the form of quantitative easing. But more QE may not be politically palatable, as it disproportionately benefits the wealthy, hurts pension plans, and may lead to banks simply hording cash. Unconditional basic income, on the other hand, would get money to people who will spend it. Which would fight deflation and satisfy people's needs.

Therefore, this may be the answer to the world's next financial crisis.