Sunday , May 27 2018

Why lots of big and bold ideas are better than one

Big ideas are in the air. After a few years of fighting over a few percentage points in the top marginal tax rate, some leaders are starting to discuss sweeping changes in economic policy. One of these is the universal basic income, the idea of giving every adult citizen a yearly stipend. A second is the job guarantee, in which the government would provide work to anyone who wanted it. Other ideas like a social wealth fund — which would have the government manage investments on behalf of citizens — haven’t hit the big time yet, but are percolating in intellectual circles. And these are all on top of existing big ideas like single-payer health care.
Any one of these programs would come with an enormous price tag. A basic income of $10,000 a year, paid to each of the US’s approximately 245 million adults, would cost about $2.45 trillion a year. Providing jobs to 10 percent of the population, at a salary of $25,000, would cost upward of $750 billion a year. Estimates for single-payer health care are in the trillions of dollars a year. And a social-wealth fund would have to be funded out of tax revenue.
Those are big numbers. Current federal revenue is only about $3.2 trillion. Implementing all of the big ideas at once would more than double that. Even if the government programs didn’t reduce gross domestic product by crowding out private-sector activity, it would require a dramatic increase in taxes to fund the added spending. The US hasn’t experienced such a big expansion of government since the World War II:
Raising taxes to cover this amount of spending would be a very difficult task. Despite big changes in top marginal tax rates — from 91 percent in 1945 to 31 percent in 1991, then back to 39.6 percent in 2013 — tax revenue has remained very constant as a percent of GDP in the postwar period. Raising tax rates is easy; actually getting more money is hard, since rich people reliably find ways to avoid taxes.
Of course, there’s also the possibility that the US wouldn’t need to get the money. There are those who believe that deficits don’t matter — that because the US is a sovereign nation and can print its own currency, it can always fund any deficit spending by sending interest rates to zero and then having the central bank buy government bonds. As long as inflation doesn’t materialize, the thinking goes, deficits are no problem. In intellectual circles, this view is largely confined to a narrow slice of the left, but in recent decades, Republican politicians have been acting as if they believe this theory too. Nevertheless, it seems likely that deficits are subject to political constraints, even under Republican administrations — government debt scares people, whether it ought to scare them or not.
Given constraints on deficit spending and tax revenue generation, the big new economic ideas are in conflict — more money for a basic income means less money for a government jobs program, and vice versa. For this reason, supporters of the various initiatives, especially UBI and the job guarantee, tend to fight a lot, especially online.
But these fights are counterproductive, for several reasons. First, it’s good to put forward all of these big ideas, even if the combined price tag would cause sticker shock. Advancing all of the proposals at once reinforces the idea that something big needs to be done to alleviate stagnant wages and rising inequality in the US. By getting all of the proposals into the public sphere, progressives can make sure that each one is lodged in the public consciousness, increasing the odds that at least one will eventually get implemented.
In truth, that implementation will have to be carried out by future a Democratic administration with a broad electoral mandate and a sympathetic Congress — essentially, a Franklin Delano Roosevelt for the modern age. If and when such an administration appears, it’s best if it can choose from a menu of big transformative projects, instead of being forced to go with whatever single idea is in vogue.
Second, most of these ideas can be implemented on a small scale and then scaled up if they’re successful. A universal basic income could be small to start with — only $1,000 or $2,000 per person. Evidence shows that this level of basic income doesn’t discourage people from working, so it would be safe to try nationwide. A job guarantee, meanwhile, could start as a work provision program — perhaps as federal block grants to the states to provide minimum-wage jobs to the long-term unemployed. That would help assess whether people actually wanted the jobs, and how effective the program was at raising overall employment levels. Meanwhile, a social wealth fund could easily start small. Of the big ideas, only universal-health care is an all-or-nothing proposition.
So progressives shouldn’t fight tooth and nail over this program versus that program. And centrists shouldn’t worry that progressives have gone off the deep end simply because they’re throwing out so many big ideas. It’s good to get lots of ideas out there, try them out on a small scale, and then build them up if they work.

—Bloomberg

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion

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