Day 241: Will Inflation be a Problem with Providing a Living Income Guaranteed?

‘Inflation’ is one of those big posh words that people like to use when they want to show off that they’re “in the know” of economics and money mechanics. You hear it on the news, tv, the internet and when you listen to other people talk about it, it never really becomes clear ‘what it is’ or ‘why it is so important’. But you won’t ask about it because you don’t want to appear like you’re “not in the know”. It’s kind of like the story of The Emperor's New Clothes, where only ‘smart people can see’ the clothes and where everyone pretends that they can see his wonderful clothes while he’s actually walking around in his undies (or naked depending on your source )… It’s just something everyone has agreed upon has ‘great importance’ but no-one really knows the “how’s” and “what’s” and no-one questions it.

So is inflation really this ‘big’ and ‘complicated’ concept that only our economists are in the know about? Not really. I mean, one of the first things you will learn when getting to the topic of inflation is that there is very little known about the exact causes of inflation and how good or bad it is for the economy. Most of the time, the concept will be used to suite the authors ideological standpoint and so you get a lot of conflicting answers to the same question.

So what is inflation? Inflation (because no-one really knows how it works) has been given a very simple and broad definition – so that you can’t really ‘go wrong’ with it:

“Inflation simply refers to the continuous increase of prices in an economy. So - two points are important to note: if prices go up and then remain stable for a while, we don't refer to it as inflation, as inflation only applies to a continuous increase in prices. Secondly - if the price of petrol keeps rising, but all other prices remain somewhat stable, we're also not dealing with inflation, because in the case of inflation all prices keep rising.” 

This is taken from one of our previous blogs we made which was on the topic of Inflation, so if you want to read up about it you can do so here: Day 64: Inflation - Part 1 (also read the comments).

So you see, inflation is nothing scary or complicated, it’s just prices of all things going up and up over time. When the ‘issue’ of inflation is brought up, it’s not so much the rising of the prices that is an issue – but the wages that lag behind. Because what happens is that you used to be able to buy say a thousand breads with your monthly salary, and with the prices going up and your wage remaining the same – you can now suddenly only buy 800 breads. So here, you have a problem because your purchasing power has been diminished. Because obviously so long as you keep the variables on either side of your equation in proportion – you won’t have a problem and you’ll be able to buy just as much. It’s only when one variable goes up and the other one stays the same or lowers – that you get a problem in your proportions. What happens then is that people will start buying a lot and hogging things because they fear the future prices which will be higher, but then within this increase in consumption place the products in ‘higher demand’ and thus up the prices again – so it becomes a self-fulfilling prophecy to the point where you get hyperinflation.

So with putting into place a Living Income Guaranteed to ensure everyone’s Living and placing in a Minimum Wage amounting to double the LIG – yes, your prices will go up and so yes, that could be considered ‘inflation’. But remember that inflation in itself a neutral manifestation – meaning, it just is what it is as pricing going up. It doesn’t mean anything else. It only starts meaning something else when we fail to adjust ourselves where nominal wages remain the same while real wages go down. So yes, there will be inflation but it won’t be a problem from the perspective that your prices are directly linked and interconnected to your wages where at all times your Living is Guaranteed and thus your wages / living income will adjust to the prices to make sure everyone is able to live decently and vice versa where your prices will adjust to ensure that you get a decent wage. Here one must also consider that we will have Bureaus of Standards in place managing Quality Assurance and Control where there will be a move from obsolescence and disposability to quality and durability – which means that you will have to buy less.

So from that perspective – the whole “inflation” horror story will become something of the past as it simply won’t be able to affect anyone to the point where it does damage, as your wages and prices are no longer separate bodies but closely connected and intertwined. You will thus at all times, be protected.

Another point where inflation becomes a problem is when it is linked to a growing money supply without a matching growth in economic activity. So when the government for instance decides to finance its debt simply by printing money – you suddenly have an increase in your money supply which makes money ‘worth less’ (because ‘scarcity’ makes things ‘more valuable’ and so the opposite happens). Because this money came out of nowhere without originating or being connected to any form economic activity of real value such as labor and production – your system / equation gets thrown out of balance and all these money born out of ‘no value’ in turn has the effect devaluing / tainting all other money already present.

This type of situations will not be occurring within a Living Income Guaranteed as proposed by the Equal Life Foundation, as you will be able to discern for yourself from our previous blog on banking: Day 240: A Bank for the People, as banking/financing will always be directly related to actual activity, actual growth and actual value – and will thus not be able to throw the system out of balance.

Also check out Will the Living Income Guaranteed cause Inflation?, to get a new perspective on Inflation and to see and realize how inflation it its traditional use of the word has become a distraction of the actual Inflation taking place in our lives and in the economy – where inflation is an actual problem.

Related articles

• Day 330: Inflated Egos, Deflate Reality.
• Day 252: The Rich Be Cursed, The Rich Be Blessed
• Day 251: Living Income Guaranteed and Market Mechanics
• Day 227: The Myth of Conscious Buying
• Day 226: Living Income Guaranteed will Prevent Destruction of Homes

Day 240: A Bank for the People

We have an interesting point being taught in economy books - which is that an increase in investment spending has an expansionary effect on the economy - because money is invested in certain products and therefore, people are being paid or jobs being created, which means an increase in income, which means more consumption spending and so a multiplier effect sets in - because, in turn, consumption spending increases income, which increases consumption spending, where of course the increase each time becomes smaller and smaller and eventually 'dies out'. However, on the flip side - what is not spoken about in the text books, is how, at the same time as a multiplier effect is in progress - there is also a growing debt - because interest rates cause a debt to increase over time as well. And this debt, which is eventually a multiple of the initial loan, must be repaid, and so money again disappears from the economy, causing the economy to shrink.

So, within Living Income Guaranteed, we suggest banking will still be relevant from the perspective of big capital investments such as housing or cars. In some countries, we see a rising trend of loans being taken out, not for such big capital expenditure, but for day-to-day living costs, such as food and clothing. Such points will stop within Living Income Guaranteed, because one will be guaranteed to have an income that is sufficient to provide oneself with these basic necessities.

So - when it comes to loans, banks will herein make money through asking for a once-off fee rather than an interest rate - where this fee must cover labor costs and a profit markup - where the fee is reasonable from the perspective of what is required for banking to be profitable without creating a monopoly on money. And of course loans must only be undertaken if the capacity exists for the debt to be repaid.

The creation of money through fractional reserve banking would have to be revised and a way of money-creation be devised so that it stands in relation to supporting the rate at which the economy is growing - which must take into account population growth as well as available resources.

So - herein, banking becomes an actual life-support system where big investments can be paid over time and where it will increase and support the value of the citizen in terms of their life. And thus, the banking system becomes a means to truly supports economic growth as well as the growth in value of a citizen's life.

Related articles

• Money for Nothing: Switzerland Eyes a Basic Income Guarantee
• Switzerland's Proposal to Pay People
• Day 251: Living Income Guaranteed and Market Mechanics
• Day 226: Living Income Guaranteed will Prevent Destruction of Homes

Day 233: Can LIG provide us the punch to beat the recession?

Whenever the point of policies in relation recessions opens up in economy textbooks, we look at expansionary and monetary policies to help stimulate the economy. Within this government spending, taxation and interest rates play a major role. Here, we are pulling strings from a giant tapestry, hoping that a pull here and there will have an effect way down, on the other side of the tapestry, somewhere down the line… (if we allow enough time to pass by of course).

Yet, we can stimulate the economy a lot more effectively by boosting the aggregate demand in the economy, through the implementation of a Living Income Guaranteed
.
By granting everyone who does not have access to a stable income with a grant that allows them to live a decent life, we generate a greater level of disposable income. Those who were previously surviving and saving – now transfer more money towards spending and consumption.

As disposable income goes up, demand goes up, spending goes up and the wheels of the economy are greased up: economic activity goes up and economic growth is being promoted! As people want more things, more people need to be employed and the unemployment rate goes down. People get their needs taken care of, suppliers and producers are able to sell their things and jobs are being created.
As the economic capital grows, the social capital improves as well. As people’s living standards rise, people become more effective and efficient in their activities.

Implementing a Basic Income Grant System, is a win-win situation.

Check out the following blogs for more information:

Living Income and Nationalized Resources

Living Income Can Save Capitalism

Living Income and Minimum Wage

Living Income Guaranteed and the Nationalization of Banks

Living Income Guaranteed and Pensions

Day 55: Measuring the Performance of the Economy: Macroeconomic Objectives

Within the next few blogs we’ll be looking at how economists currently measure the performance of the economy, and by what criteria they are measuring it by. In this blog we’ll be discussing the macroeconomic objectives. These objectives also give a nice indication of what it is that is being valued within the area of economics.

There are about 5 objectives which are regularly listed when looking at macroeconomic objectives:

1)    Economic growth
2)    Full employment
3)    Price stability
4)    Balance of payments stability ( / external stability)
5)    Equitable distribution of income

1.     Economic Growth

Economic growth is considered to be the most important criterion, and is the one criterion which will be given the most weight when evaluating and comparing economies.

Economic growth sounds like a very big concept, but it really just refers to an increase in the total production of goods and services from one period to the next – usually one year.

So this is quite a ‘vague’ and ‘undefined’ goal – as all it stipulates is that there must be some sort of increase in the total production of goods and services – no matter what these goods or services are, or whether they are beneficial to the whole of society or not. A conventional economist might tell you that the goods and services produced will obviously be that which is required to be produced for the good of society, as what is produced and how much is dependent on supply and demand. And so – if someone were to produce something which is of “no value”, no-one would demand it and the person would soon be going out of business – and within this manner the economy eliminates any and all apparently unnecessary goods and services, and justifies what and the quantities which are being produced: it’s demanded! If people are willing to spend money on it, it means they value it, if they value it, it means it brings them happiness --- so, if we produce what is demanded then we are increasing everyone’s happiness and being a good person!

But now obviously, since the majority of the wealth (= money votes) lies in the hands of the minority, then we are really just producing/providing/catering for a handful of people, and only producing/creating things which they think are important, and so all the needs and wants of the remaining majority aren’t catered for because they do not form part of the ‘demand’. And then we go and measure the ‘performance’ of the economy in terms of how much ‘stuff’ is produced – and the more the better. Measuring the performance of the economy this way, gives you no indication whatsoever in terms of how the whole of society is faring – isn’t that what realperformance should be about?

2.     Full Employment

Ideally, a country wants all its factors of productions, and in particular ‘labour’ to be fully employed. In practice however, there’s always unemployment. The main concern with high unemployment rates are political and social stability – as high unemployment might disrupt social and political cohesion which then affects the economy as well. Can’t let that happen! These are considered the ‘social costs’ of unemployment. Personal material and psychological suffering is only a personal cost, and is obviously not that big of a deal – otherwise the economy would not be standing on the principles of supply and demand and the starting point of self-interest.

Full employment should really not be such a ‘major deal’ – the only reason why we are making employment so important is because we’ve accepted and allowed ourselves to create a system which requires you to earn your living. And so, if you do not have a job, you are unable to support yourself, and you are rejected by the system. We then have people working multiple jobs getting barely any sleep just to get by, while others live a life of extravagance, having other people employed to do all the work while they do nothing at all. So you see, there are two extreme polarities – and we can easily balance this out so we can have a world where we do not have to work all the time for the majority of our lives. We will then not have full employment, but it wouldn’t be necessary either. Because you’d for instance go to school while you’re still very young, then you work for a few years – and then after that, it’s up to you whether you want to work or do something else. Doesn’t that sound nice?

3.     Price Stability

Price stability as an objective refers to keeping inflation as low as possible. So prices will still change according to the interaction with supply and demand. To check the movement of prices, the Consumer Price Index is used – which will be explained at a later stage. Inflation is unwanted for distributional, economic and socio-political reason, which we’ll explain when we get to inflation (but simply put, inflation is harmful to the economic status quo – as it creates unrest and the system stops working the way it should be, where those who are supposed to lose now win and vice versa).

4.     Balance of Payments

This concept of ‘Balance of Payments’ refers to the money going in and out of a particular country – within the movement of imports and exports, over a particular amount of time. The Balance of Payments is usually calculated every quarter and every calendar year. In theory, the Balance of Payments should be zero, meaning that what goes out (‘debits’) is balanced by what comes in (‘credits’). In practice however, this barely happens – and so the Balance of Payments can be used so show whether there is a surplus or a deficit and from which area in the economy these unbalances are coming from.

5.     Equitable Distribution of Income

Now we actually get to a worthwhile objective, and then this objective is something economists do not like to discuss because it involves subjective/normative issues – and so they rather not say anything about it, expect that it is ‘controversial’ and then move on to the next topic. Very sad.

When looking at the distribution of income, there’s no mention about ‘everyone deserves access to basic resources’ or things like that, no, no – instead they look at how ‘income inequality’ is a means of stimulating saving and investment which apparently would eventually also benefit the poor (but I mean, if you just give everyone a basic income, then you don’t have poor people in the first place – I mean, it’s really that simple). But then they say, on the other side, inequitable distribution of income, can lead to feelings of injustice and unfairness, which may stir up unrest and then affect the structure and development of the economy. So here you have a ‘pro’ and a ‘contra’ for income equality/inequality – but what is fascinating, is that in each of these statements, it is always the interest of the ‘economy’ as some holy spirit/entity which gets to take center stage, where the preserving of the ‘economy’ is the number one priority – and all the unfairness and suffering is secondary. But what is the point of keeping an economy alive which is not Best for All?

The only reason we currently have middle-class, is so they can be the ‘buffer’ between the rich and the poor which keep everything stable and prevent any ‘unrest’ and ‘instability’ for the sake of the Preservation of the Economy. This concept does way back, all the way to Aristotle who saw just the same.

But this basically implies that, if we as humanity could have gone without the middle-class and have an even wider separation between the rich and the poor without it causing ‘unrest’ – we would have done so.