In episode 137 of Economics Explored, Australian Universal Basic Income (UBI) advocate Michael Haines chats with show host Gene Tunny about the benefits and costs of a UBI, with an extensive discussion of how it’s paid for in Michael’s proposal. The conversation considers money creation and so-called Modern Monetary Theory (MMT).
You can listen to the conversation using the embedded player below or via Google Podcasts, Apple Podcasts, Spotify, and Stitcher, among other podcast apps. A transcript and relevant links are also available below.
About this episode’s guest – Michael Haines
Michael Haines is the CEO of VANZI, the Virtual Australia and New Zealand Initiative. Michael has 40+ years of experience in a wide variety of senior management and consulting roles across a range of industries: government, telecommunications, brewing, construction, consumer goods, car manufacturing and transport and logistics covering a wide range of disciplines. While he has previously sat on the Board of the Australian Logistics Council and remains a member of Austroads Intelligent Transport Industry Reference Group, he was instrumental in establishing VANZI and his entire time is now devoted to the VANZ project.
Links relevant to the conversation
UBI: Universal Basic Income w/ Ben Phillips, ANU – EP126 – Economics Explored
Basic Income Australia (overview of UBI policy Michael is proposing)
Money creation in the modern economy | Bank of England
Transcript of EP137: UBI advocate Michael Haines on its benefits and costs
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:01
Coming up on Economics Explored.
Michael Haines 00:04
Whether it’s through accident, the health, being sacked, being divorced and losing the income of your partner. All sorts of reasons why suddenly you lose that income. Well, if you’ve got a UBI coming in, at least you’ve got enough to live on.
Gene Tunny 00:24
Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist based in Brisbane, Australia, and I’m a former Australian Treasury official. This is Episode 137, on benefits and costs of a UBI, or universal basic income.
I’m joined this episode by a retired Australian CEO in the manufacturing and logistics sectors, Michael Haines, who has been doing a lot of thinking about the benefits of a UBI and how to cover its costs. This conversation will give you a good idea of what advocates of a UBI see as its major benefits. You’ll also hear a discussion about the relevance of so-called modern monetary theory, MMT to the UBI debate. If you’re a regular listener, you’ll know that I’m highly sceptical about both UBI and MMT. But I did my best to remain openminded in my conversation with Michael.
Please check out the show notes for relevant links, any clarifications and for details of how you can get in touch with any comments or suggestions. I’d love to hear from you. As Michael indicates in the discussion, he’d welcome your thoughts on his ideas and his proposal. So please send them my way. And I’ll pass them on to Michael. Righto. Now for my conversation with Michael Haines on the benefits and costs of a UBI. Thanks to my audio engineer Josh Crotts with his assistance in producing this episode. I hope you’ll enjoy it. Michael Haines, welcome to the programme.
Michael Haines 02:01
Well, thank you, Gene, very much for having me here. I’m really excited to have the opportunity to speak to your audience who is probably more educated in these topics than the people I normally speak with. So I’ll be looking forward to any feedback you receive.
Gene Tunny 02:17
Okay, yeah. So keen to chat with you about universal basic income. I’m interested first in your journey to becoming an advocate for a UBI. Could you take us through that, please, what got you interested in this as an idea, and then we can go into what you see as the merits of it.
Michael Haines 02:39
Have you got time for a life journey, Gene?
Gene Tunny 02:41
Oh, please.
Michael Haines 02:42
Back in the 1980s, I was group general manager of one of the top 200 public companies, and first to actually, as far as I know, get involved in the use of trusts to minimise tax in a public company. And in the course of that, I guess I began to query myself as to the whole issue of why we pay tax and the complexities of our tax system and money system. And so through that, I just took a journey myself to explore tax law and integration with the money system, banking system, and so on, and develop thoughts then around how we might integrate a flat tax system on spending with a flat payment, which is effectively a UBI, which would turn the tax on spending effectively into a progressive tax on income if it was structured correctly. So I have worked my way through that for quite a few years and talked to a few people about it. But it really never gained any traction. I didn’t have the academic background, because I was involved in business, to really progress it, and drifted over the years.
And then I guess more recently, it’s become apparent that across the world, there’s a lot more interest in a UBI. And that spurred me to… I’m now 73. So I’m effectively retired. It spurred me to do something about it. So, a bit over a year ago, I got involved with a group called Basic Income Australia. And through them, I undertook the task to write a policy document, which is about 111 pages long, and I don’t expect anybody to read it. It was really aimed at capturing our understanding of all of the ins and outs of a UBI across the world, pilots that have been undertaken, what they tell us, what the academic community feels about it, pros and cons, and then to, I guess, evolve the ideas that I hope to talk to you today about, which we believe provides a bit of a different wrinkle to how UBI is seen and how it can be implemented with relatively low risk. So that’s my journey.
Gene Tunny 05:17
Right. And can you tell us a bit about Basic Income Australia, please, who’s involved in it?
Michael Haines 05:23
It’s just a small group that was started by a guy called Josh McGee a few years ago. He’s a highly talented mechatronics engineer, and he’s just qualified. And he took an interest in the UBI quite a few years ago, and gathered together a group of miscellaneous miscreants who had a similar interest. And so it’s not a professional group. It really is a cross-section of people who are interested in seeing the basic income become a reality in Australia. So I guess I’ve endeavoured to bring some sort of more rigour into the specifications of what a UBI might entail. And that was through the process of writing that policy document. So I’d very interested in, as I’ve been speaking to you earlier, to get the feedback from your audience, as to what they think about the proposal.
Gene Tunny 06:27
Absolutely, and I’ll put a link to that policy document and some other articles that you’ve prepared, or that you were telling me about, some Medium articles, is that right?
Michael Haines 06:37
I’ve just completed a series, or completed a series of about seven articles that look at the rationale for UBI compared with welfare and the job guarantee, look at how we can implement it without increasing taxes or debt or taking money from other programmes or incurring excessive inflation. So that sounds like magic. But we believe that there is a way to do it. Another article then considers in more detail, how to implement it with low risk. And then three papers looking at the benefits. About 24, we’ve identified for the individuals, about 19 or so I think, or 17 for business and the economy and maybe 19 for government and individuals. So that series, we hope, they’re only about a five-minute read each, should give people a good understanding of what we’re about.
Gene Tunny 07:39
So it’s interesting, you were thinking about this in the 80s. And that it’s recently that you’ve come across this UBI idea, that this is something that is, this idea is taking off worldwide. And I’m trying to remember when I first heard about it. It probably would be in the last maybe 5 to 10 years, it’s associated with the sort of Silicon Valley crowd, isn’t it?
Michael Haines 08:05
[Unclear 00:08:05] and BIEN as well, Basic Income Earth Network, which Guy Standing and others have been involved in. I think the history of it goes back to Thomas Moore, and others. So we’re talking about people throwing these ideas around for a long time. But one of the biggest concerns people seem to have, and rightly so, is the cost because most people say that’s a wonderful idea. And, you know, if I was to say, well, we’re gonna give everybody a super yacht, similarly, that’s a great idea. Yeah, I’m all for getting my own super yacht. But, you know, quite realistically, we can’t pay for it. So that’s one of the major focus points that we’ve looked at, you know, how do we afford it.
Gene Tunny 09:03
Yeah, yeah, we’ll definitely come to that. I just want to start off with… Before we get to that, I’d like to ask you, what do you see as the merits of a universal basic income? And I know that you’ve referred back to, well, prehistory in a way, haven’t you, in thinking about that? So could you take us through what you see as the merits of it, please?
Michael Haines 09:28
If we go back to prehistory, every human born had a basic birthright, which was to live off the land. And the richness of the land would determine basically how well you lived, but that birthright was there regardless. With the advent of property rights and money and a system of paid work, that is no longer available for most people to live off the land. It’s meant that the human species now, at least in the developed world, is absolutely reliant on money. You have to have money if you want to buy a sandwich down the street, a bottle of water. It doesn’t matter what, money is the source, or the access point for the resources that you need to survive.
And so given that, we then have to look at well, while this whole new system has been really advantageous for the great bulk of people, lifting living standards, health and so on, for a section of the population, it has really left them out. About 12 to 14% of the population, in most of the developed world, live in poverty. They’re mostly single women with kids, aged, disabled, they’re unpaid carers, mostly family, and also people who are between jobs, all of whom lack savings and family support. So in Australia, that’s about 3.2 million people and 17% of all children.
So it’s an indictment not of those individuals, but of the system, that they are living in poverty in what is essentially a very wealthy country. So there is no doubt that we have the resources to ensure everybody has enough to survive, food, clothing, housing, and so on. So what is lacking is neither the resources nor the money. We create the money. So what the problem is, is getting the money into the hands of people who need it, and the way that we’ve traditionally done that is through welfare.
But welfare comes with a poverty trap. And that is, it is perfectly rational for a person to look at a benefit and say, I’m gonna take the benefit instead of this shitty low paid job. So it’s nothing to do with moral failings. It’s, you know, you and I, given the choice between the two, we’re gonna say, well I’m gonna take the low pay benefits. So it is then perfectly rational for government to say, well, hang on, we’ve got work out there that needs to be done. We got people who are capable of doing it. So we must keep the benefits really low in order to encourage those people to take the work that’s available. And that works in the main, right? People, if they can get off the welfare benefit and into work, and they can do it, they will.
But there is a whole section of the population who cannot do paid work, which as I said, is the single women who are caring for kids and they’re carers for the aged and so on, so that it’s creating a poverty trap, which we could solve with more welfare, or higher benefits, if we absolutely could guarantee the ability to identify those people who genuinely can’t work at any time, and have a real time system that as soon as people fell into poverty or came out of it, we could always capture them immediately. And some countries do that better than others, but nobody has really solved it, because as we said, across the world right now, we are faced with 10, 11, 12, 14% of the population who are in poverty.
So what we’ve looked at is said, well, a universal basic income in which everybody has, as of right, a payment to ensure they can meet their needs, well then they’ve got that money, there’s no need to apply. There’s no need to justify. And if you suddenly find yourself without an income, so most people are at risk of losing that income overnight, whether it’s through accident, their health, being sacked, being divorced and losing the income of your partner. All sorts of reasons why suddenly you lose that income. Well, if you’ve got a UBI coming in, at least you’ve got enough to live on.
And so yeah, that’s where, I guess what we saw as the rationale for a UBI. But we’ve also identified over 50-odd benefits that once you do have it in place will flow from it. So I don’t know where you’d like to go from here. I can talk through how we might fund it, how we can introduce it, we believe, with low risk, and what some of the benefits are.
Gene Tunny 14:51
I’m keen to stay on the benefits for a while. What do you see as those as those benefits? I mean, you talked about the fact that it is an income redistribution tool.
Michael Haines 15:04
Can I stop you there, Gene? I don’t see it as an income redistribution tool. And this is why it’s necessary to explain how we see funding it. Because we don’t believe it is necessary to take anything away from anybody in order to ensure that everybody has the basics, simply because we do have the resources in Australia, to feed people, to clothe them, and ultimately to house them. What we don’t have is a mechanism to get the money into people’s hands. And so we believe we can do it without redistribution, which is what I’d like to explain.
But if we put that aside for the moment, and again, just look at the benefits, for a very simple one, it would reduce for an individual reliance on debt. So no more payday loans and the stresses that that brings. It provides us with sort of indicated income and basic income insurance, because if you lose your job, at least you’ve got that money coming in to live on. It eliminates, as we said, the welfare poverty trap. It eliminates bureaucracy for people. You no longer have to be worried about, you know, these mutual obligations and ticking boxes and just going through the hoops, for the sake of quotes, proving your entitlement. It eliminates social stigma and intrusion into your life, because you’re just getting it as of right like everybody else is. It underpins lifelong learning. It means that people who might want to take some time off to do a short course will cut back their hours. So I can’t do that. I’m struggling to meet my daily needs. With the UBI coming in, it will assist them in that.
It empowers people also to do the right thing. So we know that people through the threat of poverty are forced to do unsafe, illegal and unethical work. And when now as a society getting to the stage where we’re recognising the need for consent in the bedroom, a UBI empowers people to have that same consent in the workplace to be able to say, no, this is unsafe, this is illegal, this is unethical.
It provides some flexibility too for where you might work and the type of work you do, because it gives you some income to actually move to where the work is. If you are destitute, it’s all very well to say, hey, there’s new work in New South Wales. But how do I get there, and my few goods from where I am to where the work is? But with the money coming in, it provides increases in employment opportunities, because what it means is that as the money gets spent into the economy, it is going to generate more demand, which will generate more need for more labour.
It provides some recognition for in-home care and home maintenance and looking after families and creating the social bonds that people do who are not in quotes paid work. But maintaining those social bonds in the home are critical to a well-functioning society. At the moment, we don’t place any monetary value on that, and a UBI would, by paying a person to do that work. In effect, it provides respite for home carers. So people who are struggling to look after aged and disabled now will have a bit more money coming in to maybe put the person that they’re looking after into care or taking some time themselves. It actually adds to the income also of the aged and disabled.
We see it working such that the UBI would be treated as income under our existing welfare systems. So as the UBI increased, it would naturally reduce benefits, but the benefits would remain intact. And so depending on the level of the UBI, it would supplement the benefits that are netted from the existing system so nobody can be worse off. But most people in that circumstance should be better off.
Another big factor is it ought to reduce the incidence of family violence and also facilitate escape, because a lot of family violence is created from the financial stress that occurs when people are living on the edge. And so by leaving that financial stress, it should reduce the incidence of violence, but for women, and it’s mostly women who are caught in that sort of relationship, they now find that they can’t escape, because where are they going to live? How are they going to survive? They’ve got no income, they’ve got no job, whereas with a UBI, they’ve got that money coming in and can move anonymously and set up a new life. So it helps them. As we said, it is enables escape from poverty. That’s probably number one.
From around the world, we’ve seen studies where ensuring people have enough to live on, it improves their cognitive function and improves behavioural disorders, prevents suicide that is driven by financial stress, helps kids focus on schoolwork and higher education, for the same reasons it improves cognitive function. And evidence from the pilot says that it also improves nutrition, and in fact, reduced alcohol and tobacco use.
Gene Tunny 21:18
Right. Do you know which pilot that was?
Michael Haines 21:20
Yeah, I can give you that detail. I haven’t got it off here. But I can certainly give you that. And it would enhance self-determination, which is especially important for our First Nations people who have for a couple of centuries now been treated as a society of dependent individuals who have to be looked after, and so on. Whereas, if we pay UBI, unconditionally to everybody, well, that includes those of our First Nations people who can then make their own decisions that they are able to thrive instead of just simply survive, especially by pooling their resources, and so on.
So, I mean, these aren’t silver bullets that are going to solve all the problems, but they are additive and cumulative in the way that they can help us address some of these issues. So that’s just the 23-odd benefits for the individuals. There’s a whole lot for, as I said, business and the economy, for government and for the people in general. I don’t know whether you want me to go through all of those how much time we’ve got.
Gene Tunny 22:38
I can put a link in the show notes to that list. I want to ask you about this concept of technological unemployment. Is that one of the motivating factors behind UBI? Have you thought about that? Is that one of the reasons you’d advocate for it?
Michael Haines 22:57
Yes, absolutely. And so one of the things that we’ve looked at is that once we get the UBI to the poverty line, and there’s a whole process to get there, then what we’re suggesting is, in fact, the UBI be set up and managed by a new authority under its own charter, independent of normal government. Funding would not go to the government deficit, because the money would not be going to the government, it’s actually going directly to the people. And so that authority would manage the money. Now I’ve lost track of what the question was you asked me.
Gene Tunny 23:37
I was asking about technological unemployment.
Michael Haines 23:41
So that authority then would have the capacity to say, well, we’ve now got the UBI to the poverty line. If as a result of automation and virtualization, we start to see a drop-off in employment, we can then increase the UBI and allow the market to rebalance dynamically, back to full employment, because everybody has a different propensity to take on paid work, depending on their age, the commitments or the money they might have coming in.
And so as the UBI is raised, there will be people will say, hmm, I will now live on this money with whatever else I might have. I’m no longer going to worry about looking for work. And so we can tell, as people drop out of the workforce, we will begin to see a lengthening of standard recruitment times. The labour market will be seen to be tightening and the authority says oops, well, we don’t need to go up any higher. We’ve gone as far as we need to go. The market is back at…
So it gives the government through the authority a much more targeted or more precise tool to help manage and balance the labour market than simply the cash rate through the Reserve Bank or fiscal spending, which is a very indirect means for managing it. But because the UBI is income for people, then as their incomes change, they will make real time decisions about whether or not to move in or out of the labour market. So we see it as a very valuable new tool for the government to manage this disruption. Personally, I don’t see there’s any end to work. It’s going to be a never ending requirement for people to be doing different things. But there will certainly be disruption as traditional work is overtaken through automation and virtualization.
Gene Tunny 25:53
Okay, just thought I’d ask you that. Because my impression was that one of the reasons that a lot of the Silicon Valley people have been advocating for a UBI is that they see this new world in which there’s all this automation and AI, and you’ll have lots of people without work. And I mean, I know with automation of the vehicle fleet in the United States, for example, that they’re talking about the next 10 or 20 years, you could have 3 million people driving trucks who are no longer needed.
Michael Haines 26:32
It’s going to come quicker than that, through what I’ve just recently seen, that there’s a new robotics company, which is taking a very different approach to robotics in the workplace. Whereas there’s two types of robots, or three types, there’s the traditional type, which is very structured and has to go through these very specific steps. There’s a new type that has got some spatial awareness and some ability to act autonomously. But nowhere near the general intelligence required to do sophisticated manual handling work and so on and making decisions on the fly. Well, what this company is doing is saying with high-speed internet, now, we can actually globalise the workforce, while the worker is the robot in the local economy, controlled remotely by somebody anywhere else in the world. And that, in my mind is a major shift in how our labour markets… So now again, I’ve lost my train of thought.
Gene Tunny 27:45
We were talking about robots and being controlled by people remotely.
Michael Haines 27:51
It’s just that new way should see the continued globalisation of the workforce, despite the re-localization of the production capacity. So we’re seeing more and more production capacity relocalized. A lot of it is automated, but still a lot would remain with a need to have local people doing many of the jobs. But if a robot can be controlled remotely, then that’s a whole different ballgame again, so yeah.
I think the essence where I differ with maybe the Silicon Valley tech view, which has been promoting quotes a basic income as truly basic, and that what you end up with is, you know, millions and millions of people just eking out a living and a terrible society, structured with a few earning huge money and the rest eking it out. If we take the view that the UBI should be set to balance the labour market, then individuals are making their own choice about whether I go off and do other things, creative things or become more engaged in the community and sport. I mean, there are hundreds of thousands of things that human beings can do other than work once they actually have the freedom of mind to do that. You know, there is the whole issue around work providing meaning, and it does but there are lots of things that people find meaningful which don’t necessarily involve paid work, and a lot of paid work is hardly meaningful. It can be bloody soul-destroying. What it does, it allows each person to make their own choice in a market where the UBI is set to achieve balance.
Gene Tunny 30:05
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Gene Tunny 30:40
Now back to the show. So we might go into the particular plan that you have, Michael. I’m keen to sort of explore that. Because as you know, I mean economists are going to be… Well, I think economists are very concerned about the cost of a UBI. They would say that you need to pay for it somehow. There’s no free lunch. So that’s a maximum of economics, there’s no such thing as a free lunch. So would you be able to take us through your concept, please, and explain just how it works? Because I know I’ve got some questions about it. But I want to make sure I understand the logic first, please.
Michael Haines 31:27
Well, you’re absolutely right about no free lunch. I guess the lunch part of it is to do with our actual resources, right, the sandwiches we eat, the houses we make, the engineers we have, and the chefs available to do the work. So that is the constraint. And one of the things that we’ve looked at is to the whole modern monetary theory, and which doesn’t have a good name broadly through the economics profession, and I think, to some extent, rightly so, because unfortunately, the way in which it has been pitched is as effectively an unlimited flow to government to then make decisions about how the money gets spent into the economy. You then have politicians and bureaucrats, you know, with their hands on this, quotes, unlimited spigot of money, and expecting that they are going to make good decisions that support the wellbeing of the whole economy. So we’ve looked at it different.
And so let’s go back to first of all understand how money gets into the economy. And apart from quantitative easing, which in fact, most of the money went into the financial economy, the real economy, but most of the money, as I’m sure your audience knows, gets into the real economy through bank lending. And so as a borrower goes to a bank, the bank creates the money, the borrower says, thanks very much and spends it in the economy, creating new activity that would not have occurred had that borrowing not take place, because the money is effectively new purchasing power, and it redirects our resources. It’s the source of growth in the economy, as businesses borrow and others borrow to spend into the economy.
So if we are creating money for that purpose, then the opportunity is to do the same thing, create money out of thin air, but instead of giving it to borrowers who are obliged to repay it, and so they should, because they’re getting an advantage purchasing power that they haven’t created or added to themselves. So they should work, add value out of that value, earn the money to repay the loan. So that works fine.
But if we’re now going to pay, create money and pay it to every single person to meet their basic needs, then we’re able to look at this and say, well, if there’s an example where suggesting that the amount of money should be $500 per week per person. Now, that comes out, for 20 million adults, about 520 billion bucks a year. Absolutely can’t be sustained.
But if you offset it against the welfare benefit, if you recover a substantial proportion through earned income and allow for the fact that some of the money is going to be recovered again via taxes, as the economy grows through the spending, some is going to go offshore, some into the financial economy. We think there’s about $100 billion net that would get injected into the economy of new money every year.
Now, some of that can be offset simply by reducing bank lending, because bank lending is putting new money into the economy every year. So instead of the new money all going in via bank lending, some of it now would come in through the UBI. And we can manage that as we do now, by managing interest rates. So as interest rates go up, there’ll be less bank lending, but there’ll be more UBI coming in, which should continue to ensure the economy maintains full capacity. But more of the capacity will be going to meet basic needs and less on other spending.
Business will have to adapt to that new pattern of demand. And we are suggesting a way to implement that with low risk by starting small, so just 10 bucks a week to start with, paying everybody, ramping up over five years. So what that does is allows the supply chain time to adapt to the new pattern of demand without causing shortages that drive inflation. And then you’ve got, at the end of the day, more money going in via UBI, and less via bank loans.
If there’s a net addition, we’re still looking to grow the economy 3or 4%, we’re looking for 2 to 3% inflation, and $100 billion in a 2 trillion economy is about 5%. So we see that it ought to be feasible to get to that 500 bucks a week level with the offsets that we’ve designed in. But we don’t know, and nobody knows, and nobody can really model it. But we don’t have to model it or guess, because if we start small and increase slowly, we can actually see what happens. We can see what’s happening in the economy. And if it looks like the negatives are starting to outweigh the positives, then we hold it and address the negatives.
My feeling is that, as we talked about the benefits to the individuals and the many other benefits, we will see a wealth of positives. And that’ll encourage us to actually speed up the rollout rather than cut it back. We don’t have to guess because we can actually see what happens. So that’s how we’re looking to implement it. And I haven’t spoken in detail about the offset and the recovery. But I’ll leave you to ask the questions now.
Gene Tunny 37:53
Yeah. So that recovery, I think one of the things you were talking about is what Ben Phillips was talking about when I spoke with Ben about the claw-back. I mean, what is that recovery as you as you earn money from work? And you know, what happens to the UBI payment? I mean, is there any claw-back of that? Is that what you’re talking about?
Michael Haines 38:17
Yeah. So what we see us that we don’t want to touch welfare as it is, but we treat it as income for welfare. So all of the rules and entitlements and everything stay the same. And the same with our tax system. We don’t want to touch the tax system, because that gets into all sorts of arguments. What we want to do is, under the separate authority, every week, they will be paying out the 500 bucks a week to every person, but they will appoint the tax department as their agent to recover the UBI from people via group tax, the GST system or the annual returns based on a very simple formula, that you will have to pay back 32.26% of your gross income through the tax system, in addition to whatever tax you’re paying, because the tax you’re paying relates to your income. The recovery relates to your UBI. So we’re going to give you the UBI. But the more you earn, the more you will have to pay back, so that by the time you get to $80,600, everybody earning that and more, they’ll be getting their 500 bucks a week in, and every week or so over the paying the 500 bucks back to the authority. That money gets put back in and recirculated in the next cycle.
And you say well, hang on, why pay people 500 bucks just to take it back off them? And the answer is because circumstances change overnight. And by paying people the money, it becomes like basic income insurance. It ensures that if I suddenly lose my job, I get sick, I have to care for a family member, for whatever reason, my income is suddenly lost, a pandemic comes along, there’s floods, fires, storms, whatever throws people into… They get divorced. That money is there coming in.
And now when I’ve lost my income, there’s no more recovery. So I’m getting the full amount, there’s no delay, there’s no need to apply. And then when I find I’m in a position to look again for work, I can do it without having to go and tell anybody. I don’t have to tell anybody what I’m doing to get it or whether I’m retraining myself. I don’t have to tell anybody how much I’m earning or any details at all, other than, of course, the tax department, which I normally have to do. And through that tax department, once I start earning again, the recovery would start to take place. But again, I’m better off because whatever I’m earning, at less the tax, is on top of the net that I get out of the UBI.
So up until $80,600, I am going to be better off by having the UBI. And we think that covers probably 75% of the population, and the other 25% are no worse off, which is why I said earlier, we don’t see this as a redistribution. What we see it is as a way of providing people with the means to express their needs in the market, and for the market to respond to meeting those needs. without taking anything off anybody else. You could say that if interest rates are going up, then people are unable to borrow as much as they might have. But on the other side, the money that’s going into the economy is going in debt-free. And that money will therefore, as it flows through the economy, to profits and investment, it’ll help the economy to grow and stabilise without the need for such high levels of increasing debt. So we see that’s also an advantage for the economy.
Gene Tunny 42:29
Yeah. Okay. So I think that argument would be more persuasive if we did have this high level of technological unemployment, if we had a large amount of unemployed resources. And that argument is going to be more persuasive. I guess the concern that economists would have is that, well, if you’ve got an economy that’s operating near full employment, as you could argue the Australian economy is now, then we don’t really necessarily want to be adding that additional demand to it because it could be inflationary. So concerns about inflation will be one of the major concerns about this proposal.
Michael Haines 43:12
So you’re right. And that’s why we are proposing to start small, because at 10 bucks a week, that is really a big deal for somebody living in poverty. That’s food for a day. So it might not seem much to you, or to most people, but at 10 bucks a week, it’s a start, but it’s not going to destroy the economy. It’s not going to, you know, cause havoc. But in a quarter’s time, we would see that being increased by $25 a week. So people are now getting 35 bucks a week. So it’s a bit more, and we can see what is happening.
Our expectation is that while there are inflationary pressures, they are in specific parts of the economy. And for things like food and clothing, and some of the basics, the opportunity is there for businesses to redirect resources. At the moment, you’ve got cafes and people like that crying out for labour and so on. But if the resources are directed towards meeting more basic needs, because people now have the money to express those needs, we would simply see over time, a shift in the way the economy is structured, which is why we are wanting to do it slowly, so over five years. Otherwise, you put 500 bucks a week into the economy, even with the claw-backs, it would create havoc, as we have seen with the disruptions due to the pandemic and now the war, where you alter the supply chain overnight, literally. It creates bottlenecks that are really hard to manage.
I was once manufacturing manager for Toyota, and also on the board of the Australian Logistics Council and ran a major logistics company in my day. So I really understand how the supply chain works. And you can’t just turn a tap on and say, okay, now people start spending this money, and expect it to just flip overnight, but you can expect it to change over a period of five years. And in that time, we are going to see more and more automation. And the UBI, in fact, could assist in helping firms to automate, because there’ll be a number of factors in play.
You will have people who are getting the UBI, who now say, well, I’m not going to work, I’m happy to live on the UBI. So the labour market might tighten. But you also might have people who are you saying, well, I’ve now got the UBI as a base, I’ll actually take on this extra work, which wasn’t previously worth my while because of the benefits I lost. But now I’ll take it on. And the new automation pressures might come in that interplay. We don’t know whether there’s going to be more people wanting that extra work or less.
But over time, regardless of what people are doing in terms of offering themselves to the labour market, it’s clear that there is going to be more and more automation, and virtualization. So virtualization is a hidden factor in that you don’t realise what you don’t have. And if you look at all of the devices that the smartphone replaced, there’s a huge amount of what used to be physical work and effort in producing all the goods that’s now all done by software on a little phone. And that’s just going to continue now. And so we are going to see this automation play out more and more.
Gene Tunny 47:24
Remember when there used to be Kodak processing centres all over the country, all over the world, and don’t have those anymore. Right. Okay. Now, one of the other things I want to ask you about, Michael, is this… You do recognise rightly that your proposal is leading to an expansion of the money supply. And look, you’re right about bank lending and what it means for the money supply. That’s correct. There’s a Bank of England article about that. And I’ll link to that on money creation.
Michael Haines 48:01
That is the best article. When I said I was back in the 1980s, one of the things that I – realisation I came to was actually how money was created. And talking to economists back in those days, it was absolutely shot, because until that Bank of England paper came out, there was often not the recognition of just how money was created. And so, yes, I really appreciate you making that link. Because it is such a good, clear, concise paper.
Gene Tunny 48:40
Yeah, money creation in the modern economy. I think I mangled it before. I mispronounced it. Yeah, well, I think, yeah, there was this debate in the ‘60s and ‘70s, about monetarism. And there were economists at the time who were pointing out that money was actually endogenous to the economy and that it was associated with the actions of banks and people borrowing money from banks. Who was it? Was it Nicholas Kaldor, who was one of the famous Cambridge economists? He was a student of John Maynard Keynes, whereas I think Friedman made a lot of great contributions, but he was probably off track a bit where he was assuming almost that the money supply was this exogenous variable that could be controlled easily by the central bank. Now central banks, obviously, they can influence it, but it’s not necessarily…
Michael Haines 49:46
It’s not easy to control. And so, one of the things that we would see is that the new authority with the central bank, as the UBI was raised, it’s very important that because that UBI is now signalling new demand, that firms and individuals be able to borrow, to increase capacity to meet that demand. And we don’t want the cost of that borrowing to go up. And so what we would want is for individual banks on a case by case basis, under guidelines, making decisions to say, well, you’re asking for this loan to help increase our capacity to meet the basic needs of our citizens. So you’re going to get this at no extra cost. But if you’re borrowing for other, say, nonessential purposes, then we want that borrowing to be reduced to free up resources to shift across to meeting more basic needs. And so the cost for you to borrow is going to go up. Now, this is a whole different way of thinking about it. It’s applying a premium on top of a set of loans rather than increasing the base, which is what we do with the cash room.
And so let’s take an example of how that could work, say in housing. At the moment, housing prices go up and the bank starts to worry, we’re into an inflationary period, we’ve got to crunch it and increase interest rates. That increases interest rates for everybody, including the poor little guy who’s got his highly productive business, but now it’s pushing him on the margin, when really all we want to do is we want to increase the supply of houses and reduce the price pressures in the housing market. And the way to do that is very simple, to say, well, if you’re going to borrow for an existing home, you’re going to have to pay an extra margin, and that margin won’t go to the bank. It will go to the central bank. It’s there purely to dissuade you from borrowing for an existing home. We’re not going to charge anything extra on the cost to create a new home because that’s what we want. We want new homes built. And so what it does is it depresses the price of existing homes, in favour of new builds.
And so again, this is I guess, outside the whole UBI debate. But again, we would see that treating the money as an essential part of the driver of economic activity, and making specific decisions about what it is that we as a society want. We want, for example, basic needs met. And we want houses built to meet accommodation needs. And so we ought to be able to make those high-level targets and aims, but leave then market to sort out where it’s done and how it’s done and what’s provided based purely on the availability of funds made at specific interest rates under those guidelines.
What I’m talking about here I don’t think is entirely necessary for the UBI to be put in place as a starting small and growing it, because we can do that, whatever happens in the broader economy, because at any point, we can stop increasing. So we might, under normal circumstances, not get to the poverty line, but we’ll get somewhere. If we then begin to think about how else we can manage this broader economy to rebalance the inflow from borrowing and the UBI, then I think we can get to that poverty level with maintaining full employment, maintaining full economic activity without high inflation.
And we’ve got plenty of time to sort of sort through. We are aiming for, we would like to see a government, not in this Parliament, but three or four years’ time at the beginning of the next Parliament, agree to implement it. And that might be 2025. And it wouldn’t be fully implemented until 2030. So in that intervening period to then discuss these other mechanisms to refine them and test them and talk them through. So we don’t want to hold up the UBI until we’ve sorted out all these other problems, because we think that the low-risk way of implementing it should address concerns regardless of what the final decisions are.
Gene Tunny 55:21
Right. Okay. Look, that’s given me a lot to think about, Michael. Yeah. Now did this issue, did this idea of yours of, well, you have to intervene in bank lending, so you’re trying to control the growth of the money supply by… You need to increase the cost of borrowing for… You’re saying that you’ll just have that limited to borrowing for existing property. Now, that’s a lot of the borrowing that does occur. Right. But then you’d say that you would have it that they wouldn’t be able to… I’m just trying to think about how this would work in practice. I mean, are you saying that there’s a particular interest rate you have to lend to people who want to build a new house or buy a new house?
Michael Haines 56:14
So the market, whatever the cash rate is at the moment, there is a market rate for lending. And so the idea is that you don’t interfere with that, that what you do then is simply say, well, we want to discourage certain types of lending and borrowing, because it’s not achieving our overall economic objective. Our overall economic objective is, A, to meet our basic needs. And we want business focused on doing that. So it’s not a socialist method of providing the goods and services. It’s simply targeting the money to drive the market.
And so we’re saying that, yeah, we would need to have banks be given some guidelines. And they only need to be broad guidelines about the types of lending we want to promote and the types of lending we want to discourage. And then seeing what happens in the market, that if interest rates increased by an extra margin, that then goes to the Reserve Bank. If those interest rates start to really negatively impact the economy, just like increasing interest rates do anyway, at some point, you will then say, okay, well, that’s enough, we’re not going to do any more, we’ve achieved as much as we can do, because to go any further now might end up pushing us into recession. And in fact, our feeling is that the Reserve Bank is never going to get it right, we are going to go through these cycles that we already have. They’ll push it too far. It’ll start to go into recession.
But with the UBI, we can make that a very shallow recession, just like we did with JobKeeper. we put the money into the people. It keeps them going and keeps the economy going. So we will still have swings and roundabouts. But they should be less severe than we’ve seen in the past using the UBI as a floor.
Gene Tunny 58:33
Hmm, that’s an interesting concept. I’d like to just look at it a bit more closely and think about how’d it all work. I mean, I think you’ve got the right idea. It started off low, and you’d experiment with it, just to see how it actually works in in practice. I mean, my natural inclination is, against intervening in the banks in that way to say, well, we think you should be doing that lending rather than this other lending, because who’s the… The bank should be making that decision based on what it thinks is sensible? It should be looking at, well, can the person actually afford this loan? Are we going to get our money back? And they should be charging for that based on the cost of their funds, right?
Michael Haines 59:38
So what you say is true, Gene, all of that process should still happen. The difference is that instead of the cost of funds being pushed up from the bottom, across all lending, it would be added to on the top, so the banks will still be making the same margin that they would have, because instead of having to pay a higher cost of funds, their cost of funds won’t have changed, they will be making the same decision to lend to the same people. But the person who is borrowing will now have to factor in that in addition to paying the bank’s interest, I’ve now got to pay this extra margin. And that will dissuade some people from borrowing. If it dissuades some people from borrowing, that means that there is less money that is being created through the banking system going into the economy. Now, that is what we want, because we are at the same time putting money into the economy through the UBI. And there should simply be over time, a shift in productive capacity from spending more on basics and less on whatever else would have been done.
So it is a policy decision of society to say, yes, we want everybody in our society to have their basic needs met, as a priority for any other things that money might be spent on. And the reason is, because we have now created this wonderful system of property rights money and paid work, which is delivering huge value for us. But in its design, at the moment, it is forcing millions of people into poverty. And we don’t want that. So it is a policy decision. Right. And once we make that decision, I believe the economy will chug on even better than it has, because you’ve now got a demand being expressed that was previously latent. And that’s bad for the people who miss out on the goods and services. It’s bad for the businesses who could meet that demand. And ultimately, it’s bad for society.
So yeah, look, we recognise that this is not going to be a simple discussion, but hoping over the next three years to get one of the major parties at least, if not both, to begin to seriously examine it with a view to, as we said, implementing it, not in the upcoming parliament, but the one after, and that taking this slow approach should make people feel comfortable that it is a pretty low-risk strategy for what potentially could be massive, massive benefits.
Gene Tunny 1:02:45
Right. Okay. So I’ve got two more questions, and then we might wrap up, just on the cost of it. And you talk about this authority. And I think you’re suggesting that this could be off budget. Now, have you had any advice on this, or have you talked to any statisticians about this issue? Because it just seems to me that this is effectively government spending, this is a transfer payment, and therefore, under the guidelines from the IMF, on government finance statistics, it should strictly be counted as government spending. So have you thought about that? Do you have any advice on that?
Michael Haines 1:03:35
You’re right, this hasn’t been an issue, up until now. And so there isn’t a neat place to put it. But the way I try to characterise it was to say, look, new money is created under the banking system, under the auspices of the Reserve Bank, and the other banking authorities. And so it’s government regulated, but the money when it’s created, goes to individuals who spend it. And that money, even though it’s created under the auspices of the government, is not treated as government spending, because it isn’t government spending, it’s spending by individuals. And the same thing here that what we’re doing is that we’re reducing the amount of money that is spent by individuals through bank borrowings and increasing the money spent by individuals through direct payments to them of new money. So it’s not transferred, it’s not come out of tax. It’s not come out of anybody. It is just like the bank lending new money, but it’s now going to everybody to meet their basic needs.
And so this does require a different categorization, a different way of thinking. And you’re right, probably as things stand, people will struggle, Gene, with coming to grips with that. But yeah, if we don’t regard bank lending as government spending, why should we regard spending by individuals who are not being directed by the government, it’s not supplying government goods and services, it’s not coming out of the hands of taxpayers, it is new money created by the Reserve Bank, just like it’s new money created by the banks for the borrowers.
Gene Tunny 1:05:26
Okay, I can tell you what the economists will argue. And I mean, I don’t necessarily want to be negative about this, because I’m trying to be open minded. But what they will argue is that how you’re paying for this in part is through an inflation tax. So that’s one way that you would be paying for that, because there’s this, you know, there’s the money creation, and in the long term that will be inflationary. And so there’s a transfer of resources from between households, because with the inflation, that’s going to be reducing the value of money holdings of other households in the economy. That’s why economists I think would argue that there is a redistribution and it’s being paid for by an inflation tax. So I think that’s what they would come back with. They would just argue it is effectively… It’s similar to government, a government transfer payment.
Michael Haines 1:06:39
And you’re right, to the extent that it is inflationary. But as you would know, we’re looking for some amount of inflation, maybe 2 to 3%, in order to maintain a sort of a forward-looking economy. And we’re also looking for, 2 to 3 to 4% growth. And that amount of money has to be to support that inflation target and that growth. New money has to get into the economy. And so at the moment, it’s coming in virtually all through bank lending, through newly created money, driving additional activity. And so what we’re saying is that, yes, there would be a redistribution then, not out of the past earnings or the past wealth. So we’re not taking it away from your earning capacity, or out of the wealth that you have. What we would be doing is shifting the ability of some people to borrow and get new money versus the payment directly to people without borrowing. And so that certainly will result in a shift in economic activity. But it’s a prospective shift. It’s not a past shift or a current shift, because you’re restricting people’s ability to borrow for the future.
And so it is a slightly different view. But even if that view isn’t accepted, then we would be arguing that the amount of inflation is not excessive, if given our $100 billion a year net payment, is the total amount being put into the economy every year, which is about 5% of our GDP. But beyond all of that, we are suggesting that by starting small, we don’t have to theorise, we don’t have to guess, we can actually see what happens. And if through automation and through other adaptive means the supply chain shifts to provide extra basics, we might find that that extra capacity is generated over five years without changing anything, that the economy will continue to grow with people borrowing for new housing and everything happening, and people won’t even notice the shift because the economy is continuing to operate at full capacity.
Gene Tunny 1:09:44
Right. Okay. Well, I think, yeah, it would be an experiment. I mean, I’m not entirely sure what would happen. I mean, I’ve got my suspicions of how it would play out, but I think it’s something that you would want… To get the best evidence, you really need to implement it, right? This is something that would be very difficult to model. And so, yeah, so I think that’s good you want to start out small just on the bank lending. The other point I’d make is that the bank lending, as you know, that it is accompanied by a requirement that it’s paid back by the household. The money supply expands with the bank lending, and then as households pay it back, then that’s pulling it back in.
Michael Haines 1:10:42
It’s the net of advances versus repayments that actually drives the growth. So over time, if you’ve got more new lending than you have repayments, you’ve got a net extra going in. And so we would see that people are still going to borrow for homes. They’re going to borrow for all sorts of reasons, as they do now. And we don’t want to stop anything any more than the banks, the central bank now looks at housing prices and other prices and says, look, things are heating up too much, we’ve got to quiet it down. So the same approach would exist except hopefully a bit more targeted, and with an additional tool, which is the UBI to keep lifting the floor up, so that we don’t send the economy into the dire depths that sometimes occurs when the central banks get it wrong, and they go too far. So we’re not changing that approach. We’re changing the way in which the tweaks are done, to some extent.
Gene Tunny 1:11:53
Okay. Now, finally, yeah, there are actually two things I wanted to sort of ask. One was about poverty. And you were mentioning, several million in poverty. I’m interested in where you get that that impression from. I mean, I know that there are certainly households that are doing it tough. Yeah, I just want to, because I know a lot of people will go, oh, hang on, there are a lot of… The problem with our poverty definition is that is relative and, and we’re often over-counting the number of people who are in poverty. So I’m just interested in that. And second, did you think about whether this sort of thing could be funded with a wealth tax or inheritance tax, or are you just against that sort of thing?
Michael Haines 1:12:37
Well, I’ll answer the last one, at least. Look, if somebody can get it up with a carbon tax, a wealth tax, income tax, GST, that’s great. Our concern is that if we go that route, you are setting up oppositions and arguments and having a fight that really is unnecessary, because if we do it, as we’re suggesting, and starting small, we don’t have to say to anybody, other than possibly some borrowers, that it’s going to impact you negatively at all. There’s going to be a lot of people who it’s going to impact positively. But we’re not going to have any negative impact. So we’re removing that fight. But yeah, I’d be happy if anybody can get up a tax to partly fund it, then that means that there is a less pressure on managing the money supply through bank lending. So yeah, it’s not out of the question, but it’s not vital.
As for the poverty stats, I’ll send you the link. I haven’t got it on the top of my head, but it’s come through I think, might have been Anglicare or Uniting or somewhere who are looking at the stats based on their data, for people who are looking for charity and support. As I’ve said, it’s mostly single women with kids, aged, disabled, they have family who are caring for them without any pay, and people who are literally between jobs, while they have no work, they’ve got no savings, and they’ve got no family support. And when you add up all those people at any…
This is why it’s a system problem and not a moral failing because the people in that group constantly change. The kids grow up. The disabled age. The aged die. The unpaid carers and the jobless find work, but they’re replaced by a new cohort continually. So despite 30 years of continuous growth up until the pandemic, that percentage of population has hardly budged. So all those factors show that it is a system problem. And the UBI tackles that problem at root, by providing the money to allow people to express their needs in the market. So it’s not a socialist ideology driving it. It’s a market ideology, because in order for people to participate in the market, they need money.
Gene Tunny 1:15:36
Yeah. Now, you know, there are certainly people who are falling through the cracks of our existing welfare system. I mean, just look at the growing number of homeless people in Australia. So yeah, certainly people who are–
Michael Haines 1:15:52
I mean, who could live on, what is it, 43 bucks a day?
Gene Tunny 1:15:55
So we’re talking about the JobSeeker payment, are we?
Michael Haines 1:15:58
Yeah. I mean, who can live on that? I mean, it’s just nonsense. But as we said, there is a rationale for it. It’s not because people in government are cruel by nature. It’s evidenced when the JobSeeker supplement was being paid, the employers are saying, hang on, I’ve got young kids and others here, they’re not prepared to work, because they’re getting all this money. And so you drop the money, and now they suddenly are looking for a job. And that’s all rational behaviour. It’s rational behaviour by the people who want to stay on the benefits rather than work. And it’s rational behaviour by the government to say, well, we’ve got to create these at poverty level. But what it does indirectly is push all of these people who can’t do paid work into poverty. And that is an indictment on our current system.
And we can solve it, we’ve got the resources, we’ve got the means of creating the money, we’ve got a means to manage the way in which the money goes into the economy without creating excessive inflation. And we can keep the economy at full capacity, which is in the interest of business, by allowing over time a shift in the pattern of production to meet the new needs that are evidenced by the UBI.
Gene Tunny 1:17:26
Okay, I mean, what I would say in response to that, Michael, is that that is your hope for the policy. I mean, as you’ve mentioned, you’d roll this out, you’d start off small, and then we’d test whether that would be the case or not, because I mean, economists, as I’ve mentioned, they’re going to be concerned that, well, this is inflationary, this is modern monetary theory.
Michael Haines 1:17:53
Not all of it I agree 100% with, Gene. If we can do it slowly, then there should be no reason why. In effect, what we’ve had is lots of pilots around the world where it’s been focused on a particular group of people or a particular region. And it’s been set at a level which from day one, is regarded as adequate for whatever the purposes of the policy are. But people look at it and said, well you put that across the whole of the country and who knows what’s happening.
So by starting small, we are effectively doing a proper pilot at a national level, to see what are the impacts. And at a very low level, there are probably zero negative and plenty of good impacts. And as we increase, we can determine, are the negatives becoming unsustainable here? And if they are, then we better halt it, keep the UBI at the level, whatever we’ve reached, and look at well, can we measure these problems and go forward, or is that it, we’ve gone as high as we can go? So we’re not taking away any welfare. So whatever level we get to is better than it was. We’ve not increased anybody taxes. So again, there’s been no negative as a result of that step. And up until that stage two, we’re not even saying to the banks to change their lending practices. We’re not changing any of the interest rate margins, or adding any extra margin on top, so we’re just paying the benefit and seeing what happens.
Gene Tunny 1:19:41
Michael, any final words before we conclude?
Michael Haines 1:19:45
I think you’ve exhausted me. I’ve been able to give you something of an insight. But there are a series of I think about seven articles that I’ve now written on Medium, and I’ll send you a link to the first article, and each article then links to the next, which hopefully is a bit more coherent than I’ve managed in our discussion, having lost my train of thought a few times, but yeah, the articles ought to spell out what I’ve been trying to explain here. And yes, I really look forward to hearing from your audience, their feedback, and, you know, whatever concerns that they might have. I will certainly be looking to take them on board and see how we might address them. And maybe another day, Gene, in the future we look at those, and come back and have a talk about it.
Gene Tunny 1:20:50
Yeah, absolutely. I mean, I know there’s a lot of interest among listeners in this topic. And it was suggested by one of my listeners, and then I had been on and then I’ve had other people get in touch. And I know that there certainly is a lot of interest. So yes, sorry if I’ve exhausted you, but I wanted to chat about it, because it’s an interesting proposal, and it’s innovative. And you have thought about the implications of it. So now, while I might disagree on whether, you know, this would be a good thing to do or not, I understand that you actually have thought about it, and in your judgement, this is the right way to do it. Now, I think that’s good you’ve thought through the implications of it and what you’d have to do to manage it. And that was the discussion we had about bank lending. So look, it’s given me a lot to think about. And if you’re listening in the audience, and you’ve got thoughts on the proposal, then please get in touch and I’ll pass them on to Michael. And Michael, as you suggested we could possibly talk again?
Michael Haines 1:21:57
That would be really appreciated, Gene, after we get the feedback from your listeners, because that will be valuable for me as well, because as I said, I’m now beginning to talk to people in the political parties, and whatever views your listeners express, I’ve gotten to encounter in those broader discussions. As they say, forewarned is forearmed. So I really, really appreciate the opportunity to chat with you, Gene. And thank you.
Gene Tunny 1:22:33
Oh, pleasure. Okay. Michael Haines, thanks so much for your time. Really appreciate it.
Michael Haines 1:22:38
Thank you, Gene. All the best. Bye.
Gene Tunny 1:22:42
Okay, that’s the end of this episode of Economics Explored. I hope you enjoyed it. If so, please tell your family and friends, and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to contact@economicsexplored.com and we’ll aim to address them in a future episode. Thanks for listening. Until next week, goodbye.
Credits
Big thanks to EP137 guest Michael Haines and to the show’s audio engineer Josh Crotts for his assistance in producing the episode.
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