If you've checked my diary history, you'll know that lately, I've been on a kick trying to talk to people about a very important idea. This time, instead of trying to sell you all on its benefits and mitigate and explain its costs, I'm here to tell you why implementing some sort of basic income guarantee is an absolute necessity.
Here's the fundamental problem with capitalism as it now stands: there is no recognition that demand requires resources just as production and distribution require resources. Just imagine you were in the worst possible state; you're starving to death, but have no money, no income, no assets, and no ability to work, in short, you have nothing to exchange for food. Can you believe that your mere existence, that your intense, but ultimately mere desire for that good has any effect on the price of it at the local market? Of course it doesn't. The price of food, indeed, the price of any good, is determined by interaction of the people who supply it with the people who can buy it. Consumers must have something to exchange in order to demand any good or service at all.
So where do they get the resources they can use to exchange for goods? Well, for the vast majority of us, we can use our minds and bodies to contribute to production or distribution. In short, we exchange our labor for access to those resources that we can use for our consumptive demand. But like everything else that's exchanged, labor has a price, determined by supply and demand as well. If there are a lot of people running around with abilities relevantly similar to our own, we're not going to be able to demand as high a price for our labor as we would if there were few people, or if we had special abilities.
But the supply-side of labor is not the only thing that determines its price, there's also the demand side to consider. 200 years ago, it might have taken 150 people to work a farm and produce an amount of food that today, we can produce with one person and a combine. The competitive nature of capitalism requires progress and innovation, and that innovation is always a way to do what we did before (or perhaps more) and with less work. In other words, as time goes on, demand for labor drops.
The only thing that can save the price of labor, short of a famine, is the discovery or invention of entirely new markets, new things to produce and exchange, that weren't available before. But relying on these things is poor policy, because no one can predict when the next new thing will happen, or how many people it will employ. Even if we did this and get lucky, the logic of progress will eventually lower the demand for labor in that market as well.
And this is a real problem, for even as the economic pressure is to lower wages, wages are also the only resource input we have to make consumption possible. Let wages drop enough, and nobody will be able to buy what anybody else is selling. The realm of people with resources to exchange dwindles, and as it dwindles, the incentive to exchange decreases, and the real value created through that exchange is limited to fewer and fewer people.
Let this situation develop too far, and you will find that it is first mitigated by easy credit. Those without resources to exchange are loaned resources by those who have them, and they will have to pay that loan back with interest (and penalties and fees and so forth). But if those who take the loans aren't able to use those resources to create a new productive enterprise, they will end up defaulting, because their main resource they can exchange to end up with more value, labor, is always diminishing in its exchange value. When the situation becomes bad enough, and returns on loaning money becomes less than the costs of the defaults, that credit will dry up. Other solutions, such as dumping more money in the economy to obscure the lack of exchangeable resources possessed by those with only labor to exchange, will only end up exacerbating the problem as well. Eventually, we reach a state where the majority of a population have no other recourse but revolution and violence to obtain the resources they need to live.
But there is another solution. When our capacity to supply has reached the state where we can produce more than enough to meet everyone's needs, we can set up a system that provides those resources without requiring anybody to exchange anything to get them. In fact, this is the only solution that won't result in massive violence and death. The simplest method to do this would be to guarantee everybody a poverty-level income, rather than giving everyone food, or building ghettos. Those who are fortunate and talented enough to be able to exchange their labor will still be able to do so to improve their basic condition, and the logic of capitalism that requires wages to drop over time will not be onerous.
My next diary will be about those experiments with and variations of this solution that have been tried in various cities, countries and states, and the results which definitively prove that we will not create an underclass of those who are content to live off that poverty level without seeking a job if we do this, nor will we see productivity drop.