The Negative Income Tax

REBUTTALSI find this Canadian study very interesting. However while looking at the results of these studies we have to consider some facts :- People knew the study was temporary, therefore their condition was precarious and left unchanged financial motivation to work harder in the long term. Dr. Evelyn Forget forgot basic economics, if a situation is precarious (4 years in a lifetime) people will not adapt to it.Milton Friedman permanent income hypothesis tell us that "changes in permanent income, rather than changes in temporary income, are what drive the changes in a consumer's consumption patterns." This model can also be applied to the relation between working hours and free time : People won't work less unless they perceive their income change is permanent (which it definitely wasn't)http://en.wikipedia.org...http://www.nber.org...- It was in people best interest to make the study obtain good results. Behaviour : Workings habits unchanged / Reward : more chances to pass the law and make Mincome permanent.Psychological term is positive reinforcement.http://en.wikipedia.org...http://www.simplypsychology.org...- Analogy drug testing to minimize psychological effects affecting study's results placebo are given to some of the patient. The aim is si mple : if nobody really knows if they have the drug in their system its effects can be isolated from the rest. In this study there was no placebo, people were aware to be lab rats- Small villages are in fact not representative of the whole population of a country.So while this study seems to be very precise (thorough scientific methods) it also appears not very accurate (initial bias was too large). Low accuracy High Precision situation (see image below) "Contrary to most basic income models, the negative income tax, would only give the amounted of money needed to the people who need it. That's why it would be a cheap way to de facto implement a basic income." Objection : What does prevent the employers from adjusting wage rates in order to discharge costs on the state.Ex : Mincome is set at 1000$ per month. Mr. Mario who works as an apprentice plumber earns 1000$ per month and therefore nothing is added to his incomeMr. Luigi who works as a pizzaiolo earns 700$ per month. Mincome will provide him with the extra 300$What would happen if Mr. Mario employer decided to cut his salary to 700$ (or hire new personnel at 700$) ? The state would have to set minimum wages for every single job type to prevent this situation. This would make mincome pointless ! In addition, Labour market flexibility would substantially drop and we could expect involuntary unemployment to rise (since demand-offer courbe is no longer followed).http://economics.about.com...Besides we would have to make sure that this kind of employment subsidizing is not in violation of transnational trade agreements by artificially reducing production costs. Retaliation from others countries have to be expected. (As Free trade is not the subject of the debate, I will not develop this more).************************************************Now let's take you Namibian example. Results are really astonishing indeed ! Let's look at this quote from one of the articles you provided.http://www.spiegel.de..."The idea is simple: The payment of a basic monthly income, funded with tax revenues, of 100 Namibia dollars, or about €9 ($13), for each citizen. There are no conditions, and nothing is expected in return. The money comes from various organizations, including AIDS foundations, the Friedrich Ebert Foundation and Protestant churches in Germany's Rhineland and Westphalia regions."Objection 1 : "if you give a man a fish he is hungry again in an hour. If you teach him to catch a fish you do him a good turn". Ok so this is about giving everyone free fish forever hoping that they will learn fishing.Objection 2 : If the money comes from outside, it just makes more aid to Africa. The purpose of humanitarian aid is to increase people's quality of life. But it also sustains artificially an unsustainable situation.However I see that the final idea is to take that money from taxes. Very well ! How can Namibia find this money considering they already have a 5,5% of gdp public deficit ?- Borrowing from financial markets (Not sure it's a wise choice)- Creating a special tax aiming richer people in order to redistribute wealthhttp://www.africaneconomicoutlook.org...About Redistribution of wealth. Namibia has a very poor Gini index 0.59 (US is 0.45 and average European country is around 0.3X). Some would just argue about how unfair this is and urge to redistribute income in a more just way.http://www.worldbank.org...What's the difference between Namibia and Western countries ? Namibia is still a developing country !Salary is unequal in Namibia because you have a huge pool of low skilled labour and a lack of medium/high skilled labour (it just widens the gap even more).Countries like the US already reached a stable equilibrium between low skilled/medium skilled/high skilled labor. Gini coefficient remained quite stable during the past decades.So yes, many poor Africans need financial help so they can go to school or university in order to create a balanced and sustainable society where in the long term people success is determined by meritocratic standards. But this intervention should be temporary and not permanent !(By the way, most African governments received international aid for decades and wasted it ! That's a pity... but this is off topic)Redistributing in Africa is pretty much like rationing in War time Europe. You can't compare true poverty (famine, malnourishment etc.. with our Western "poverty)http://en.wikipedia.org...Objection 3 : If we assume that the state intervention is the only possible solution to prevent poverty why should the state just give money to people for nothing ? The state could employ people or orient them towards a sector needing workforce (perhaps by sponsoring studies)SOME ARGUMENTS1) If there is a sum of money guaranteed for everyone regardless of what they do, there will always be some people taking advantage of the system.In Belgium for example the state gives about 700€ per month to every isolated person without any income and 400€ if cohabiting. The state also tops up your income if it is inferior to the amount (this doesn't happen very often because full time minimum wage is above 1000€)Conditions for obtaining this aid are very general. The state only checks out you have no other income and of course you must be a legal permanent resident and of course earning less than the amount.There is no time limit to this aid. Therefore there are many cases of chronically assisted people. Some of them even top up working part time under the table. (That is fraud, and punished by jail time).Source is in French so I also declare on my honour this is true.http://www.belgium.be...2) More tax pressure on people not receiving Negative income tax. And this represents the largest part of the population (most of them would probably be unhappy, others do not). Coercion is not the answer.3) We can expect higher inflation rates on basic commodities. This would mean a substantial drop in purchase power for middle classes not benefiting from the aid. The mechanics are simple : If you induce demand artificially (by permanently giving money to people, in this case poor people) prices of basic commodities will rise.4) Meritocracy, Meritocracy, Meritocracy ! In order to reduce poverty, the state should focus on making possible for the deserving poor to advance in society. I do agree there are some people forced in to poverty by the force of events even if they are competent and probably deserve better. I mean instead of guaranteeing minimum income for all, why not just increase education funding ?For undeserving poor the answer is not giving them taxpayer money. We have private charity for that and some other aid initiatives (e.g In EU , agricultural surplus is distributed freely to poor people )To summarize my conclusion is that the role of the state should not be to provide unconditioned and unlimited in time welfare to everyone. The role of the state should be to provide a safe and just environment in which people can advance according to basic principles of meritocracy. But If for some reason the state must take urgent action (severe crisis etc...) it should be more about helping people learning to catch fishes than giving free fish.