My letter to the NY Times re: Free Basic Income Is Not a Solution to Unemployment

My letter to the NY Times re: Free Basic Income Is Not a Solution to Unemployment
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Re: Free Money for the Jobless

Dear Sirs:

Your article about Finland’s experiment in providing a free basic income to the unemployed fails to address the main question–what exactly is the cause of unemployment and what is the best way to eliminate it? The cause of unemployment is a change in the market, which, if not caused by government itself, is a natural occurrence in a dynamic economy. The great Austrian economist Joseph Schumpeter coined the phrase “creative destruction” to describe the process whereby an advancing, wealth generating economy is constantly shedding old production methods for better ones, causing malinvestment of capital and temporary unemployment of labor. Government programs such as unemployment insurance hinder the necessary and beneficial process of capital and labor adapting to the new market environment. Not only do they cause disincentives to adaptation, they must be funded out of the wealth generating sector of the economy. Finland’s experiment in going beyond unemployment payments and providing a basic income is simply the welfare state bureaucracy trying to justify its own existence after the failure of its previous programs. There is no solution to unemployment other than that provided by the market itself.

Patrick Barron

  • Tivvy

    So the argument is that there’s a process of an “an advancing, wealth generating economy is constantly shedding old production methods for better ones, causing malinvestment of capital and temporary unemployment of labor.” going on. Though as I see it, malinvestment of capital is occuring because of QE, the failure to let banks go bankrupt if they commit to malinvestment of capital as primary form of generating return on interest, and if we didn’t have QE, we’d have a structural breakdown of the banking sector and no more capitalism.

    The question then becomes, how do we structure our economy to be able to support investments of capital into productive endeavours of people at all, so QE isn’t needed anymore, if maintaining capitalism is the goal?

    I’d say that subsidizing customer spending is required for that. Because for labor to be able to adapt to the new market environment, labor and entreprneurs require better customer bases, meaning improved aggregate demand. Or on the aggregate, one can’t get a legitimate business loan if all markets are shrinking. No matter how much supply of capital that seeks a return, that can be loaned against, there is. Unless we really eventually go give entrepreneurs money for taking loans, negative interest rates for all.

    Also needed is a better position from which to be entrepreneurial from, as that is the way for labor to maintain relevance in terms of productivity going forward, in my view (which seems clear if looking at the opportunties that won’t be automated at least). Entrepreneurialism for all for life. But yeah I guess the whole ‘give people money for taking loans rather than taking it from em’ would also work, as much as that’d come with a heap of issues and I doubt we’d go there. Unconditional incomes of limited size (be it a stable function of GDP or monetary volume) are more predictable for all the parties involved.

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Patrick Barron is a consultant to the banking industry. He teaches Austrian school economics at the University of Iowa and Bank Managemant Simulation for the Graduate School of Banking, University of Wisconsin. Visit his blog. Send him mail.

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