On Globalization and Disruption
I also believe that it is not a government’s purpose to compete with business or other governments, since competition in a globalized economy should solely be the prerogative of business. Therefore, the globalization of the economy should have resulted in harmonization of taxes around the world to further equal opportunity and innovation. The opposite is the case. Governments are competing by lowering taxes for businesses and investors. This, of course, needs to be compensated by increasing income taxes for the middle class, which, when paired to inflation, results in catastrophic effects on upward mobility.
Lower trade barriers, automation and cheaper transport have brought millions of extra low- and unskilled workers onto the world market. While this has raised living standards and productivity overall, it has also created a group of people whose relative position has weakened considerably: lower skilled workers in developed countries.
And there is a major storm coming for higher skilled professionals as well. Virtually everything about the way people live and do business is changing faster than ever before. Digital technology, global development, urbanization, and business disruption represent both a major opportunity and a threat in the global economy. Although individuals and organizations are aware that the world is changing exponentially, most are ill-equipped to face this level of disruption and volatility. Brands and producers have gained direct access to consumers via the internet, with devastating effect on retail and wholesale. Computerization and automation have rendered many administrative jobs obsolete. Artificial intelligence and robotics have started to replace call center agents, farmers, doctors, lawyers, judges, software developers, masons, notaries, construction workers, surgeons, and nurses in ever growing numbers. While some of these occupations are still in high demand, disruption will soon knock on their doors as well.
Globalization has already lowered the market value of many workers’ skills to the point that the clearing price for some labor cannot provide a growing proportion of the population with an income that meets the popular definition of minimum living standards—even though it has also contributed to cheaper consumption bundles. Factoring in that the replacement of human labor by disruptive technology outpaces the creation and fulfilment of new jobs, we can come to understand the discontent among the public today and the revolution brewing.
This has been partially masked by government welfare policies. But the current stopgap solutions are costly, ineffective, and overly complex, leaving many people stuck in poverty traps and financial insecurity.
One solution that I deem a serious option to provide a reasonable basic income for every citizen over 16 years old is a Standardized Tax Rebate, a variation of Basic Income. A "basic income" - first proposed by political activist and philosopher Thomas Paine in his 1797 pamphlet, Agrarian Justice - is a government determined sum unconditionally granted to all on an individual basis, without any means test or requirement to work. Contrary to the Negative Income Tax suggested by the Adam Smith Institute and Milton Friedman, or other Basic Income schemes currently discussed in various countries, a Standardized Tax Rebate is for everyone, and is the same for everyone. It doesn’t vary with circumstance, and it doesn’t discriminate based on income, gender, age, race, abilities, sexuality, value system, religion, or any other trait. And best of all, it doesn't require much in terms of organizational overhead as it is administered via taxation, not via a welfare system.
I think most people still have quite a puritanical idea of work. But this is an urgently needed policy. With increased job insecurity, the idea of everyone working nine to five is outdated. People go in and out of work these days. People are increasingly working in what they call the 'gig economy'. The current system is not fit for purpose.
A Standardised Tax Rebate scheme should replace the entire welfare system as well as all other benefits and services paid for by the government, such as subsidies to rent or buy a home, scholarships, and child support. We should also abolish minimum wages. This scheme should be tied to a flat-tax rate for everyone. This ensures a level playing field with near equal opportunities for all. And it minimizes activities of redistribution of wealth via the institutions of the state.
How to pay for such a Standardized Tax Rebate? Well, why do we only tax human labor and not machine labor? Bill Gates has suggested to tax technology that replaces human labor. The problem with Gates’ basic proposal is that it’s very hard to tell the difference between new technology that complements humans and new technology that replaces them. This is especially true over the long term. But while taxation of technology may hamper innovation, it is worth some thought and experiments.
On the other hand, why tax labor at all? If the problem is the growing economic inequality, and it is caused by crony capitalism, we should fix the capitalistic system. As a libertarian, I feel that we should minimize taxes as much as possible. But when we do tax, we should tax in such a manner that we induce desired behavior. We want consumers to earn and spend as much as possible, and we want entrepreneurs and investors to invest as much as possible. What do we not want? Concentration of capital that is not used to the benefit of the system. Remember, capitalism is meant to spread prosperity as a product of labor and reduce financial inequality, not to concentrate capital and increase financial inequality. Most contemporary capitalists seem to have forgotten where we came from. Purely speculative abstract paper assets such as options, fiat currencies, and money market accounts, as well as gold, silver, diamonds, oil, platinum, bare land, and other such unproductive physical holdings, do not contribute to society. Therefore, we should tax these if they remain unproductive or speculative for a prolonged period of time. Taxing these would put them to work and negate the biggest threat paired to deflation: the hoarding of money. Vice versa, if and when capital is invested productively, like in real estate, innovation, or businesses, it should be rewarded with tax benefits. When such a tax-scheme is tied to the reintroduction of a gold bullion standard, (much like the Swiss Franc up to 1936), with a gold backing requirement of 50 percent and an end to fractional-reserve banking, fixing capitalism suddenly seems feasible.
Some claim is that gold cannot be used in a monetary system because gold caused the Great Depression of the 1930s and contributed to its length and severity. This is a myth. The Great Depression, conventionally dated from 1929 to 1940, was preceded by the adoption of the “gold exchange standard”. As the name implies, the gold exchange standard was not a pure gold standard of the type that had existed from 1870 to 1914. The gold exchange standard of the 1920s was, at best, a pale imitation of a true gold bullion standard and, at worst, a massive fraud.
The Austrian School asserted that the Great Depression was the result of a credit bust. Alan Greenspan wrote that the bank failures of the 1930s were sparked by Great Britain dropping the gold standard in 1931. This act "tore asunder" any remaining confidence in the banking system. Financial historian Niall Ferguson wrote that what made the Great Depression truly 'great' was the European banking crisis of 1931. According to Fed Chairman Marriner Eccles, the root cause was the concentration of wealth resulting in a stagnating or decreasing standard of living for the poor and middle class. These classes went into debt, producing the credit explosion of the 1920s. Eventually the debt load grew too heavy, resulting in the massive defaults and financial panics of the 1930s. Guess what's happening today?