The Free Money Experiment
There was a Free Money Experiment that revealed some interesting aspects of human nature. Essentially, as nuts as it may sound, everyone who needed money would simply get free money. Effectively, everyone would have a guaranteed base annual income provided with monthly checks. Many feared that such a scheme would lead to a disincentive for people to work. There were behavior changes among new mothers, who tended to stay at home with their babies for longer. One long-term downside might evolve from the disincentive among teenagers to start to earn money with part-time jobs. There were some who became lazy, which would seem to be a problem if the youth have a disincentive to earn money. It was the largest social experiment of its kind, taking place over four years from 1974-79. Overall, the scheme proved strangely successful, but perhaps because it relieve stress. The number one reason for couples getting divorced is always money issues.
People tend to think that whatever problems they have can be eliminated if they just had more money. Both Switzerland and India are looking at this idea of Free Money. Yet the 1970s was a time for experimentation as the new floating exchange rate system appeared. There was the Richard Nixon proposal of a negative income tax that wasn’t exactly the same thing as the Free Money (basic income) Canadian experiment.
Nixon’s idea was to give everyone a cash grant and then rapidly taxes it away in such a manner that the vast majority of taxpayers would get no money back at all. Nixon’s negative income tax would pay around $10,000 in 2014 dollars to a family of four, and then tax it away at a 50 percent rate until families earning above $20,000 or more would receive nothing.
There were essentially four experiments Gobry cites — conducted in New Jersey, Pennsylvania, Iowa, North Carolina, Seattle, Denver, and Gary, Indiana. This created a test sample totaling about 7,500 people. This was the most comprehensive test to date of negative income taxes. They also attempted various cash grant sizes (from 50 percent of the poverty line to 148 percent) and phaseout rates (from 30 percent to 75 percent), enabling a more detailed look at how the plan’s components interacted with each other.
The studies discovered that the policy was beneficial only to those getting the money marginally while it tended to reduce the number of hours these people worked. The problem with all of these schemes was the assumption that merely handing people money will improve their lives. In this respect. there is no long-term study that proves this idea would not seriously disrupt society reducing productivity.
The entire approach is still constructed on the assumption that government has some sort of role in tinkering with the economy, which is derived from Karl Marx. If lawyers run government and lack any experience in the financial markets, we end up with the persistent approach that they can force the economy to do as they like by simply writing a law and punishing those who do not comply with whatever it might be that they think will be best.
At the upcoming SOLUTION conference, we will look at some of these ideas and why they failed. It appears that the failure rate is constructed upon the assumption government knows best and that they have a role to manipulate society. What if we go back to square one reducing everything to its seed? This would mean we must also review the role of government within the entire landscape. If we do that, then we can try a real study that would rely on the strengths and weaknesses of human nature. We cannot change human nature for the centuries of history stand as witness to that statement. So perhaps we should not try to change human nature with laws but use it to shape the future. Kind of a marshal arts form of using the other persons energy against them.
State Kidnapping Children
COMMENT:
Martin, thank you again for all your great work. The greatest fear I have is for my children. The rampant corruption I see everywhere in the United States from the banks, to police, to judges, to politicians, to now hospitals and schools frightens me greatly. I read that Child protective services with police forcibly removed two healthy home-birthed babies from their parents because they chose not to use the hospital. This goes way beyond civil asset forfeiture. Take my money, yes I will be angry. But my children? Please see this website: http://medicalkidnap.com/news/page/2/
You posted about how police interrogated boys for shoveling. On the site is a story about two kids whose parents let them walk home by themselves in the spirit of “free range-kids” parenting philosophy who were interrogated by police and whose parents were threatened by CPS.
If there is any light you can please shed on the growing medical tyranny and police state that we live in, please do. I would greatly appreciate it.
S
REPLY: The government has gone way too far in so many areas. The taking of children from parents simply because they do not comply with some bureaucratic decree is just another example of how far out of whack everything has become. It is one thing if children are abused, starved, or beaten and another when the state officers go to extreme. This is the problem with government – it knows no bounds.
Big Bang is clearly in play – Dominoes Starting to Fall in Debt Markets
Just in case if you have not seen this, Big Bang is clearly in play. The dominoes are starting to fall! Obviously, bearish for the Euro broader-term, but will be interesting to see how the peripheral debt trades tomorrow.
The ECB Press release emerged on a waiver of collateral regarding Greek Bonds. The Governing Council of the European Central Bank (ECB) lifted the waiver affecting marketable debt instruments issued or fully guaranteed by the Hellenic Republic. The eligibility of Greek bonds used as collateral within the Eurosystem for reserves as monetary policy have suddenly, yet not surprisingly, been granted a waiver. This Waiver (suspension) is in line with existing Eurosystem rules, since it is currently not possible to assume a successful conclusion of the program review.
Now you can see that the so called “stimulus” of the ECB is not targeted at trying to rebound the economy, this whole thing is about bailing-out the banks. The Europeans banking system is really just about insolvent if it were on a mark-to-market basis. Creating waivers to ignore the decline in value of Greek debt is just an illusion. This is by no means a permanent solution.
Optimism v Pessimisim
There is little doubt that we live in interesting times. However, it is not always doom and gloom. What you have to understand is there will never be any change or reform without the doom and gloom. We have to crash and burn in order to create what Joseph Schumpeter called Waves of Creative Destruction.
There was the Great Depression, which everyone says we must prevent. All they see is the doom and gloom. Without the Great Depression you might still be growing tomatoes. Here we can see the shift within the make-up of the economy. Agriculture crashed and burned sending unemployment to 25%. This forced people to become skilled labor. Unfortunately, it marked the birth of government which grew tremendously. Now we have reached the peak in government and they must go through their wave of collapse. Government produces nothing – it consumes the wealth created by the people. The more it consumes, the slower the economic growth and the less opportunity in the future for the next generation.
So yes, we are in a doom and gloom era for government. But the light peaking through the clouds is a new land of exciting opportunity – a Private Wave of opportunity. What we must be careful about is government will not reform nor will it go quietly into the light. They will rage against their coming demise. The object is to step out of the way and help others understand this is a Wave of Creative Destruction – not the end of the world. Embrace it and prepare for a new way ahead. In part this is why I will do the SOLUTION conference now rather than latter.
China Still in the Growing-Pain Stage
Despite the optimism that China will be the land of the future, that will be true long-term, but there are still in the growing-pain stage. The People’s Bank of China (PBOC) has announced a series of cuts to the required deposit reserve ratio, releasing hundreds of billions of yuan into the financial system amid growing concerns about the impact of capital outflows.
The PBOC said it will cut the reserve requirement by 50 basis points for all institutions, with an additional 50 basis point cut for some small lenders and a 4 percentage point cut for the ratio applied to the Agricultural Development Bank, one of the government’s policy lenders. A system-wide reserve cut of 50 bps is equivalent to just over CNY500 billion in bank deposits.
The long-awaited move comes as market interest rates rise ahead of the Chinese New Year holiday, which falls on February 18. It also follows balance of payments data on Tuesday which suggests that capital is leaving China in ever-greater quantities.