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How Western Economies Could Double GDP Growth in Two Steps

by John Brian Shannon

Empowering the bottom-two economic quintiles via a Guaranteed Basic Income and a 21st century minimum wage will allow low-income people to become ‘part of the solution’ instead of ‘part of the problem’ in Western economies.

We Have a Problem in the West

The top-three economic quintiles are doing just fine thank you very much, and any one of those top-three quintiles contribute more to society… than the bottom-two quintiles combined!

That includes the CO2 emission contributions of any one of the top-three quintiles by the way. And it includes the high level of government spending required for the enhanced infrastructure and security considered de rigueur for those who live near the top of the economic pyramid.

If you don’t believe that the top-three economic quintiles cost the government more, just take a drive around some of the ‘tony’ neighbourhoods in your city. Look at the streets (nice, broad thoroughfares and sidestreets that are always well paved, etc.) look at the decorative streetlights, the curbing, the sidewalks. Also don’t miss the world-class schools and recreational facilities. And of course, visit an international airport to see how many of the travelers boarding planes to sunny locales hail from the top-three economic quintiles. That would be most of the travellers in the airport.

While the top-three economic quintiles are driving their Land Rovers and taking exotic vacations and sending their kids to university (and yes, they do work hard for their money — nobody is saying any different) the bottom-two quintiles can’t.

While the top quintiles cost society much, they also contribute much. And why shouldn’t they contribute much? They’re the prime beneficiaries of that society.

At the end of it all we may conclude that (apart from their astonishing CO2 footprint and the astronomical security costs to ensure almost total security in their neighbourhoods) the top-three quintiles aren’t the problem when we’re talking about the economy.

Through no fault of their own the problem lies with the bottom-two economic quintiles and we can thank (some) economists and (some) politicians for this miserable state of affairs.


Shall We Toss the Bottom-Two Economic Quintiles into the Ocean?

Or should we allow them to become ‘part of the solution’ on the path to dramatically increasing national GDP growth?

If we did toss them in the ocean, just for argument’s sake; Who will pour your latte at your favorite coffee joint? For that matter, who will pick up your trash, man the gas station counter, feed the ducks in the city park, or cut your lawns and clean your swimming pool?

Wouldn’t you rather be earning your $100 per hour or whatever you earn, instead of spending your free time sweeping the sidewalks and changing burned-out streetlamps? Wouldn’t you rather be racing your personal watercraft with friends at your lakefront cottage? You work hard, you play hard. Great!

Now let the other people contribute too.


Maybe Those Bottom-Two Economic Quintile Types Aren’t So Bad!

As it stands now however, the bottom-two quintiles are a drag on the economy. There’s no hiding that fact.

Some are homeless and may engage in property crimes or other offenses. Others may find themselves often unemployed or in a permanent state of underemployment as 34% of all manufacturing jobs have left Western nations for Asia since 1975. (Not the fault of the bottom-two economic quintiles by the way)

And still others just can’t find their niche, nor do they have the education, nor the financial clout to engage in the type of business where they could succeed in personal terms, but also contribute to the overall economy.

They want to contribute(!!!) to their country but can’t find a way forward. And they’re not up for moving to Asia to reclaim their former manufacturing job. Nor should we expect them to.


Changing a Negative Into a Positive!

Many people have experienced the kind of drag induced by leaving your car’s emergency brake in the ‘on’ position as you travel down the highway. As soon as you realized your mistake and moved the e-brake to the ‘off’ position the car appeared to have 100 more horsepower.

But of course it didn’t. The motor had the same horsepower it always had, it’s just that by accidentally leaving the e-brake ‘on’ it took extra power to move the car.

So it is with the economy and the bottom-two quintiles.

Prior to all those manufacturing jobs leaving for Asia, the bottom-two economic quintiles contributed much to the economy. We used to call them ‘the middle class’ or ‘blue collar workers’ or ‘the rank and file’ and other descriptors.

But there just aren’t the jobs to employ them now. So many people (millions) have exhausted their unemployment insurance benefits and have given up looking for a job, any job, that they’re no longer listed as officially ‘unemployed’. The corporate world, and governments too, appreciate that those are rarely reported stats. It makes them look bad and feel bad, but they don’t know why, or how, this has happened. In any case, it’s better for them that it’s rarely reported.

Yet, there is no need to leave two-fifths of the population in a permanent state of poverty and thereby not able to move ahead with their lives — let alone contribute to GDP.

A two-track plan could accomplish a number of good things for the overall economy.


Allowing the Bottom-Two Economic Quintiles to Become Part of the Solution, Instead of Part of the Problem

Working people always contribute more to the economy than non-working people. But what’s the use of getting a job if you can’t afford the monthly bus fare to get back and forth to work? It’s a very common thing nowadays.

Make your choice now; Eat for the month, or use your grocery money for subway fare. Pay the electricity bill, or buy a monthly bus pass to get back and forth to work. Buy some decent clothes for a job interview, got the job! now you can’t afford the bus fare to get you back and forth. Ugh!

These are the very real concerns of the McJobs era. It’s even multi-generational. Older workers may work as low-paid greeters at WalMart, while younger, low-paid workers at fast-food restaurants experience similar life choices.

Two-fifths of the working age population are a drag on the economy — but only because of poorly thought-out policies and on account of the race for corporate profits which were (and are still) improved by outsourcing jobs to developing nations. Bad!

Therefore, because the situation is so tragic ANY solution is better than allowing the status quo to continue!

Two Ways to Solve Gross Inequality and Increase GDP:

  1. Legislate a standardized $15/hr wage right across the country. In this way, people who would rather work will be able to afford to eat for the month AND pay their electricity bill AND have enough money for bus fare to travel back and forth to a job. Perhaps Mom and Pop can front them the money to buy some decent ‘job interview appropriate’ clothing and help in other ways such as babysitting young children, etc. However, we can’t expect Mom and Pop to pay for all of those things, as their time and resources are limited too.
  2. A guaranteed basic income (GBI) of $1088/month per adult (a generally recognized amount, accepted by researchers and governments)
    In some cases, this would effectively ‘top-up’ the monthly income of welfare recipients and Old Age Security recipients to $1088/month from all sources. It would likewise replace all other low-income schemes, grants, etc. So much duplication of services exist that entire government departments could be down-sized (by attrition) thereby saving some government departments up to 5% in their annual budgets. Especially police and court budgets. And the multi-billion dollar SNAP programme and Food Banks could be eventually discontinued, for example.

With 21st century policies in place, the bottom-two quintiles could then afford(!) to look for a job, afford(!) to move to a different jurisdiction to accept a job offer, afford(!) to return to vocational school or attend night school to brush-up on job-skills, or afford(!) to move to a safer neighbourhood where they aren’t afraid to take the bus to a night shift job they’ve been offered.

As soon as they report on their annual tax return that they’re earning any amount over the poverty line, then their GBI payments would be discontinued. Success!


“Paying good wages is not charity at all — it is the best kind of business.” — Henry Ford

And, in case you’re wondering what kind of chips Henry has in this game? Henry single-handedly created the middle class in America. Yes, it’s true!

Henry Ford created the Middle Class and the modern economy by simply paying workers $5 an hour, twice as much as the national average at the time. People flocked to get a job at his factory. Other companies followed suit realizing that great, qualified employees were lining up at Ford’s doors. This unprecedented gamble by Ford paid off and America was on its way to becoming an economic giant. Henry Ford was behind the success of the American Middle class, and he did not do it by lowering wages.

In fact, he is quoted as saying:

“Low wages are the most costly any employer can pay. It is like using low-grade material — the waste makes it very expensive in the end. There is no economy in cheap labor or cheap material. The hardest thing I ever had to do was to reduce wages.” — Henry Ford

Excerpt from Raising the Minimum Wage: The Birth of the American Middle Class by The Daily Kos


If policymakers want the present situation to continue to deteriorate; Just keep on doing what you’ve been doing, and you’ll keep on getting what you’ve been getting

But if we want the bottom-two quintiles to contribute to the economy like they did in past decades, policymakers must set payscales at rates that are relevant to 21st century cost of living standards (they’re not now!) and they must institute a GBI that replaces all low-income schemes and empowers people to either; move to a job, retrain for a job, afford transportation to and from a new job, and in the meantime, maintain their home / electricity connection / phone connection / internet connection / job interview and other employment-related clothing needs / childcare / normal caloric intake / buy medicine, and afford other necessities in our modern world until they get back to work.

How can you get a job nowadays if you can’t afford an internet connection? Do you know? (I don’t know. Can that still be done in the year 2017? Probably not)

The time for navel-gazing is over. It’s time to get brave and release the brakes from the economy and allow the bottom-two quintiles to again contribute to the economy by passing legislation that’s designed to make people part of the solution, instead of part of the problem!



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Guaranteed Basic Income vs. Job-sharing Programmes

by John Brian Shannon | July 9, 2016

PART I – Guaranteed Basic Income

The Guaranteed Basic Income (GBI) or Unconditional Basic Income (UBI) plans that have been proposed in recent years that are designed to mitigate poverty — poverty that is mostly caused by higher unemployment due to economic downturn or from humans being replaced by robotics, or a combination of both — have been contrived as if they were made to fail the smell test for voters asked to vote on such initiatives.

For instance, the recent Swiss referendum asked Swiss citizens to vote on a Unconditional Basic Income equivalent to $30,300/yr for every citizen, working or not. How ludicrous! (Even I, a UBI supporter would’ve voted against that!)

Of course, all that extra income would be taxable and it would boost an individual’s income into a much higher tax bracket, and consequently, all Swiss taxpayers would pay more tax. However, in addition to automatically being bumped into a higher taxation bracket, the Swiss were looking at major percentage increases to their tax rate in order to afford that exorbitant UBI programme.

However, if such guaranteed income schemes are kept within a reasonable context it suddenly becomes much easier to afford.

Working people who earn any amount over the official poverty line in Canada (approx. $19,000/yr, depending if you live in a rural area or a city) might not require a Guaranteed Basic Income.

But for those senior citizens and disabled people who live under the poverty line, and for hundreds of thousands of Canadians whose jobs were shipped off to Asia (and we know those jobs are never coming back) whose unemployment insurance benefits have run out and are subsisting on various welfare programmes, all of these people now find themselves living far below the poverty line at $7320. per year in certain provinces.

And we wonder why we have homelessness, substance abuse, high property crime rates and higher policing, court, and incarceration costs.

Using the $19,000/yr poverty line threshold as it relates to guaranteed income schemes, we can see how GBI measures up with the real world. (Note: $19,000/year divided by 12 months = $1533/month)

It’s actually cheaper to pay a person $1533/month, than it is to incarcerate them at $6600/month. (The incarceration costs only average $80,000/yr in Canada — with federal prison inmates costing $113,880/yr. per inmate, and provincial prison inmates costing from $48,000/yr to $58,000/yr per inmate)

It’s also cheaper to pay a person $1533/month, than the common $1,000,000 per person (for example) property damage, policing costs, court costs, and incarceration costs, once all the disparate costs of one repeat offender are totalled up. (Some criminal investigations cost hundreds of thousands of dollars per month and may involve many officers and several government agencies)

It’s cheaper to pay a person $1533/month, than it is to hospitalize them in various Emergency Rooms each time they overdose on street drugs, or get hypothermia from sleeping outdoors.

ER costs are astronomical and range from $260. to $8120. per visit (and costs rise significantly if additional testing is required such as MRI, X-Rays, or if there are complications) and a substance abuser who lives on the street in a violent area might have many Hospital visits per month.

And particularly with vulnerable people like seniors or battered women with young children in tow, who subsist far below the poverty line, it is cheaper to pay a person $1533/month, than picking up the pieces afterward.

By rolling existing social programme spending from many different government departments into a GBI, much of the $1533/month GBI is already funded.

And by dramatically lowering property damage, policing costs, court costs, incarceration costs, and Emergency Room and other healthcare costs, a reasonable GBI can facilitate huge net savings for any jurisdiction.

Do dramatically lower homelessness rates, crime rates, lower substance abuse rates, lower policing costs, court costs, incarceration costs, safer cities, lower healthcare spending and shorter ER wait times, appeal to you?

Then, de facto, you’re a GBI supporter! Surprised?

Politics: Guaranteed Basic Income:

Guaranteed Basic Income: Dauphin, Manitoba was the site of the Mincome Project in the 1970s. Canada’s policy context concerning basic income may be surprising for some people. The famous Mincome experiment ended abruptly due to a newly-elected government and not due to any failings of the programme; it’s only recently that we’ve learned about the wide extent of its benefits. Photo Dauphin Economic Development on Facebook


PART II

That said; There is nothing that a national (and effective) job-sharing scheme can’t fix in regards to high unemployment levels, regardless of how high the unemployment rate soars.

I’m a firm proponent of GBI or UBI and I will strongly support it, in the absence of an effective job-sharing programme — which should be our highest priority.

In Sweden, they have mandatory job-sharing. Which means that by law, every worker must work for a minimum of 6 months per year.

That’s right, everyone who is not a student, not retired, not on maternity/paternity leave, or not disabled, is classed as a worker and must work a minimum of 6 months per year.

Sometimes, two people share the same job their entire career. Don’t forget that in Sweden, people are mostly employed. It’s the rare person who doesn’t work full time, at least 11 months of the year.

Which means that the unemployment rate among workers would sit at virtually zero percent, EXCEPT for those people who’ve just graduated and are looking for work, or homemakers who’ve just re-entered the job market, or those who’ve relocated with a spouse to a different city in Sweden. (The historical unemployment rate in Sweden is 2.5% which neatly matches-up with my above statement)

In Sweden, there are two unemployment insurance (UI) schemes:

  1. One is the government scheme which pays unemployed workers 66% of their normal salary (most countries have this basic UI setup)
  2. The other is a public/private insurer that workers can voluntarily pay into that allows them to purchase additional unemployment insurance coverage.

Both the government unemployment insurance scheme and the public/private unemployment insurance scheme are money-makers! (And why not?)

For the equivalent of only one or two pennies per dollar earned, workers can purchase the additional unemployment insurance from the public/private insurer — so that during their layoff they receive the normal 66% of their salary from the government unemployment insurance scheme — but also receive up to 33% of their normal salary from the public/private unemployment insurance scheme.

When Swedes get a layoff notice, it’s not a traumatic event in their lives.

From the first day of layoff, they’re on a fully-funded unemployment insurance program that pays them up to 99% of their normal wages, and with no application process nor waiting period. It’s automatic.

It depends upon how much additional coverage they’ve purchased, most people only purchase an additional 24% coverage, giving them 66% + 24% = 90% of their normal salary.

Why don’t they buy 33% coverage?

Because they no longer have commuting expenses, work clothing expenses, and other work-related expenses. It’s actually a net benefit to purchase only 24% coverage. But it’s completely their call to purchase any amount of public/private insurance that they want.

In Sweden, workers don’t need GBI or UBI — as they’re either working, or receiving government unemployment insurance plus the public/private unemployment insurance they’ve purchased themselves.

Companies in Sweden like this arrangement as they always have a large pool of fully-trained workers from which to choose.

Also, in the case of an ill or injured worker, Swedish companies simply call-in one of their unemployeds to fill-in for the injured worker — at full pay.

Workers gladly accept this, as not only do they continue to receive their unemployment insurance benefits (both the government UI which is paid monthly and the public/private UI which is paid weekly) but they also get the daily wage from the employer for as many days as they’re required to fill-in for the injured worker.

Yes. As you might expect, there’s a waiting list! The most senior people are at the top of the ‘Do Call’ List, whenever another employee has time away from work for illness.

It’s a great thing for companies, for workers, and for those trying to raise young families in uncertain economic times.

In Sweden, if you’re a worker, you’re covered! No matter what.

Either you’re at work getting 100% of your normal salary — or you’re at home getting (typically) 90% of your salary. There is no ‘other’ category for workers in Sweden.

And throughout your entire career, you will be in one of those two categories.

If you think that workers and their families like that system, you should interview the companies. They like it even more.

In Sweden, Nobody Sleeps in Dumpsters. Now you know why!


Summary

Which approach do you favour?

Do you think that people should be saved from poverty via (1) a GBI system or (2) do you think that an efficient job-sharing programme with both government and public/private unemployment insurance is the answer?

Let us know in the comments!


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