Minimum income and inequality cap

by George Hatjoullis

A minimum income and wealth inequality cap may sound radical but was in fact, in effect, what was being proposed on the Andrew Marr show on Sunday, 6/12/15. Universal credits, the passion of Tory right winger Ian Duncan Smith, approximates a minimum income concept. Tristam Hunt, a Tory lite labour MP, positioned the Labour Party as inherently about wealth inequality. Neither really comes into the Marxist camp! Today Finland has announced plans to do away with welfare and introduce a minimum income.Both are issues that are worth some thought and go hand in hand (in my view).

The minimum income principle basically monetises many social wage elements that already exist into one lump and pays it to every member of the society as of right. The thorny issue of social membership is a detail that can be set aside in a discussion of core principles. Along with rights come responsibilities and the society is allowed to set some social conditions for receipt depending upon practical necessity. These conditions need not be too onerous. Automation has been lambasted for taking peoples jobs. The good news is that robots, like slaves, need not be paid and their ‘earnings’ can be distributed as the minimum income. Indeed, in a market system this will be essential because robots do not consume anything above replacement cost. So who will buy their produce if there is not some form of social income? The level of social income will thus be linked to the productivity gains from automation.

There are of course many details that would need to be ironed out. Would the minimum income be constant irrespective of location? This could lead to some regional concentrations of income groups that might have undesirable unintended consequences. What should be done with people that steadfastly refuse to comply with social responsibility? A messy moral hazard issue emerges. It may be that the wealth cap may help in these respects.

Inequality is the motivating force behind market systems. If, despite your effort, society restricts you to exactly the same position as your feckless and lazy neighbour why would you bother? In fact, there is no doubt that that some people would still bother being internally motivated. In the absence of sufficient internally motivated and inclined people some external motivation may be necessary. Some potential for wealth inequality may thus be socially productive. However, how much is appropriate?

One way is too look at wealth only in consumption terms and ask what can one family actually consume. Even with generous consumption limits (yachts, second homes, Versace suits etc) and allowing for some generous inter-generational transfers, it is hard to justify more than £100 million per family in todays purchasing power. Beyond this sort of level (and arguably even lower) money becomes a source of social power and it is this power that needs to be curtailed in a pluralist democracy. So the criterion for a wealth cap should be some reference to social power (which includes political power). Some so called democracies are already in effect one dollar, one vote and this is the problem.

Wealth becomes less of a source of envy and resentment when it is earned and when it is capped in terms of the social power that it can deliver. The principles of minimum income and wealth caps can in fact make a market based society function more effectively. In particular by providing minimum income and linking wealth to consumption, the tendency for consumption to fall below potential output is in part contained. There are, obviously, many details that need to be considered but the principles of minimum income and a wealth cap set with reference to social power seem sound.