A Dutch City Will Soon Experiment With Guaranteed Basic Income

This coming January, the guaranteed basic income will go on trial in the Dutch city of Utrecht, where 250 citizens will receive a flat sum of €960 per month (about $1,100) for two years. The experiment is a collaborative effort between the local government and the Utrecht University School of Economics, and is partly motivated by a desire to find an alternative to the Netherlands’ present welfare system, which many believe it both wasteful and of little benefit to its recipients.

As The Atlantic reports:

The Utrecht proposal—called “Weten Wat Werkt,” or “Know What Works”—includes six test groups, the members of which will receive slightly different stipends under slightly different conditions. In addition to the group that will receive €960 per month without any work obligations, there is a group that will be given that, plus an additional €150 at the end of the month if they provide volunteer services, such as doing maintenance work on schoolyards. And there is another that will have the same option to volunteer, but will get the money at the beginning of the month and have to return it if they don’t volunteer. “Human behavior is always unpredictable,” Groot says. “We want to know what motivates people, what people respond to.”

There are three other test groups. One is made up of welfare recipients who will keep receiving their benefits, but without their usual work obligations. Another is made up of welfare recipients who expressed interest in receiving the €960 stipend but will continue to receive only standard benefits. And then, lastly, there is a control group of welfare recipients who wanted to keep receiving their usual benefits.

Many believe, myself included, that this is an idea whose time has come. Philosophers and economists across the political spectrum have been exploring variations of this concept for centuries, from Enlightenment thinkers like Thomas Paine, to libertarians such as Milton Friedman and Friedrich Hayek — even Nixon proposed a similar idea. Continue reading

The Least Miserable Countries in the World

The Globalization of Plutocracy

According to a 2015 paper by American political scientist Larry Bartels of Vanderbilt University, the gap between the rich and poor — and the subsequent unresponsiveness of government to the needs of the majority — is not just a feature of United States, as a multitude of studies have revealed. The struggle between the haves and have nots seems inextricably tied to our species, varying only be degree.

For example, in almost every nation Bartels studied, the wealthy were generally and categorically opposed to social spending, even during bad economic times. Continue reading

Who, or What, is to Blame for Inequality?

Over at the Washington Post, columnist Matt O’Brian reveals how inequality has less to do with a small class of super wealthy elites, and more to do with the structure and culture of many big U.S. companies

The easiest way to think about this is to think about the different types of inequality. There isn’t just inequality between everyone, but also between everyone at a single company. Why does this matter? Well, if CEOs really are gobbling up a bigger and bigger slice of the profit pie, then inequality within society at large should have increased because inequality within companies increased. But that’s not what happened. The research team of Jae Song of the Social Security Administration, Fatih Guvenen of the University of Minnesota, and David Price and Nicholas Bloom of Stanford were able to look at what had previously between private earnings data for every company between 1978 and 2012—the best data we have so far—and found that the pay gap between executives and their own workers had barely changed during this time. What had changed, though, was the pay gap between every worker at the highest-paid firms and everyone else. In other words, inequality exploded because the top 1 percent of companies were making more and paying all their employees more. This was true across the country and across industries.

It is not entirely clear why this is the case, but one hypothesis is that technological innovation has made every industry “winner-take-all”, meaning it is easier than ever for the most ruthless and resourceful companies to dominate a particular market. This explains the rise of global behemoths like Google, Amazon, Apple, and Facebook, all of which lack any true competitors in their respective industries.  Continue reading

The Rise of Megacities

For thousands of years, cities have been at the center of human experience, social organization, and innovation. Even though the vast majority of humanity throughout history has, until very recently, lived in rural areas, it was the cities from where rulers governed, goods and services were traded, and ideas were born and disseminated.

Given that precedent, it is no surprise that today’s cities — bigger and more sophisticated than ever — have begun to rival whole nations, including the very ones in which they are located, as centers of culture, economic activity, scientific research, and political influence.

Writing in Quartz, Parag Khanna discusses the emergence and future of “megacities” — metropolises numbering tens of millions of citizens and accounting for anywhere from a third to even half of a nation’s economic output. Spanning every continent, but most especially Asia and Africa, these massive urban conurbations will reshape our species’ development in every sphere, from economy to culture.

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For a larger version of the above map, click here.

As can plainly be seen, the developing world — once largely rural — will lead the way in the formation of megacities, albeit not by design; most megacities have formed organically, driven by heady economic growth and the influx of migrants from rural areas and smaller cities. The process has often been as rapid and haphazard as the political, social, and economic forces of the cities’ nations.

Within many emerging markets such as Brazil, Turkey, Russia, and Indonesia, the leading commercial hub or financial center accounts for at least one-third or more of national GDP. In the U.K., London accounts for almost half Britain’s GDP. And in America, the Boston-New York-Washington corridor and greater Los Angeles together combine for about one-third of America’s GDP.

By 2025, there will be at least 40 such megacities. The population of the greater Mexico City region is larger than that of Australia, as is that of Chongqing, a collection of connected urban enclaves in China spanning an area the size of Austria. Cities that were once hundreds of kilometers apart have now effectively fused into massive urban archipelagos, the largest of which is Japan’s Taiheiyo Belt that encompasses two-thirds of Japan’s population in the Tokyo-Nagoya-Osaka megalopolis.

China’s Pearl River delta, Greater São Paulo, and Mumbai-Pune are also becoming more integrated through infrastructure. At least a dozen such megacity corridors have emerged already. China is in the process of reorganizing itself around two dozen giant megacity clusters of up to 100 million citizens each. And yet by 2030, the second-largest city in the world behind Tokyo is expected not to be in China, but Manila in the Philippines.

For its part, the United States, which is the world’s third most populous nation, and which is expected to grow steadily over the next century, is seeing the rise of several megacities thus far: the Northeast Megalopolis, which runs from Washington, D.C. through New York City to Boston; the Southern California Megaregion, which runs from San Francisco to San Jose; and the Texas Triangle, which includes Dallas-Fort Worth, Houston, Austin, and San Antonio. Though not as large as their counterparts in the developing world, they will be formidable economic and cultural centers in their own right, and are already economically larger than some medium-sized countries.

 

Khanna goes on to note that the sheer size and influence of these megacities, in conjunction with the rapid pace of globalization, will make them as much a part of the world as of the nations in which they are located.

Great and connected cities, Saskia Sassen argues, belong as much to global networks as to the country of their political geography. Today the world’s top 20 richest cities have forged a super-circuit driven by capital, talent, and services: they are home to more than 75% of the largest companies, which in turn invest in expanding across those cities and adding more to expand the intercity network. Indeed, global cities have forged a league of their own, in many ways as denationalized as Formula One racing teams, drawing talent from around the world and amassing capital to spend on themselves while they compete on the same circuit.

Megacities will also redefine the relationship between the developed and developing worlds, and as well as between themselves and the rest of their countries. They will be polities of tremendous influence to reckon with in their own right.

The rise of emerging market megacities as magnets for regional wealth and talent has been the most significant contributor to shifting the world’s focal point of economic activity. McKinsey Global Institute research suggests that from now until 2025, one-third of world growth will come from the key Western capitals and emerging market megacities, one-third from the heavily populous middle-weight cities of emerging markets, and one-third from small cities and rural areas in developing countries.

There are far more functional cities in the world today than there are viable states. Indeed, cities are often the islands of governance and order in far weaker states where they extract whatever rents they can from the surrounding country while also being indifferent to it. This is how Lagos views Nigeria, Karachi views Pakistan, and Mumbai views India: the less interference from the capital, the better.

Needless to say, megacities will pose as many challenges as they do opportunities: urban planning, social organization, resource management, law and order, and infrastructure will need to be subject to considerable investment and re-imagining. Political challenges will no doubt emerge between certain megacities and their smaller peers, as well as their national governments.

Khanna concludes that these issues, along with the sheer potential and influence of megacities, should change the way we map the world — metropolitan areas should be given as much attention as the 200 or so countries that make up the world. It is an interesting argument, and one that I think bears some consideration. I look forward to exploring the topic further in Khanna’s new book Connectography.

What are your thoughts?

 

What Nigeria’s Rapid Growth Says About Economic Analysis

Nigeria is one of Africa’s leading powers — an significant achievement in a continent of 54 nations and over 1 billion people, almost 16 percent of whom are Nigerian nationals. With Africa’s largest economy as of 2014, and now the 20th largest one in the world, it has been classified as an emerging global power for its impressive speed of development.

As The Atlantic observes, this turnaround has massive implications for both the country and the developing world at large. Continue reading

The World Goes a Little Less Hungry

For most of us in the developed world, hunger is no worse than a nuisance, and can be easily rectified by the abundance of options offered by restaurants, fast food joints, convenience stores, and supermarkets. So it is mercifully easy to forget the horrific toll that malnutrition and chronic hunger continue to reap across vast swathes of humanity.

A person who is chronically hungry would feel more than just hunger pangs. The body produces less energy and develops a daily sense of weakness. “They feel tired, they don’t feel like they can perform their work optimally,” says Rafael Perez-Escamilla, a chronic disease epidemiologist at Yale University. “They feel fatigued and a sense of apathy.” He adds that the hunger can become so severe that a person barely has the ability to get up from bed.

The lack of nutrients is especially detrimental for children under 5, for whom hunger is the leading cause of death. Each year, hunger kills some 3.1 million children under 5, accounting for 45 percent of child mortality within that age group. Those who survive suffer a lack of physical and mental development. Roughly 100 million are underweight, and 1 in 4 children are stunted, meaning their height is below the fifth percentile for their age.

… And To The Brain

Perez-Escamilla warns that the physical consequences are only part of the problem. “The vast majority of people facing chronic hunger cannot concentrate very well,” he says. “You start having a headache and getting into a bad mood, and you can’t concentrate on your work.”

Now, he says, imagine that happening every day. Add the distress of not being able to provide for your family. He recalls a study in which he asked people what hunger meant. “People talked about how hunger is the worst form of violence against human beings,” he says. “It’s the worst thing that can happen to the dignity of a human being.”

Given such grim details, it is all the more gratifying to see that this scourge has been declining at an impressive speed: according to the most recent U.N.report published last summer, 795 million people were hungry as of 2014 (the most recent year for which there is reliable data). While that is still a terribly high number, it is over 200 million less than in 1990, when 1  billion people — one out of five people — were hungry, compared to one in nine today.

Also keep in mind that the world’s population has grown by another 2 billion, making this achievement even more impressive.

To top it all off, the rate of hungry has nearly halved, from 23.3 percent in 1990 among developing countries, to a little less than 13 percent today.

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Countries in green have either halved the proportion of people who are malnourished, or reduced it to less than 5 percent; those in yellow have made slow progress, while red indicates no progress.

For a larger version of the above map, click here.

As the map shows, much of the progress was led by East Asia, Latin America and the Caribbean. China halved its malnourished population, while Vietnam and Korea lifting millions out of hunger. The number of underweight children dropped dramatically in Brazil, Chile, Guyana, Nicaragua, Peru, and Uruguay, with only Guatemala seeing its undernourished population grow.

What accounts for such incredible progress? As you might imagine with an issue of this magnitude, quite a lot of strategies have been involved, including improvements in infrastructure and communications, which ensures more quality food makes it to more tables; public and private investments in agriculture, particularly to boost yields and grow more nutrient-dense food; government programs to provide greater food access for the poor; and a decline in abject poverty.

Clearly, a lot of work remains in reducing chronic hunger in this world of plenty. But given the incredible progress thus far, even the challenges posed by climate change might be overcome if we continue to apply solutions across the political, economic, and technological spheres.

Sources: NPRNational Geographic

Universal Basic Income is About to Get Its Biggest Test Yet

After decades of discussion and support among academic circles, as well as a few small-scale but promising experiments, universal basic income is about to get its biggest and possibly most decisive try yet. Writing for Slate, the co-founders of one of the world’s leading nonprofit charities lay out their plan to give this innovative idea its due:

The organization that we founded, GiveDirectly, has decided to try to permanently end extreme poverty across dozens of villages and thousands of people in Kenya by guaranteeing them an ongoing income high enough to meet their basic needs—a universal basic income, or basic income guarantee. We’ve spent much of the last decade delivering cash transfers to the extremely poor through GiveDirectly, but have never structured the transfers exactly this way: universal, long-term, and sufficient to meet basic needs. And that’s the point—nobody has and we think now is the time to try.

[…]

We’re planning to provide at least 6,000 Kenyans with a basic income for 10 to 15 years. These recipients are some of the most vulnerable people in the world, living on the U.S. equivalent of less than a dollar. And we’re going to work with leading academic researchers, including Abhijit Banerjee of MIT, to rigorously test the impacts.

By “rigorous” we mean a few things. First, the test must be experimental, so that we generate unbiased and transparent estimates of impact. Second, the guarantee must be a long-term commitment. We already know quite a bit about the beneficial effects of giving people money for a few years; the key question is how the knowledge that your livelihood is secured for more than a decade affects your behavior now. Do you take more risk? Get more schooling? Look for a better job? Third, the guarantee needs to be universal within well-defined communities, since the goal is as much to understand social dynamics as individual behaviors. While various other basic income pilots have been conducted in the past, none so far have met all three of these criteria.

The group estimates that this evaluation will cost roughly $30 million, 90 percent of which will go directly to the poorest households, and the remainder to the staff, office, payment fees needed to deliver it. Because it is being tried in a developing country, the costs to make people’s needs will be lower, thereby making the project more affordable. It will also complement similar experiments being planned in FinlandCanada, and elsewhere.

And even though it will provide some well needed empirical evidence, on the largest scale thus attempted, the authors point out that there is plenty of data already available from prior attempts:

As it turns out, that assumption was wrong. Across many contexts and continents, experimental tests show that the poor don’t stop trying when they are given money, and they don’t get drunk. Instead, they make productive use of the funds, feeding their families, sending their children to school, and investing in businesses and their own futures. Even a short-term infusion of capital has been shown to significantly improve long-term living standards, improve psychological well-being, and even add one year of life.

On the other hand, well-intentioned social programs have often fallen short. A recent World Bank study concludes that “skills training and microfinance have shown little impact on poverty or stability, especially relative to program cost”. Moreover, this paternalistic approach is often for naught: Jesse Cunha, for example, finds no differences in health and nutritional outcomes between providing basic foods and providing an equally sized cash program. Most importantly, though, the poor prefer the freedom, dignity, and flexibility of cash transfers—more than 80 percent of the poor in a study in Bihar, India, were willing to sell their food vouchers for cash, many at a 25 to 75 percent discount.

Whatever the results might be, I am definitely looking forward to seeing what we can learn from this approach. Favored by economists and political scientists across the political spectrum, UBI promises a streamlined, transparent, and affordable way to alleviate poverty, stimulate economic activity, and adapt to a possible future of mass automation and scarce jobs. Or so we will see in due time, hopefully!

Graph: Countries By Wage Tax Burden

While income taxes seem to get the lion’s share of attention in the U.S., they make up only about half the government’s revenue — taxes on payroll, paid by both workers and employers, make up most of the remainder. In many ways, these taxes are more consequential, as they place a burden on all formal workers, and are used to fund things like social security and Medicare.

Hence why the OECD, a club of 34 mostly developed countries, published a report that compares the tax burden on wages in each of the world’s wealthiest nations, and how this has changed since the “Great Recession”. In particularly, the study analyzed the “tax wedge” — personal income taxes, plus payroll taxes and social security taxes, minus any cash benefits. It then calculated the average tax wedge for various types of households, giving us the following results.

 

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The country with the highest average tax burden is Belgium, at 55.6 percent of income, while the country with the lowest was Chile, at just 7.0 percent — though neither saw any change between 2007 and 2014, when the most recent data.

In terms of the biggest shifts, Hungary saw its tax wedge drop by 5.5 points, while Ireland’s grew by a considerable 6.0 points.

As the OECD points out, in some respects, a rising tax wedge might be indicative of progress: countries with rising wages will consequently experience rising tax burdens, all things remaining equal, as more workers enter higher income-tax brackets.

In many cases, however, particularly in regard to hard-hit countries like Greece, Portugal, and Spain, the higher tax burden may reflect desperate attempts for cash-strapped governments to get more revenue, as high unemployment and a decline in economic activity leaves them few other sources.

Source: Business Insider

The Countries That Are Working Hard and Hardly Working

Courtesy of Business Insider and Vizual Statistixs is a map displaying which members of the Organisation for Economic Co-Operation and Development (OECD), a club of 34 mostly-developed nations, works the hardest. This is determined by combining the average number of hours worked annually by each person, the average retirement age, and life expectancy. (See a larger version here.)

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So Mexico, South Korea, and Chile are by far the hardest working countries, while France, Germany, and Luxembourg are the least hard-working. The United States is slightly harder working than the median, but definitely more so than its Anglophone cousins and most of Western Europe. Also note that Greece is relatively hardworking by European standards, despite being widely denounced as a nation of laggards following its economic collapse (which certainly had to do with a lot more than average hours worked).

To be sure, this formula that does not take into account other details, such as how hard employees work per hour, but it is nonetheless something to go by. Also, I am not sure if working long hours and having less retirement time is, in and of itself, a good thing. Productivity per hour, the quality of the work, and for more importantly the quality of life in general, should count for a lot more.