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Wednesday, November 13, 2013 1:42 PM


Free Money Idiocy: Switzerland Referendum Proposes "Free Money" Annually to Everyone Alive; US Progressives Join the Parade; Hyperinflation?


People constantly ask me what it would take for me to abandon my stance that "hyperinflation is not going to happen in the US".

My answer has always been "free money" (not credit), on a big enough scale. Note that QE causes huge economic distortions but it is not "free money".

Free Money Proposal

In Switzerland, enough signatures have been gathered to put a "free money" proposal on the ballot. To collect, all you have to do is breathe. Rich and poor alike would get the money.

New York Times economic-writer Annie Lowrie discusses the idea in Switzerland’s Proposal to Pay People for Being Alive

This fall, a truck dumped eight million coins outside the Parliament building in Bern, one for every Swiss citizen. It was a publicity stunt for advocates of an audacious social policy that just might become reality in the tiny, rich country. Along with the coins, activists delivered 125,000 signatures — enough to trigger a Swiss public referendum, this time on providing a monthly income to every citizen, no strings attached.

Every month, every Swiss person would receive a check from the government, no matter how rich or poor, how hardworking or lazy, how old or young. Poverty would disappear.

The proposal is, in part, the brainchild of a German-born artist named Enno Schmidt, a leader in the basic-income movement. When we spoke, Schmidt repeatedly described the policy as “stimmig.” Like many German words, it has no English equivalent, but it means something like “coherent and harmonious,” with a dash of “beauty” thrown in. It is an idea whose time has come, he was saying.

Go to a cocktail party in Berlin, and there is always someone spouting off about the benefits of a basic income, just as you might hear someone talking up Robin Hood taxes in New York or single-payer health care in Washington. And it’s not only in vogue in wealthy Switzerland. Beleaguered and debt-wracked Cyprus is weighing the implementation of basic incomes, too. They even are whispered about in the United States, where certain wonks on the libertarian right and liberal left have come to a strange convergence around the idea — some prefer an unconditional “basic” income that would go out to everyone, no strings attached; others a means-tested “minimum” income to supplement the earnings of the poor up to a given level.
Giving Money Away is Not Libertarian

I need to interrupt Lowrie right here, for further discussion.

No one who can rightfully call themselves a Libertarian, can possibly support such an economically inane proposal.

To give money away, it would have to be taken, by the government from someone (via taxes) to be distributed to someone else.

Alternatively, money would be printed into existence causing inflation. Either way, it would not be "free".

There is no such thing as "free money", and no libertarian would support increased taxes.

Ramblings Continue
The case from the right is one of expediency and efficacy. Let’s say that Congress decided to provide a basic income through the tax code or by expanding the Social Security program. Such a system might work better and be fairer than the current patchwork of programs, including welfare, food stamps and housing vouchers. A single father with two jobs and two children would no longer have to worry about the hassle of visiting a bunch of offices to receive benefits. And giving him a single lump sum might help him use his federal dollars better. Housing vouchers have to be spent on housing, food stamps on food. Those dollars would be more valuable — both to the recipient and the economy at large — if they were fungible.
"Case From the Right"? Really?

A stated above, the only way to give away money without causing massive inflation is to take it via taxation and redistribute it, something no true libertarian or conservative could ever propose.

Does Lowrie know right from left?

She goes on and on proving without a doubt she does not know right from left, or true conservatives from progressive liberal lunatics pretending to be conservatives.
Even better, conservatives think, such a program could significantly reduce the size of our federal bureaucracy. It could take the place of welfare, food stamps, housing vouchers and hundreds of other programs, all at once: Hello, basic income; goodbye, H.U.D. Charles Murray of the conservative American Enterprise Institute has proposed a minimum income for just that reason — feed the poor, and starve the beast. “Give the money to the people,” Murray wrote in his book “In Our Hands: A Plan to Replace the Welfare State.” He suggested guaranteeing $10,000 a year to anyone meeting the following conditions: be American, be over 21, stay out of jail and — as he once quipped — “have a pulse.”
Dissing the Idea, then Finishing Wrong

In a temporary bout of sanity, Lowrie states "There are strong arguments against minimum or basic incomes, too. Cost is one. Creating a massive disincentive to work is another."

Her economic sanity was short lived. Lowrie goes on to say "But some experts said the effect might be smaller than you would think."

As icing on the socialist redistribution cake,  Lowrie concludes with "minimum incomes just might be stimmig for the United States too."

Clearly Insane

The proposal is clearly insane on many grounds. If printing money and sloshing it around ended poverty, Zimbabwe, Argentina (and lately Venezuela) would be the wealthiest nations on the planet.

The only alternative to printing is raising taxes on the wealth producers as part of a socialist redistribution scheme.

But even that cannot possibly work for three obvious reasons.

Birthrate, Fraud, Illegal Immigration

In one second flat it should not be hard to figure out what would happen if the US gave $10,000 a year to all US citizens [See addendum]

The first thing that would happen is the birthrate in ghettos would soar. Many 16 year old females would have kids 5 years in a row, thereby collecting $50,000 a year.

Legal and illegal entry into the US would soar. People would flock to the US from all over the world to have babies because under US law anyone born in the US is a US citizen.

And what about fraud? Sheeesh. Fake birth certificates would be worth $10,000 each.

Loss of Faith

Hyperinflation the complete loss of faith in currency. It is caused by a political event (or series of them) that results in massive printing. The above proposal, in sufficient size, indexed to price inflation, would do it.

For an historical country-by-country analysis of hyperinflation events please see Reader Questions On Hyperinflation; Would Printing $50 Trillion Tomorrow Do Anything?.

For discussion of hyperinflation theory vs. practice, including an analysis of absurd calls for US hyperinflation, please see Hyperinflation Nonsense in Multiple Places.

Current Hyperinflation Example

For a point-by-point discussion of the ongoing hyperinflation in Venezuela and the politics that caused it, please see Venezuela’s Hyperinflation Anatomy; Army Storms Caracas Electronics Stores; Total Economic Collapse Underway; Could This Happen in US?

One Thing

Political error is the root cause of every hyperinflation. Please click on the above links for discussion.

The one thing that would get me to change my mind on hyperinflation is now actively promoted by economically illiterate writers at the New York Times.

Should the US try such a scheme, in size, especially if indexed to price inflation, the result would be ever-escalating printing as the alleged cure for the political belief that "people do not have enough money to live on".

No Change in My Hyperinflation Stance

This post does not represent a change in stance by me.

Here's the key point: Just because someone proposes something obviously stupid is not an indication it has any realistic chance of happening.

I believe the odds are close to zero Congress would do such a thing, in sufficient size. Child tax credits are one of many examples of redistribution schemes of insufficient size.

Assuming I am wrong about the political likelihood of such an event, I would certainly change my mind about hyperinflation chances, something I have always stated.

Addendum:

In Switzerland the proposal was for every person regardless of age.I missed the point in the US proposal that it was 21 and older, even though I quoted it as such.

Regardless, everything else applies, and the proposal is absurd for all the other reasons stated.  There is nothing conservative or libertarian about it.

The idea that we can eliminate poverty by printing money and giving it away is economic lunacy. Those who espouse such silliness do not understand inflation, wealth, or money.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com


Copyright 2009 Mike Shedlock. All Rights Reserved.
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