The end of big denominations

A new report from a team led by banker Peter Sands has suggested that large denomination notes should be discontinued. This is because the notes are used by those engaged in criminal activities and tax evasion (not the latter isn't criminal).

I'm generally a fan of the cashless society as I think it enables a better notion of who is doing what in the economy, which in turn allows for a fairer redistribution of resources.

It is hard to imagine any legitimate uses for large banknotes. The only time I can recall coming across one was seeing someone having theirs confiscated when trying to pay it into a bank - they had been conned in the pub.

Carrying around or otherwise transporting large amounts of cash seems very unsafe to me - for some reason I feel really on edge if I have over £50 in my wallet (do I think people can tell or something?)

Some people, including many commentators on the guardian article on the report, suggest that as the author used to be a banker it is clearly part of a bank-led plan to further take over. One worry is that we will be too dependent upon banks to go about our lives, where these banks might go bankrupt or whose service might be disrupted.

This is a worry and we need governments to ensure that they are ready to step in to ensure that banking services are working for all citizens. But then this leads people onto the next concern: banks and governments are two parts of an elite that wants greater control over us and blocking access to anonymous cash will give them that power.

One response would be to deny this possibility but I won't take that line. The threat of an Orwellian state which controls all resources via client banks and can monitor or shut down any individual if they get out of line is perfectly plausible. But the un-sexy response to this is to demand openness of government, to hold politicians and bureaucrats to account and to be very careful about who we vote for. (I.e. not the likes of Donald Trump and other populist "strong-men" who show disdain for checks and balances).

There is a real worry that in a social media age simplistic messages and solutions dominate difficult but reasoned analysis. But this makes it all the more important to respond appropriately.

After all, new technology is going to continue to play a larger role in our lives; we just need to make sure it works for all of us and not just a minority. Disrupting criminal activities, particularly tax evasion, is one such way it can.

Working time exactness

My hour credit proposals make use of hour credits, each of which is received when someone spends an hour. I'm sure some people doubt the feasibility of my proposal on the basis that employers wouldn't really control the time that workers to the required level of exactitude.

To challenge that I would usually point to time-card systems and computer-log-in-programmes that are used by many employers. I might also mention that the official leaving time where I work is 17.18.

But Morley College have gone a step further, A recent advert for an administrator there specified that the job is 0.700443 full-time-equivalent. So if a full week there is 38 hours a week then this job is 26.616834 hours per week, or 26 hours 37 minutes and 6 seconds.

Perhaps the time divides more neatly into whatever their specified full-time hours happen to be. However, I thought it was an interesting case, perhaps because of its apparent ridiculousness.

Conclusion: Institutionalising the constructed desert base (8/8)

In my previous blog I presented a new form of desert base that I believe is more attractive than the traditional approaches to economic desert. I will conclude my series by considering the institutional implications of this.

1.       Implant and monitoring

If we could insert chips into everyone’s heads to measure reliably how much time, energy and dissatisfaction they are expending at a given point in time. They would also be monitored somehow so it can be known if they are engaging in economically productive activity. This technology could then monitor how much people are expending when they engage in productive activity we would be able to share out incomes accordingly. However, we cannot currently do this, and perhaps would worry about doing so—it might be quite invasive to follow people’s activities and mental states that closely.

2.       An endowment tax.

For the time being it would be easier (though still not that easy) to take account of people’s incomes, the time they expend and their abilities. Essentially, an endowment tax would be the most obvious stand-in for the constructed desert base.

This would tax people differently depending on their abilities so, where this is measured by test results, someone with top IQ and high school test results could be assigned to a higher tax band throughout the remainder of their life than those with lower scores. Even then the practicalities are difficult—how much weight should be given to the different measures such as mathematical vs. emotional intelligence, creativity vs rule-following etc.

Stuart White proposes a system which puts people into three categories to make this easier (see also chapters 4 & 5 of his book The Civic Minimum). However, while this makes the endowment tax much easier to administer and much less controversial it also reduces its effectiveness at taxing people according to the ability and therefore

There are several serious complaints against endowment taxation, such as that it would be invasive to test for this and that it would unfairly limit the talented. Some people have talked of the ‘slavery of the talented’ as talented people would not be able to take lower paid work that would be open to less talented individuals—the low paid work would not be enough to pay their higher endowment tax.

So if endowment is considered too difficult to accurately measure or if endowment taxes are considered unfair, what is the next-best option for the constructed desert base?

3.       Hourly averaging

I would suggest that my hourly averaging proposal is the next closest option to the constructed desert base. This system taxes those who receive large incomes after expending a small amount of time working and provides subsidies to those who work long hours for small rewards.

I have suggested that time spent working should be one of the factors in the desert base as it is something that people can control. One complaint might be that some people who work long hours do so in low-productivity activities which are do not make them deserving. However, in some cases this might be because the person cannot obtain more difficult higher paid work.

It is quite different from endowment taxation in that people with a lot of potential to contribute but who do not do so will not be penalised. However, it may not be that someone who has more potential finds a particular job easier than others and therefore render them less deserving. It might be that someone with the potential to be a lawyer finds being a waitress just as stressful as the person who would struggle to master legal procedure.

I would also add that my CLIPH-rate tax system which combines hourly averaging with a comprehensive tax on personal gains would track the desert base very well. This is because each person’s income would be tied to the number of hours they have worked in their lifetime, and those who have not worked would have their unearned income taxed at 100%.

The downside of the CLIPH-rate tax is that it would not be able to distinguish readily between two people who receive large hourly incomes due to the sacrifice involved vs. earning rents on their skills and talents. However, one factor is the way that prices will react to the tax—those who earn large incomes from rents will not require more pay when the tax would be introduced. On the other hand, jobs which people would be unwilling to do when taxes rise substantially are likely to be those which are both productive and involving a lot of sacrifice.

So a variation of the hour-credit system proposes itself. Those jobs which begin to go unfilled with the introduction of hourly averaging could be ones for which workers could receive ‘bonus hour credits’ as a way to recognise their sacrifice. Dangerous work such as deep sea diving might be one example of this—people might be happy to take these risks if they thereby earn a large net income and have a lot of leisure time to enjoy it.

Conclusion

I began this series of blogs explaining that some people find deservingness the appropriate way to determine how much each person should receive from their society. I explained the existing theories of economic desert which begin either from desert bases or from market earnings and why these are all problematic despite their various attractions. After highlighting the various links between economic desert and markets I proposed a new form of desert base constructed from the intuitively attractive elements of the existing desert bases. In this final blog I have considered the options to institutionalise the constructed desert base. I still remain sceptical of building economic justice from desert but I would challenge those who do to propose a more feasible and less controversial way to give people what they deserve than the CLIPH-rate tax.

Creating a plausible desert base

In my previous blogs I have outlined problems with the three main bases for economic desert and argued that making a direct link between market prices and desert is inherently problematic. In this blog I will present what I believe is a fairer desert base. This desert base utilises both desert bases and market prices, but as part of a wider desert equation. Essentially the idea is to construct a desert base by putting together the best parts of existing proposals.

The fair desert base is to give each person weighted share of social product which accounts for their personal sacrifice (encompassing time, effort, danger, stressfulness and risk of harm) expended in productive enterprise (accounting for the effectiveness of that enterprise and whether they had the ability to contribute more than they have). I will refer to it as the constructed desert base but an alternative name for the proposed desert base is the ability-adjusted multifaceted base.

So for an individual (i) where d is deserved income, n is the number of people in society, r is the total amount of resources available for distribution in the given time-period, s is personal sacrifice compared to the average (where the average is 1), p is productivity,  m is the individual’s market income (compared to average where the average is 1) and a is the application of the person’s ability to the work that they do (compared to average where the average is 1), the constructed desert base would be something like:

Of course the actual weightings of the factors and the practicalities of assessing these components (particularly sacrifice) is more complicated than is indicated above. Furthermore, we might want to apply ability to many of the subcomponents. Some people might have more stamina and be able to work longer and harder while others have disabilities that reduce their capacity. Some people might be more able to deal with stress or responsibility or unpleasant working environments than others.

As I emphasised, people’s gross income will (in normal circumstances) go up if they take work requiring more personal sacrifice, as I outlined in my previous blog. It will also go up (again generally though not universally) if they engage in more productive work, and also if they make use of their ability. However, some people have a much wider menu of productive options available to them and so they may be able to earn more than others without making as much of a personal sacrifice.

For example, a top professional footballer may well have to train and play hard to retain their position. But they don’t work several hundred times as hard as a roofer. The relative difference in effort is much smaller than that of market income. If the roofer could play football at that level they would do so, certainly given the financial rewards. However, they do not have the required natural talent and so do not have the option. The different earnings between the two do not reflect a large difference in sacrifice but rather a large difference in ability.

Markets play an important and interesting role in the constructed desert base. As I pointed out in my previous blog, an individual will tend to earn more if they work longer, do less popular work, and do work whose products are more highly desired by others. In that sense, higher earnings imply a higher level of desert. However, at the same time, higher earnings often arise due to a higher ability to earn, which does not indicate greater deservingness.

Why is the constructed desert base a good way to link desert and income? It utilises a market test to distinguish people who sacrifice more to provide the goods and services that others value. However, it is not a slave to market valuations as it corrects for the influence of ability.

I think the constructed desert base would match most of the cases where people intuit that person x deserves more than person y. Of course, it won’t satisfy those who see desert through a purely market or single-based-desert approach to the issue. However, I have explained in previous blogs why these positions aren't really that attractive.

For the record, I would suggest that I think the scepticism I proposed about linking desert to economic outcomes still applies. I suggested that desert theories fail if they attempt to build a bridge either from a desert base to income or from market incomes to a desert base. My proposal, however, is to attempt to link the relevant factors in an interlocked manner which utilises the market and the existing plausible desert bases.

One possible criticism might be that my constructed desert base is not thereby a pre-institutional notion of desert. However, just because it is a constructed desert base this does not mean it cannot be pre-institutional; I am not proposing institutions and then judging the distribution on its closeness to those institutions. It is important to utilise the market so that a) the amount people deserve is linked to the total wealth available for distribution and b) there is a link between what consumers want and what producers deserve. In my next blog—the final in this series on desert—I will conclude by discussing the institutional implications of the constructed economic desert base.

Desert bases and market income

So far in this series of blogs I have argued that there are serious problems when starting a theory of economic desert from either market incomes or the traditional desert bases. In this post I want to suggest that there is a link between the common desert bases and market income, even though it is not feasible to claim any simple and direct link between the two.

If we consider the three desert bases outlined previously we can see that they will, in most circumstances, have a strong influence on someone’s income.

Effort: If someone puts in more or less effort across their working life then we would expect their lifetime income to rise accordingly. This will be particularly true of people who are self-employed or paid for piecework, but we would even expect it for people in salaried jobs as their harder work may be noticed by superiors who will be keen to retain or even promote them.

Contribution: This desert base is often considered to be directly related to market income and so it is not controversial to claim that greater contribution will bring about greater market incomes.

Compensation: The labour market should also lead people to be rewarded more if they sacrifice more. People who work in more stressful, dangerous or unpleasant jobs get paid more than those with similar skills and talents doing less difficult work. In the UK an investment banker will get paid more than someone in the human resources department of a bank, a deep sea diver will be paid more than a teacher and a bin-collector will get paid more than a labourer.

The point is not universal. There may be people who put in lot of effort but in an undirected manner and would be more successful if they relaxed and slept more or slowed down and reflected more. Similarly, people’s sacrifices may sometimes go unrewarded, for example if they are the hardest working person in a large team where the rewards are shared out equally or where a lot of people only have less enjoyable work available to them such that wages are low.

Contributions to the economy (and certainly society in a wider sense) do not always result in market rewards. Some people may contribute a lot in a way that is not recognised by the market—such as charitable work or caring. Additionally, there may be people who obtain a very high income without contributing very much at all—such as those who find a legal loophole which they can exploit to make money.

However, while it is not a universal rule that income goes up for those who act according to each desert base, for the most part the person will be rewarded in the market for their activities.

What I wish to highlight in this blog is that there is a link between market rewards and all of the economic desert bases. The link is sometimes quite weak, since market incomes depend upon supply and demand rather than acts in accordance with desert bases. Nevertheless I think it is important to note this and how this fact should lead us to reassess our views of the desert approach to economic justice.

1.       Has the link caused some to find the pro-market aspect of the desert approach more plausible than it is?

2.       Has the link caused some people who are pro-market to seek to find a desert base that supports their preferred view?

3.       Does the link mean that anti-capitalists who take a desert-based approach to justice should be more pro-market than they are?
and:

4.       Does the link imply that the most plausible desert base will take account of (or make use of) market pricing, though not be identical with it?

Along with these, there may also be other interesting questions that follow from the relationship I’ve highlighted between desert bases and the market. However, I will focus on the fourth of the above in my next blog, where I will construct a more complex alternative desert base which I believe is much more plausible than the approaches I’ve presented so far.

What is the problem with desert?

In my previous post I pointed out that specifying the underlying basis desert raises difficult questions for supporters of desert theory. However, they can (and do) just bite these bullets. However, there is a more fundamental problem with the desert-based approach to economic justice.

This argument is best put (and as far as I know originated from) by economist and philosopher Amartya Sen in a 1982 NY Review of Books article “Just Deserts.” The relevant part of the article is behind the paywall so I will summarize and quote it.

Sen accepts that if people are independent producers—where each consumes what they have made without coming across others—then we would accept that each could be seen to deserve what they have produced. However, in a society where lots of people contribute to the social product in all sorts of ways this simple link breaks down.

As Sen puts it “the personal production [desert] view is difficult to sustain in cases of interdependent production, i.e., in almost all the usual cases of production. Production is based on the joint use of different resources, possibly provided by different people, and it is not possible to separate out who—or even which resource—produced how much of the total output.” (Sen, 1982 p4)

Sen considers whether marginal product can really do the job and argues that while marginal product is “useful for deciding how to use additional resources so as to maximize profit…it does not “show” which resource has “produced” how much of the total output.” To support the argument he highlights that relative incomes received for producing different goods will depend upon the arbitrary difference in prices of the products. Therefore two people might produce “the same two goods in unchanged amounts in exactly the same way, but a change in the relative prices of our respective products…can make our relative incomes change without any change of anything that you and I are, in fact, doing or producing.” (Sen, 1982 p4)

Sen’s article is a review of P.T. Bauer’s book on international development and so he illustrates his example of the difference between workers in rich and poor countries. He points out that and “Indian barber or circus performer may not be producing any less than a British barber or circus performer—just the opposite if I am any judge—but will certainly earn a great deal less.” (Sen, 1982 pp 4-5)

Put differently, we can say that the link between even the productivity/economic contribution desert base and incomes determined in the market is too tenuous to justify anything. If the market determines that a banker needs to be paid £1m a year while a nurse is worth £27k this does not mean that one deserves more than another. In a complex economy each person occupies a position where their income depends upon numerous variables, most of which are morally arbitrary.

The desert theorist needs to find a way to bridge between the desert base and people’s incomes. Most desert theorists are supporters of the market as a means to calculate what people deserve. They wish to build a bridge from market incomes to desert to show that these incomes are deserved. However, I think that such a bridge would be built on very shaky foundations.

The alternative is to use a desert base as a foundation and from there build to a deserved share of social resources. That is, to start from a desert base and build a bridge to the income that people deserve. This could be seen to ignore market outcomes altogether and focus on the desert base directly, though the productivity/contribution desert base is sometimes assumed (wrongly) to ring the two together. So if we could measure people’s effort or sacrifice we would just divide the product up accordingly. But this would then make the concerns I presented with those desert bases all the more pressing.

I am sceptical that it is possible to rescue a desert theory of economic justice from these concerns. However, in my subsequent blog I will present what I think would be the most plausible available desert approach to justice.

* You might get the argument that the doting daughter or niece deserves the large inheritance because they tended to their relative when others did not. However, this fails to distinguish between the carer who helps a billionaire from one who helps a pauper. 

The merits of meritocracy

Most supporters of the desert approach to economic justice are attracted to it because it is entirely meritocratic. People get a share of social goods to the extent that they merit them (according to the relevant, though inevitably controversial, desert base chosen from those described in my previous blog).

Meritocracy appears to lend itself to the free market in some ways but not others. In common with pro-free-market entitlement theories of justice such as libertarianism, workers should get the product of their efforts. Taxes on labour are to be avoided and the free market in the field of production should be encouraged (or replicated if the economy is a command rather than market-based one).

However, in other areas desert theory is diametrically opposed to free-market entitlement theories. According to libertarianism people should be able to give away their resources to others without interference. However, recipients of gifts and inheritances have not done anything *and should not therefore receive this. Any resources not used by the deserving recipient should be returned to the social pot for distribution to the deserving.

Meritocracy is preferable to libertarianism because it links income to what the individual does rather than the vagaries of their family fortune. However, I would still question whether meritocracy is really that meritocratic. Family background could still play a role in a desert-based economy as some parents will be more nurturing than others. People also have different natural talents which they can utilise in the labour market to earn more than others, with the further issue that all sorts of pieces of good fortune can make a huge difference to people’s lifetime earnings. The person who gets a particular experience or opportunity might make the most of it, but the people who missed out on it would have made the most of it as well if they had the chance.