DDI: Better Than UBI, MMT

Years ago I began writing about a new monetary paradigm I had developed, featuring a “democratically distributed income” (DDI). [For those unfamiliar with my writing, I do have an M.A. in economics — for what that might be worth to anybody.] This was before the idea of a UBI had become known to the general public. MMT was an obscure pet project of a small clique lawyers and accountants.

A DDI is not at all like a UBI. For one thing, a UBI would be funded through taxes. Also, in my paradigm, while the income would be available for any number of people, and any (adult) citizen could become eligible for it, it would not be paid to everyone, or even every adult. Finally, any adult who was not retired who was able to work would have to work to be paid the DDI. (Retirees and adults who were unable to work would be eligible to be paid it; any adult wanting a job would be guaranteed to have a job and be paid the DDI.) To explain any more would require far more detail; here I am only pointing out how this paradigm differs from a UBI.

While a DDI is nothing like a UBI, it does have one similarity with MMT. In both cases, money would be created as needed. [MMT began as a better way of explaining how the modern central-bank monetary system functions; for some it has become a prescriptive proposal for solving societal problems such as unemployment and poverty.]

With MMT, the amount of money that would be created would be determined by spending by the central government. Whatever it decided to spend, the money for that would be created. It could establish a UBI or a guaranteed-job program to ensure a ‘livable’ wage for all citizens.

Funding the central government that way would raise the possibility that too much money would be created and cause inflation. If that happened the central government (in the U.S., Congress) and the central bank (in the U.S., the ‘Fed’) would have to do work together to decide how to deal with it. The Fed could raise interest rates to slow spending and/or Congress would have to increase (some) tax(es) by (some) amount or cut back on spending.

I have encountered another alternative that is similar to MMT, “Just Money.” In it a “monetary authority” would determine the total amount of money that the central government could spend and decide what actions would be taken if inflation became a problem.

With a DDI, the money that was created would not originate in spending by the central government. It would be administered by the existing central bank or by a newly created Monetary Agency that would be separate from and independent of both the banking system and government. (In the U.S. the Social Security Administration, which would no longer have a function, could be extracted from government to become the Monetary Agency — the option I favor.)

Either way, the money that was created would go directly to eligible citizens in the form of an income. As noted, the people eligible for it would be retirees, adults unable to work (due to permanent affliction, temporary accident or illness, or a natural disaster, or the result of a war, including a terrorist attack), and people working in positions that were paid the DDI.

[Those would be minimum-pay positions, which would not be paid by the employer, but would receive the DDI. Employers would then be in the position of having to use benefits to compete for minimum-pay employees, meaning their labor would not be free; the benefits for which any employee could negotiate would be determined by the (local) labor market.]

The amount of the DDI would be the same for everyone being paid it. It would be based on current income, such as the current median income for an individual. In the U.S., that could make the DDI, say, $15/hr.; $600/wk.; $2,600/mo.

The total amount of that income would not be decided by any person or committee. It would simply be the amount of the income multiplied by the number of people who were eligible for it (assuming everyone who was eligible for it would choose to be paid it, though anyone would be free to refuse it).

That same process could be used to fund government — all government, not just the central government. We could take the current level of per capita total spending by all government and multiply that number by the total number of citizens each year. All that money could go initially to the central government. Whatever was not spent there would be apportioned among the governments at the next lowest level (in the, U.S. the states), based on population. Money not spent there would be apportioned among local governments based on population.

That would provide a way of funding government without taxes or public debt. Government at any level could still levy taxes or sell bonds — which would mean levying a tax to pay for them or paying for them out of future budgets without levying a tax.

So, as with MMT or Just Money, with a DDI money would be created as needed. Unlike those proposals, however, with a DDI the amount of money would be strictly limited at any point in time (though it would change over time due to changes in the demographic factors that determined its size).

As with those proposals, that raises the specter of inflation. Unlike those proposals, though, a DDI has built-in safeguards to protect against it.

For one thing, people and businesses would be able to retain plenty of money in accounts in a bank. (Other than ending the central bank’s roles in helping to ‘manage’ the economy and as lender of last resort to the central government, the banking system would be unchanged.) Money sitting in an account cannot contribute to inflation. The amount that could be retained would be based on income; the more that was made, the more that could be retained.

Still, there would be a mechanism in place to ‘automatically’ draw money out of the economy. There would be a limit on how much money an individual or a business could retain. Again, it would be based on income and it would be a large amount relative to income (say, the annualized amount of the largest income or profits, respectively, ever earned in a month or a quarter, respectively). At the end of the relevant period, though, any money over that amount in any account would be collected by the bank in which the account was held. (Banks would be allowed to keep that money for one quarter, for lending — only — then transfer that amount of money to the central bank, which would transfer the money back to the administrator of the DDI.)

It is important to note that, unlike a tax, no money would be collected from any individual or business before it could be used for purchases or investment. So individuals could avoid having money collected by simply spending it, to include spending it on things like stocks, corporate bonds, etc. Businesses could do the same thing, but, except for money that was spent on imports or spent in another country, all the money spent by businesses (and individuals, too) would have to be in the account of some business.

That isn’t being ‘anti-business’, just pro-individual. The money would have to be collected to prevent inflation, and we don’t want it coming from people. It would come from the profits of businesses, after all payments, to include all remuneration of all employees, all overhead, and debt payments, had been disbursed — and, again, in excess of a large amount of money that could still be retained. Also, that would not adversely affect future earnings.

The most important point is that the amount of money drawn out of the economy would not be decided by any person or committee. It would be determined by the functioning of the economy. Combined with the fact that the supply of money (to include the amount supplied to fund all government) would be determined by demographics — and only that — the supply of money would be completely self-regulating. Since the supply of money would at the same time be the income for many people and the money available for government to spend, that would make the economy as a whole completely self-regulating. The means to ‘manage’ the economy would not even exist.

With the current pandemic, and especially with its coming so soon after the Great Recession, some are calling for abandoning altogether the existing economy and many others are wondering if there might be a better approach to the fundamental structure and functioning of the existing economy. If anybody has an idea that is better than instituting a DDI, I haven’t seen it.

For anyone interested in learning more about the details of a DDI, relevant links are provided on this “3 min read” here in Medium.



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