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Helicopter Money Comes To Canada: Ontario Pledges “Basic Income Experiment”

Submitted by Tyler Durden on 03/07/2016 23:00 -0500

Earlier today, we explained why so-called “helicopter money” can’t save the world when ZIRP, NIRP, and QE have all failed to revive global demand and boost inflation.

The reason: QE is helicopter money. That is, we’ve been doing this for 8 years and it hasn’t worked yet.

Some readers were reluctant to buy this rationale, but the fact is, just because the bank intermediary failed to do its part for Main Street doesn’t thereby mean this entire experiment isn’t still a farce. Think about the mechanics of it: 1) the government prints a liability (a bond), 2) that liability is sold to a primary dealer, 3) the central bank buys that government liability with yet another liability (dollars) that the government also prints.

That’s a scam. It’s deficit financing with one (very tenuous) degree of separation. The fact that the middlemen (the banks) didn’t pass along the benefits to you doesn’t make the mechanics of it any less ridiculous.

But if that’s helicopter money “v.1,” Main Street thinks it didn’t work out so well. Banks recovered, Jamie Dimon and Lloyd Blankfein became billionaires, financial assets soared, and everyday people got Gene Wilder’d.

Well if helicopter money “v.3” entails flying around and raining actual banknotes onto the hapless masses, then we suppose we should at least try “v.2” first, and “v.2” is what many have called a “basic income.”

The idea is to send everyone a monthly check that would either supplement or replace altogether, complex systems of state benefits thereby making households better off and saving the government money in the process.

As The Independent notes, Ontario is set to become the latest locale to float the idea: “Ontario has announced it could soon be sending a monthly cheque to its residents as it plans to launch an experiment testing the basic income concept.”

Here are some excerpts from Ontario’s budget statement:

“The pilot project will test a growing view at home and abroad that basic income could build on the success of minimum wage policies and increases in child benefits by providing more consistent and predictable support in the context of today’s dynamic labour market.

“The pilot would also test whether a basic income would provide a more efficient way of delivering income support, strengthen the attachment to the labour force, and achieve savings in other areas such as health care and housing supports. The government will work with communities, researchers and other stakeholders in 2016 to determine how best to implement a Basic Income pilot.”

Right. So basically they have no idea how this is going to work or how to go about implementing it.

But don’t think Ontario is alone.

“Finland plans to outline a basic income plan for its citizens later this year, while the Dutch city of Utrecht launched an experiment in January, involving welfare recipients, to see what effect a basic income would have,” Huff Post wrote, late last month. And don’t forget, “the Swiss will vote in a referendum in June to decide whether to implement a basic income of some C$3,200 per month.”

We profiled the upcoming Swiss vote here, noting that the plan could make the country the first in the world to pay all of its citizens a monthly basic income regardless if they work or not.

Amusingly, the Swiss said something similar to the Canadians about the link between the basic income and work. “The initiative’s backers say it aims to break the link between employment and income,” The Daily Mail wrote, of the Swiss plan. Much as Ontario thinks a basic income would “strenghten the attachment to the labor force.”

Those statements are so counterintuitive as to be laughable.

As long as federal and local governments are running a surplus that can account for these programs while staying in balance we suppose that’s fine, but what happens when people simply stop working and tax revenues fall? Do you then tax the basic income to pay for the basic income? That seems silly. And if not, do you sell bonds to the central bank to fund the program? And wouldn’t those bonds be claims on tax revenues which would only keep falling as the incentive to work decreases?

Who knows, but we’re sure smarter people than us have thought it through. Or not.