Realism and utopia – a guest review

A guest review by Koen Smets

In the same way that most drivers consider themselves better than average, I suspect most people consider themselves realists – not too optimistic, and not too pessimistic. I certainly do, and so I find myself right in the group at which Rutger Bregman’s  is aimed.

[amazon_image id=”9082520303″ link=”true” target=”_blank” size=”medium” ]Utopia for Realists: The Case for a Universal Basic Income, Open Borders, and a 15-hour Workweek[/amazon_image]

It is Bregman’s first book to be published in English, bundling many ideas that he has written about before, notably in regular pieces for the Dutch website De Correspondent. Its subtitle, The case for a universal basic income, open borders, and a 15-hour work week, suggests it is not quite another lightweight campaigning pamphlet, but an ambitious attempt to show not just why these radical aspirations must be pursued but also how they can be realized. My expectations were raised accordingly. Unfortunately,  rather falls short of its ambition.

Bregman starts off with a somewhat breathless catalogue of human achievements in health and wealth: we really have never had it so good. The mediaeval fantasy of the Land of Plenty has become reality. Nevertheless, we’re miserable, and for the first time ever we believe that children will be worse off than their parents. That makes it the ideal moment for a genuinely big project, according to Bregman the optimist.

15 hours per week

“Money is time,” Bregman observes. He channels Keynes and John Stuart Mill, both of whom had predicted we would work less and less, and shows how, for many decades, we have been buying time with our increased wealth. But by the late 1980s we suddenly stopped sacrificing money to get even more free time. Bregman blames social pressure, fuelled by commercial interests. Even so, is this is not simply playing into preferences inherent in human nature? Time is only one of the numerous things we can trade for money.

We may work less than our ancestors, but we are weighed down by stress, and overtime is rife. Bregman bombards the reader with solid and comprehensive research to show where it all went wrong, and his conclusion is straightforward. Working less will solve pretty much all our troubles: stress, climate change, accidents, unemployment, emancipation of women, and the ageing population. “We inhabitants of the Land of Plenty could work fewer than 15 hours a week by 2050, and earn the same amount as in 2000,” Bregman says, echoing Keynes’ prediction from 1930, which foresaw the same for 2030.

But if this is such a no-brainer, why are so few people actually working 15-hour weeks? Have today’s CEOs been abandoned by the enlightenment that made business leaders like Henry Ford and WK Kellogg cut the working week in the 1930s? How come the public sector, outside the harsh commercial realities of private enterprise, is not leading the way?

Bregman points at surveys which found that people from all over the world would prefer two weeks’ extra holiday over two weeks’ extra pay by a factor two. So apparently we want more leisure, but we work more. This is reminiscent of what David Ogilvy said: “People don’t think how they feel, they don’t say what they think and they don’t do what they say.” Bregman’s solution to this paradox is resolutely paternalistic: “Collective action – by companies, or better still, by countries.”

Poverty

The best way of lifting people out of poverty is to give them money, says Bregman. No sign of paternalism here: “Put the choice in the hands of the poor,” he recommends, eloquently dismissing the myth that poor people cannot handle money. But alleviating poverty by giving one-off cash grants to poor and homeless people is hardly a solid case for a Universal Basic Income (UBI) – a steady income stream going to anyone who “has a pulse”.

The problem is not that people will turn into lazy couch potatoes – the Mincome experiment in Canada in the 1970s showed that people are nothing like the neoclassical homo economicus, who simplistically responds to incentives, and who would stop working if there was free money. There was barely a decline in working hours.

The problem is with the sums. Bregman claims that, “For the first time in history, we are actually rich enough to finance a sizable basic income.” But what size? A study by Matt Bruenig estimates the cost for eradicating poverty in the USA at “only $175 million”. Distributed equally over the US population, every person would get about $550 per year, or just over $10 per week.

And even that needs to come from somewhere – technology, Bregman believes. The robots will come and take our jobs, and that is a good thing: it means we can, “Reject the dogma that you have to work for a living.” Just tax the robots. Sounds simple, but it conceals huge complexity: automation applies differently to different jobs and in different countries.

The world came very close to an actual, real, nationwide unconditional income for poor families – in the USA, no less. Bregman devotes an entire chapter to the rise and fall of a seminal UBI under president Richard Nixon in 1969. But thanks to rhetoric, defeat was snatched from the jaws of victory: the prospect of “inciting the poor to even greater idleness”, based on a tendentious analysis of the welfare system in Speenhamland in 1830s England, was the death knell of the proposal.

Unfair wages

Another of Bregman’s bêtes noires is the gap between the wage for a job and its societal usefulness. Why, he wonders, should wealth shifters like bankers earn more than wealth creators like teachers or indeed garbage collectors? He might as well get worked up about the fact that even the most expensive litre bottle of water costs a lot less than a kilo of gold.

Are there really ever more people earning money without contributing anything of tangible value to society? Once all societal needs – food, shelter, healthcare, education – are fulfilled, things shift to the individual transaction level. We may regret the fact that there are so many lawyers in the US, and be puzzled by the fact that this doesn’t mean Americans are better protected than citizens of countries with fewer attorneys. But somehow, every lawyer is – we may assume – deriving her income from someone who willingly pays her for her services, money her client has a choice to spend differently. Unless we can show why this is not a mutually beneficial transaction, value – in the eye of the beholder – is being created.

Bregman’s solution is simple, though: “Higher taxes would get more people to do work that’s useful.” It seems to escape him that a higher tax doesn’t discriminate between the incomes of people who shift wealth and those who create wealth. It penalizes both in the same way.

Redistribution and efficiency

Much of the book is balanced and factual, but on a few occasions Bregman morphs into a campaigner on speed. There is a weird rant against advertising. There is a bizarre attack on the market economy (“The modern marketplace is equally uninterested in usefulness, quality, and innovation. All that really matters is profit.”) There is a peculiar condemnation of our “fixation on ‘efficiency’ and ‘gains’, as though society were nothing but one big production line.” These contribute little or nothing to the central ideas, and the style erodes the credibility of the book’s other arguments..

Bregman – no doubt to the delight of the owner of this blog! – also devotes almost an entire chapter to the most widely used instrument for measuring progress, Gross Domestic Product, taking great relish in demolishing it. But he is really kicking in an open door: the shortcomings of the GDP are well-known and well-documented. None of the alternatives, from Gross National Happiness and the Genuine Progress Indicator to the Index of Sustainable Economic Welfare and the OECD’s Better Life Index satisfy him either.

By now, it should not be a surprise that Bregman advocates a larger public sector: they can leverage activities that “cannot be made more efficient”, such as education and healthcare. He believes that, “The more efficient our factories and our computers, the less efficient our healthcare and education need to be; that is, the more time we have left to attend to the old and infirm and to organize education on a more personal scale.” This is an idiosyncratic interpretation of the concept of efficiency.

Bregman seems to miss the fact that we are economic beings: if we sacrifice something, whether it’s time, effort or money, we want to get something in return that we feel is worth it. We want to be efficient when it’s not the task we are enjoying, but the outcome of the task. That is not only why the Land of Plenty is so appealing, but also why we have made so much progress towards it.

A larger public sector without any notion of efficiency sounds like a dangerous path to take. Yet Bregman says, “Governing by numbers is the last resort of a country that no longer knows what it wants, a country with no vision of utopia,” as if the amount of subsidy the state will give to ‘inefficient’ activities, and the ways in which it will be able to raise the necessary revenue are not numbers that, eventually, matter greatly.

Open Borders

But Bregman also has a libertarian streak. He criticizes conventional aid for spending pitifully small amounts of money to projects with questionable outcomes. If we were really serious about relieving global poverty, we would open our Western borders. That would make the world twice as rich as it is now, and boost wealth by sixty-five trillion dollars.

So what stops us? We are hypocrites, hiding behind fallacious objections. Migrants will take our jobs, they will force our wages down, they are too lazy to work, and they’ll never go back. Bregman counters them all, as in the best parts of the book, with plenty of evidence. But the angst across the EU in relation to a population of refugees amounting to barely 1% of its population shows that we’re some way off accepting the economic logic of the win-win argument of open borders.

A disappointed realist

In the final chapter, Bregman wonders whether he might be caught out by confirmation bias: “If I’m being honest, I sometimes wonder if I’d even let myself notice if the evidence were pointing another way. Would I be observant enough – or brave enough – to have a change of heart?”

Ultimately, the book majors on explaining why its three central radical thoughts are good ideas – and this is indeed a hallmark of confirmation bias. Looking at the arguments against, and putting up solid counterarguments is not enough. “The question is not can new ideas defeat old ones; the question is how,” says Bregman. And on that last question, the answers are sadly lacking.

A realist would have wanted to see how the loss and risk aversion that prevent the West from opening up its borders to economic migrants could be conquered.

People in the rich West have plenty of options to make different trade-offs between time and money. The barriers to adopting a 15-hour week are not high, and both employers and employees would be fools not to take advantage of the apparent win-win situation it offers. Yet it’s not happening. A realist would have wanted to see an explanation for this reluctance, and ideas on how to overcome it.

And above all, a realist would have liked to see solutions to the fundamental issue with a UBI: how to pay for it. The problem, as Bregman explains, is not that the UBI will be a disincentive to work. It is that, in order to raise enough money to provide a UBI that is high enough to live on, it is the taxation on high incomes that will act as a disincentive. “Only a fraction of our prosperity is due to our own exertions,” says Bregman. But the other fraction is not generated without some exertion. And if there is not enough incentive for people to actually put in the effort to produce 100%, even if they’re only personally entitled to 10%, the other 90% remains elusive.

Koen Smets is an accidental behavioural economist, who works as an organization development specialist. He uses elements from both orthodox microeconomics and behavioural economics to bring about behavioural change. He is on Twitter as @koenfucius

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5 thoughts on “Realism and utopia – a guest review

  1. Very nice to see a review of my book on this great blog!

    Can’t resist writing a response though (sorry for any language mistakes, English is not my native language). Maybe I should have laid out my arguments clearer, but I don’t think these are valid criticisms.

    – My point is that people could afford to do less paid work when they receive a basic income. This is not ‘resolutely paternalistic’, on the contrary.

    – It is misleading to calculate the costs of a basic income by just multiplying the amount of recipients with the amount of money people would receive. Remember: many people would receive a basic income but see their taxes rise by the same amount – that’s why you have to look at the net redistributional effect. And in this sense, it is very relevant to know that eradicating poverty in the U.S. would cost only 175 billion dollars, a quarter of the military budget. (The RSA has written a more detailed report on how to pay for UBI: https://www.thersa.org/discover/publications-and-articles/reports/basic-income ).

    – The most misguided part of the review is, I think, about my treatment of the economic versus the social value of a job. ‘We may regret the fact that there are so many lawyers in the US, and be puzzled by the fact that this doesn’t mean Americans are better protected than citizens of countries with fewer attorneys,’ Koen Smets writes. ‘But somehow, every lawyer is – we may assume – deriving her income from someone who willingly pays her for her services, money her client has a choice to spend differently. Unless we can show why this is not a mutually beneficial transaction, value – in the eye of the beholder – is being created.’

    But what if a lawyer says his or her work is useless? Is that not enough proof? A recent poll suggests that 37% of British workers have ‘bullshit jobs’.

    In my book I explain that the economic demand for a good or a service doesn’t immediately prove it’s usefulness. When, for example, a patent troll gets hold of an important patent, there will be a lot of demand for the services of its lawyers. But they don’t create anything of value, this is just rent-seeking. If you make ‘value’ and ‘mutually beneficial transaction’ synonymous, then even tax accountants that help dictators to hide their money create a lot of value.

    Smets makes the old marginalist mistake: conflating price and value, money and wealth.

    Here’s an excerpt of this chapter by the way: http://evonomics.com/why-garbage-men-should-earn-more-than-bankers/

    – Smets quotes me: ‘“Higher taxes would get more people to do work that’s useful,” but removes the context of this particular line, which is important to understand what I mean. Here it is:


    ‘A study conducted at Harvard found that Reagan-era tax cuts sparked a mass career switch among the country’s brightest minds, from teachers and engineers to bankers and accountants. Whereas in 1970 twice as many male Harvard grads were still opting for a life devoted to research over banking, 20 years later the balance had flipped, with one and a half times as many alumni employed in finance. The upshot is that we’ve all gotten poorer. For every dollar a bank earns, an estimated equivalent of 60 cents is destroyed elsewhere in the economic chain. Conversely, for every dollar a researcher earns, a value of at least $5 – and often much more – is pumped back into the economy.19 Higher taxes for top earners would serve, in Harvard science-speak, “to reallocate talented individuals from professions that cause negative externalities to those that cause positive externalities.” In plain English: Higher taxes would get more people to do work that’s useful.’

    – Lastly, I do not advocate a larger public sector in the traditional sense. We need a bigger state in terms of redistribution, but a much smaller state in terms of paternalism.

    Smets idea of ‘realism’ seems to be that we need to stick to old ideas about what ‘work’, ‘productivity’ and ‘economic value’ are. I think it’s much more realistic to look at what people are actually doing, ask them what they think is useful and give them the means to decide for themselves what they want to make of their lives. I don’t advocate a basic income and a shorter paid workweek so that people could lie on the couch. On the contrary, we need to ‘work’ less in order to do more.

  2. Thanks for the comments. I will try to respond to them in turn:

    – The term “resolute paternalism” refers to the suggestion in the book that collective action is needed, by companies or by countries (as indicated in the review). The decision to cut the working week would be taken, not by the individual, but by their employers, or by the state. It seems to me not unreasonable to see that as paternalism. People who wish to work 15 hours per week right now can, in many situations, already choose to do so by working part time. They don’t need to be forced by collective action.

    – The whole question of how a UBI would be paid for is not really dealt with in the book—even the possibility of taxing it away is not mentioned. That is a significant omission in a book that purports to be aimed at realists. Bruenig’s estimate of the cost of alleviating poverty is of little value in an argument in favour of a UBI. If the amount in question is applied universally, it is not by any stretch of the imagination a basic income (and it won’t alleviate poverty); if it is targeted at the poor, it is not universal.

    – ‘what if a lawyer says his or her work is useless?’ Strange question. What if a lawyer *doesn’t* say so? Of course there are people who consider their jobs as bullshit jobs, and they’d rather do something else. And giving those people free money will reduce the pressure they may feel to do these bullshit jobs simply because they pay a wage. But there is another side to this: not the supply, but the demand of labour. The lawyers’s client must, by definition, derive value of her services, at least to the extent of the fees. And the same applies to other so-called bullshit jobs. It is not because people receive a basic income that the demand for such jobs will disappear.

    If there is one thing we can agree on (and I am convinced there are more), then it is that rent-seeking is a bad thing. But that is a whole different discussion. A UBI seems to me to be a rather peculiar instrument to combat flawed IP legislation, and to fight against dictators hiding their money with the help of bent accountants.

    I don’t think I am conflating value and price, money and wealth. Value is in the eye of the beholder, and the best judge of how much value a good or a service represents is the person who makes the sacrifice to enjoy its benefits. Different people have different preferences, and some might disagree with, or even disapprove of the preferences of others.

    As for societal value: societies are not outside the economic cost-benefit logic that governs the allocation of scarce resources. Money is inevitably part of the equation, if only because the creation or release of societal value actually costs money.

    – The context of the quote “Higher taxes would get more people to do work that’s useful,” does not really address the criticism that higher taxes don’t discriminate between wealth creation and wealth shifting.

    – A public sector that “leverages activities that cannot be made more efficient” seems to me to be about a good deal more than just redistributing. Conceptually I think there would be a good deal that could be said in favour of a very slim state, that was primarily concerned with redistribution (and a small amount of activity concerned with truly public goods). The idea of giving (poor) people cash so they can spend it as they see fit is perfectly applicable to non-poor people as well. And as the utility of a dollar to someone with spending power of say $30,000 per annum is larger than the utility of the same dollar to someone with a spending power of $3,000,000 per annum, it makes economic sense to redistribute it, if one wants to maximize overall utility. You could argue about how libertarian it is to take the dollar away from the rich guy, but at least allowing the poor guy to spend it himself, rather than having the state do it in his behalf is more libertarian than paternalistic. But there is no leveraging of activities that cannot be made more efficient in this model.

    – I am sorry you misunderstand my final and fundamental criticism of the book, which is that the realism, promised in the title, is lacking. I would dearly like to see a UBI implemented in practice. It would be great if we could “give people the means to decide for themselves what they want to make of their lives”, but before these means can be given, they have to be obtained somewhere. I have so far not seen a realistic proposal setting out how a UBI that does what we both would like to see can be afforded. I had hoped to find it in this book.

  3. Thanks for the quick reply! Let me continue the discussion:

    – I think it’s an illusion that people choose their working hours in a vacuum. As I show in my book, the majority of people in many rich countries would like to work less. But often they can’t do this on their own. As I write:
    ‘Currently, it’s cheaper for employers to have one person work overtime than to hire two part-time. That’s because many labor costs, such as healthcare benefits, are paid per employee instead of per hour. And that’s also why we as individuals can’t just unilaterally decide to start working less. By doing so we would risk losing status, missing out on career opportunities, and, ultimately, maybe losing our jobs altogether.’
    Collectively, we can create an environment (a different tax code, different labor laws, etc) in which more people would dare to cut their working hours. I don’t think this would be paternalistic (there wouldn’t be a time police, or something like that) – we would just give people the opportunity to make the decision they already want to make.
    – In my book I make clear that one of the main goals of a UBI should be to eradicate poverty. Therefore it’s quite relevant to know that doing so is pretty cheap. The net redistributional effect of a UBI should be favorable to the poor, but as Bruenig’s estimate shows – it doesn’t have to be that big to eradicate poverty.
    – Well, if a lawyer considers his or her work useful, than I think that there’s a really good chance that it *is* actually useful. Nevertheless, as I have experienced during my lectures over the past two years, there are lots and lots of well-paid consultants, bankers, lawyers, marketers, etc. who think their work doesn’t add anything of value.
    I agree that a basic income would not immediately destroy the demand for bullshit jobs, and I don’t write this either in my book. Just like with the move to a shorter workweek, it all starts with changing the context in which we make our choices. Taxes are crucial here. In the book, I give the example of a financial transaction tax and cite the Harvard study on the reallocation effects of higher taxes. As William Baumol once wrote: “We do not have to wait patiently for slow cultural change.’ Obviously, we need to think long and hard about which mix of taxes would discriminate best between useful and useless jobs.
    – I don’t think ‘value’ is in the ‘eye of the beholder’. It’s in the ‘eye of the beholders’ – plural. Take the company who hires a marketer for a new ad campaign: if it works then sales will raise, so the company will be happy and think that ‘value’ must have been added. There’s quite a lot of evidence though that marketing is a zero-sum game. And indeed, in many industries (cosmetics for example) companies are using more and more of their earnings to pay for ads. So on a macro level, this race to the bottom obviously does not create more ‘value’.
    – You are right that the ultimate libertarian thing to do, would be to cut funding for education and health care and just give these funds to the people as well. I think there’s another option though: fund health care collectively and then let the professionals and clients decide for themselves how they want to organize their care. In The Netherlands, there is a hugely successful organization called ‘Buurtzorg’ that operates in this way (based on the ideas of Ricardo Semler).
    – Lastly, you write that ‘the means’ to let people decide for themselves what they want to make of their lives ‘have to be obtained somewhere’.

    My point is that traditional economists, very unrealistically, look at the phenomenon of ‘means’ solely through the lens of money. In their perspective, people who earn money, create and have ‘the means’.

    One major point of my book though, is that a lot of real work is unpaid. And a lot of very well paid work, doesn’t create much wealth at all (or even destroys it). So we may ask: who’s really providing ‘the means’ in our societies? Are we dependent on cleaners, teachers and garbage men, or are we dependent on tax accountants, marketers and flash traders? If both groups would organize a general strike, I think we’ll find out quickly.

    One of the most important effects of a UBI would be to give more bargaining power to the cleaners and garbage men – they can always fall back on their basic income and demand a higher wage. The UBI can function as a universal strike fund, and this will benefit those people who have the jobs that we simply can’t do with out, the jobs that provide the real ‘means’.

    So, if we want to be ‘realistic’, we first have to radically rethink what ‘work’ is and we can ‘afford’. Can we afford poverty? Can we afford to have 37% of the population in jobs that the people who have these jobs consider meaningless? I don’t think we can!

    If you think the realist should just lay out some policies that can work in the current distribution of power and money, and in the current climate of ideas, then indeed – I’m not a realist in this Bismarckian sense (Realpolitik). Neither was, for example, John Stuart Mill when he first argued for equal right for men and women.

    Utopian realism begins with radically rethinking a lot of things we take for granted and then showing how the new ideas could ‘work’ in a very different kind of society.

  4. I’m not going to repeat what I said above, so just a few quick remarks:
    – “As I show in my book, the majority of people in many rich countries would like to work less”. I think you show that people *say* they want to work less. Plenty actually *do* work less already—if I’m not mistaken your own country has more part-timers than any other OECD country. You say “People could be working 15 hours a week by 2050, and earn the same amount as in 2000,” and it’s the drop in earnings that is many people’s problem. They choose not to sacrifice more money for more time.
    But I agree with you that where there are structural barriers preventing people make the choice they really want to make, let’s get those removed. People’s choice should not be influenced by a rigid, old-fashioned choice architecture.

    – The UBI is a poor instrument to relieve poverty. You also wouldn’t give everyone a free flat to relieve homelessness. See my comment above.

    – “Obviously, we need to think long and hard about which mix of taxes would discriminate best between useful and useless jobs.” That’s the kind of thinking a realist would have liked to see discussed in the book. Without specifics, it’s Utopia for Utopians, I’m afraid…

    – “There’s quite a lot of evidence though that marketing is a zero-sum game.” In the sense that there is a finite market for most goods and services, and so what one supplier gains, another one loses, for sure. But if you want competition (and I presume you think that’s a good thing) you cannot do without marketing. Furthermore, marketing and advertising serve as an important, and accurate signal from supplier to consumer. Those who spend a lot on advertising are strong and confident, and are unlikely to risk their reputation by supplying inferior goods or services. Just like in nature.

    – “traditional economists, very unrealistically, look at the phenomenon of ‘means’ solely through the lens of money.” It’s not *solely*, but you cannot take money out of the equation if you’re intent on giving everyone thousands of dollars a year. That is money that needs to come from somewhere.

    – “then showing how the new ideas could ‘work’ in a very different kind of society.” I’m still hoping that you will write about that next. 🙂

  5. The most interesting parts of the book are the missing arguments: How did the author identify the “correct” values of all occupations, and why should society agree with those valuations? The book that answers those questions would be far more significant to human progress.

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