Stupidity Tax

Conspicuous Consumption is a stupidity tax. As is hoarding. The image of Scrooge McDuck is not one of someone who is good with money. 

People who are good with money are constantly putting it back to work. Lazy assets get eaten away by inflation and fees. Lazy spending is firing money. Even though someone with capital is building reserves, those reserves are working. 

If you are a fundamental investor, that work is something tangible you can understand and explain. That capital is connected to other people and providing something we collectively want or need. It provides breathing capacity for the owner by working for others. 

We do need the layer of what is now called responsible investing, impact investing, or the inclusion of ESG (Environment, Social, Governance) issues in decision making. The importance of including qualitative issues in decisions that are normally driven by numbers. Recognising circles of competence with people who understand money, but may be less conscious of unintended consequences of broader societal impacts. Making sure that good business ideas are also good ideas that are consistent with our ethics and values. 

It is not just the conspicuous that matters when it comes to endurance. It is also behaviours, patterns, and things as basic as sleep. Understanding the processes and science behind sleep. Where the direct connection to “productivity” isn’t obvious. Understanding how unconscious learning gets processed and connections get made. Where what we are aware of and unaware of gets connected and pushed into our subconscious if we are sleeping, eating, relaxing, breathing, exercising, and looking after our mental health properly.

Universal Basic Buffer

A Universal Basic Income doesn’t have to be funded through hand-to-mouth tax redistribution. It could be funded by Capital. Paid as a dividend to the owners of that Capital. The challenge is obviously time. Capital needs to be built. There are always competing priorities, and putting money to work rather than spending it on pressing needs can mess with the head. Building Capital isn’t a “rainy day fund”. Building Capital isn’t storing or hoarding. It is shifting from a consumption to a custodial mindset. Shifting from cutting down the trees to living off the fruit. Capital building starts as buffer building. Expenses are noisy, and do make loud demands. Sometimes cutting down the trees is the right thing to do. Eventually, with spending constraint, you can get the buffer to be big enough to handle unexpected needs. At that point, Capital can get a proper job with a long-term perspective. A baby step to a Capital funded UBI may be a Universal Basic Buffer. Aim for Capital that would only last for 6 months if constantly drawn on. Then 1 year. Then 5 years. Then, one day, a secure permanent financial base to everyone. A societal foundation for creativity.

Seeing through the noise

Key Person Risk

We live in a world where there aren’t enough jobs, and migration into rich countries is presented as a problem. This isn’t the way the world always is or was. Hut Taxes were introduced by British Colonialists as a way to force the required labourers into the monetary economy. Households had to send members to work for the colonialists in order to raise the cash to pay the tax. Liberia’s Hut Tax led to the Kru Revolt in 1915. The Bambatha Rebellion of 1906 pushed back on the British Employers in Natal (The Colony) when the Zulu people of the Mpanza Valley (now in KwaZulu-Natal) rose up. The challenge with a pass-the-parcel economy with globally stretched supply chains, and institutions (Nations and Companies) that have permanence and excess negotiating power is when a person’s “place in the chain” becomes redundant. Companies talk of “key person risk” but employees are the ones who live that risk. We live in a world where individuals don’t have the buffers of cash and capital of corporate balance sheets. Risk management starts from the bottom up.

Primary Zulu Language speech area (South African 2011 Census)

Reverse Hut Tax

Hut Taxes were used by the British Colonies to force people out of subsistence lifestyles after the Anglo-Somebody wars. In South Africa, this led to the Bambatha Rebellion in 1906, which galvanised the post-war identity of the Zulu people. If you need to pay taxes, you need money to pay it. This means problem solving needs to have a number put on it. One way to think of a Universal Basic Income is as a “Reverse Hut Tax”. It allows people to reinvest in the basics. To have sufficient money to have parcels of time where they don’t have to think about money. To rebuild a base, that allows them to survive periods when a hand-to-mouth, pass-the-parcel, economy is not functional. To build basic competencies (that get outsourced when you are just one link in a fragile value creation chain). We can be seduced by specialisation. Just doing the one thing we are good at. That is fine, until it isn’t. Winters aren’t a surprise. Creative Destruction requires periods of unlearning and rebuilding. Without endurance and resilience, creativity can have no roots to draw sustenance from.

Bambatha

Stupidity Tax

Conspicuous Consumption is a stupidity tax. Conspicuous Consumption is the lavish spending of money for the express purpose of demonstrating that you have the (appearance) of money to spend. Normally, it is associated with "New Money". It can be debt-financed (big car, big loan), and is seldom sustainable.

It doesn't bother me as much as Conspicuous Hoarding. Both thrust wealth, income, or bad financial planning, in the face of people with much less. Both are a way of wallowing in luxury while others are struggling to survive. The difference is that Hoarding actually gets in the way of other people. Hoarding is of the Needs. Consumption is of the Wants.

So if someone wants to pay a Gazillion Dollars (the record is $450 million at the moment) for a painting... nothing is made or destroyed. The painting simply changes hands. Conspicuous Consumption is a way of firing your money rather than investing it. It works for someone else, and you consume any rights. On a smaller scale, the same can be said of excessively fancy clothing, nights out, or anything else that doesn't stop anyone else from being able to survive. Say you buy a bottle of 1869 Chateau Lafite-Rothschild Wine for $232,692, it is still just a bottle of wine. No physical cash is even likely to change hands. It will just be a swap of 1s and 0s in the code of a bank. Maybe the same bank.

A form of Conspicuous Hoarding is NIMBYism ("Not In My Back Yard"). When people oppose a development that will benefit the community, because it has some negatives for them personally. Even though they have more than their fair share. Conspicuous Hoarding is when not everyone has even nearly enough... and you insist on your big slice of the pie. Water is another example. If you insisted on continuing to have baths, when you were living in a City with dramatic water restrictions... that would be Conspicuous Hoarding.

Money isn't a thing. It is smoke and mirrors. You need to look through the clouds to see what is going on behind the scenes. That is what really matters. Don't be fooled by what you see. 

$450 million picture

Salvator Mundi

Who Pays?

Many critics of Universal Basic Income focus on the Gross rather than Net cost of proposed funding methods. Gross is simply the size of the population (since UBI is Universal) multiplied by the number of people in the community (since UBI is Universal). The Net cost subtracts the amount contributed in the form of contributions or tax. 

The point of a UBI relative to Welfare Payments is to shift the burden of proof. Welfare is often like the opposite of a job interview. We spend a lot of money on 'means testing' with paperwork and evidence to prove a negative. It is very difficult to prove something doesn't exist. It is also rather demeaning. In a world where we put a lot of emphasis on self-worth being determined by the 'ability to provide'.

Most proposals for a Universal Basic Income don't change the normal progressive tax system. Meaning, if you earn more than enough money, it is rather difficult to hide. If you buy anything, own anything, or earn anything... it is far cheaper to find that out, than to prove you don't. Tax could then remove the cost of providing you with a UBI.

Still, the idea is similar to Pension Funds. When they started, many were 'Pay as you Go', and much of the money paid in by workers was paid out immediately to people who were retiring. This was fine until the proportion of retirees started to grow, as workforces shrunk and people lived longer. This has lead to many large businesses having 'unfunded Pension liabilities'. When you buy a business, you also buy its promises. These can be scary. Most pension schemes have been shifting from Defined Benefit (saying what you will receive) to Defined Contribution (saying what you need to put in). Many airlines are described as Pension Liabilities with wings.

The UBI model I like still needs 'someone to pay'. It just contains the situation within much smaller boundaries. If a 150 person community was built, 75 people could be the 'Breadwinners'. Over the course of 15 years, they could (1) pay for their own UBI, (2) save for their own UBI, (3) pay for someone else's UBI, and (4) save for someone else's UBI.

So, for example, if 75 people paid $8 a day. (1) They would receive $2, (2) they would invest $2 to build an Engine for themselves, (3) they would pay as you go $2 to someone else, and (4) they would invest $2 a day to build an Engine for someone else. After 15 years, I believe they could have, with sound investing, built an Engine to sustain that $2 UBI for themselves and one other person.

The 'Gross Cost' to them is $8 a day. The 'Net Cost' is $6 (they receive the UBI too). $4 is not really a cost, given that it is invested. It grows. Managed sensibly, with good custodians, one day it could live for ever. A fully funded Community Wealth Fund could one day support a Universal Basic Income without any additional contributions.

In a world of hand-to-mouth, someone does need to pay. But we don't need to live hand-to-mouth. A Universal Basic Income doesn't have to be tax funded. It could be a dividend on our Community Wealth. One day. If we make good decisions today.

Giving Tax Payers Mugs

Framing is everything. It is the context. 'The Endowment Bias' shows that people are willing to pay less for something that isn't already theirs, than they are willing to sell the exact same thing. The experiments to show this used Mugs. Some people were offered bugs, then offered money for the mugs. Others were offered money, then asked if they wanted to buy the mugs. Our money decisions are emotional.

Modern Income Tax was introduced in the United Kingdom 1799 to pay for equipment for the French Revolutionary War. It was supposed to be temporary, and was turned on an off till it was turned off in 1816 after Waterloo. Peel brought it back again in 1842 and it became a permanent feature of the British Taxation system.

Pitt's Income Tax

The problem with Income Tax is it gives the impression that you have been given the Mug. It creates a class of 'Tax Payers' who feel entitled to make decisions about how the money is spent. It gives the impression of Givers and Takers.

With huge countries, being a Tax Payer becomes an identity and creates barriers between between people. It becomes abstract. Instead of a pool of money amongst your community, it becomes someone taking what is yours.

I prefer Consumption Taxes. To me that feels more like you are paying a fee to society for creating the opportunities that you have benefited from. You pay for something you want. Don't want it, don't pay. Income Tax feels like someone is taking something from you.

If you imagine the world/your country was just 150 people, the dynamics change. Instead of an abstract Giver and Recipient, people have names, faces, and stories. It isn't 'you vs. the Man', 'you vs. the State' or 'you vs. them'.

A group of 150 could have 75 people paying in more money than they are receiving, because they are part of a community. Instead of transactional, it becomes relational. We know that some people bring in money, and other people do other things. Suddenly people know each other, and that changes the framing.

A Community Wealth Fund (CWF) could be built up by those 150 people as an Engine for the Community. Eventually, that CWF could pay everyone a Universal Basic Income. If that went viral, a sufficient number of CWFs would ensure no one was left out of society. Not in an abstract way. In a way where we saw each other. Where we knew each other. That is a world I want to live in.

Mug Shot

Peru

The first city in Peru is estimated to have been built in around 3,500 BCE at Huaricanga. From about 3,100 - 1,800 BCE, there is evidence of large-scale human settlement along three river valleys. This was roughly at the same time as the pyramids were being built in Egypt. Fast forward to independence in 1824 and the neighbouring countries didn't all perform as well economically. From 1879-1884, 'The War of The Pacific' saw Peru ally with Bolivia against Chile. Vague boundaries, differing prospects and competition for resources saw fights over what got dug up, and how it got where it had to go. Tax was the trigger for war. Not dissimilar to today's ambiguity over where 'value is added' and who it belongs to. Throughout the C20th, Peru flipped between periods of stability and growth, and periods of coups, social unrest and internal conflict. Today, it is a upper middle income country with GDP per capita similar to South Africa (92nd and 90th in the world), but lower inequality and less poverty. It is one of 'The Pacific Pumas', a term given to a group of four larger Latin American countries that are showing common signs of growth, stable institutions, improved governance and global integration. We can try do it on our own, in competition and far apart, or we can do it together. 

The Pacific Pumas

Chile, Colombia, Mexico, Peru

Personal Rule

Modern Income Tax was introduced in 1799 to the United Kingdom to pay for the French Revolutionary War. Nations of 'the People' v Monarchs. Before that, Parliaments were summoned when the Monarch needed money. The 'Long Parliament' (1640-1660) followed a concession which required agreement to be dissolved. This came after the 'Short Parliament' which lasted only 3 weeks, after an 11 year attempt at personal rule, before King Charles I dissolved it because he couldn't get what he wanted. PAYE is a withholding tax. This, and bond markets, made it much easier for Governments to raise and spend. Pool the money, and make 'central decisions' about how to spend it. A Universal Basic Income would be different. It doesn't make 'the' people sovereign. It makes people sovereign. It doesn't enable group decisions. It empowers personal decisions. A UBI would not replace government. The messy work of coming to common understanding is still required. It just gives everyone a genuine seat at the table. Participating in a contribution based UBI scheme is analogous to those with Privilege ending their personal rule, while giving everyone personal sovereignty. 

King Charles I

executed in 1649

Conspicious Hoarding

I am far more concerned about consumption inequality, and absolute poverty, than I am about wealth or income inequality. Defining goals in relative terms may be how we think, and feel, but it is a moving target. Even consumption inequality only bothers me because it is deeply problematic when people don't have the basics, and others have plenty to waste. Conspicuous consumption is a stupidity tax. A lot of things are expensive because they are rare, not because they are valuable. There is a difference. The harder problem is conspicuous hoarding. Having assets in abundance that are needed that could be shared, that are just kept in case. I don't have a problem with investment in productive assets. Mostly the 'owners' have given control over to managers who will be punished by clients if they don't do a good job. Until everyone has enough to participate, then I think we should feel uncomfortable. We should do something.

Don't confuse value and rarity

Real Asset

Fiat money is currency established as money by law. It has value because the government says so. That matters because what the government says is backed up with tax (payable in that currency), prisons (where you go if you don't pay the tax) and law enforcement (the people who will make sure that happens). Hut Taxes were one of the first ways the British Government forced people to shift from rural subsistence. It led to many revolts. Money isn't a real asset. Ask Zimbabweans. Read about the Weimar Republic in between the two world wars. Money isn't actually a thing. It is a promise or a catalyst - meaningless if no one believes in it. Debt is much the same. Which is why inflation destroys both. If all the money and debt in the world disappeared, nothing would have actually disappeared. Real assets are tangible. They do stuff. They exist outside of the stories we tell ourselves. Money is a story. A powerful story, but a story nonetheless.

Yuan Dynasty Banknotes

The earliest known fiat currency

Citizens of Nowhere

An interesting or cynical take on the rise of the Welfare State, kicked off amongst others by Bismark, was that it was not out of good spirited benevolence (See Home Deus). It was part of the arms race legacy of Mercantilist competition. If you were going to open up free markets through ventures such as the Opium Wars, you needed a strong nation. If you needed a strong nation, you needed men to fight when they were 18 and pay taxes when they were 40. Someone who is not working because they have a sustainable lifestyle 'off the grid' is not useful to the state as a source of tax or fighting power. Working is expensive. Hut taxes were one tool used to force people into the system. If you have to pay tax on your house, you have to earn money to pay it. The 'exchange' was state education, unemployment protection and pension funds.

If you are 'Citizens of Nowhere', no one can tax you into obedience and no one can make you fight. 

An argument for making a Universal Basic Income independent of Nation States, and for Global Citizenship, is that it decreases sovereignty in the sense of the State having power over individuals and communities. States become larger communities or service providers, but there are no rulers. States may co-ordinate large scale public projects but they cease to have control over people's lives.

Bismark

Financial Repression

Savers aren't investors. Cash isn't an investment. Saving is when you keep your money in cash. Investing is when your money gets a job. Speculating is when you are predicting whether supply and demand will cause something price to go up or down (even though that thing will just keep on doing the same thing). The problem is cash is just an idea. It is stored potential. If money is kept in cash, investors will borrow it and put it to work. 

If interest rates are kept close to zero, it means money is close to free for investors who have access to borrowing it. Savers on the other hand stop getting paid for their money. If inflation is higher than the interest rates, they are in truth paying for the privilege of saving. If interest rates become negative, lenders are paying for the privilege of lending. 

Because this isn't obvious, it is called 'Financial Repression'. It is a stealth tax on savers. It is a sneaky way of reducing Government Debt and rewarding people who have borrowed to buy things. Most savers don't think in real terms. Inflation slowly eats away at both their savings and at the real value of debt.

I would love to see Governments experimenting with more direct 'free money' than keeping interests rates low and punishing savers. A Universal Basic Income can release the potential of people trapped from engaging with each other by empty wallets.

Handing out cash

Taxing the Empire

Tax gets complicated in a world beyond borders. Multi-national companies are the new Empires. They have flexible borders, are continually expanding, and cross multiple ethnic groups forming a common supra-culture, with a common language and a common purpose. 

Cyrus the Great

Taxes are still raised by nation states. Nation States arose out of a demand for sovereignty. The World Wars of the last century saw an end (/pause) to thousands of years of empire building. Empires were normally ideas. 'Sapiens' talks of Cyrus the Great as the first Empire builder who saw the role of government as improving the lot of the conquered rather than focusing on enriching the conquerors. He was famous for respecting and supporting the culture and religions of his subjects. Nation states are arguably a step back towards us narrowing our identity. Protecting our self-determination but increasing the walls between them and us. Self-determination was the intellectual tool used to justify Apartheid.

That gets problematic when it comes to Tax. Many multi-national companies are only notionally American. They only get taxed on their profits when they are returned to the US. A company like Colgate gets more than 80% of its revenue from outside America. It is a truly global company. Since we have moved to a multi-national world in terms of free markets - movement of goods, services and capital - tax laws have struggled to keep up. See the letter from Tim Cook to his customers after a recent European Commission Tax decision. There are widely ranging estimates of about $2 trillion dollars in cash held offshore that only gets taxed if brought back into America. This doesn't mean there is a big pool of Scrooge McDuck style gold sitting idle. Money isn't a thing, it is an idea. It doesn't literally sit doing nothing.

What it does mean is that any redistributing or government directed spending doesn't happen. In a closed Nation state, tax is much simpler to see where value has been added. When there are teams working together across the world to make things happen, attaching which bit of the value has been added where is philosophical rather than scientific. Value is personal.

Gaining cross national agreement is very difficult. Many Brits who voted to leave the EU chose to do it because they felt like they weren't controlling their own destiny - a big part of that is they felt they weren't controlling their own laws and taxes. A push back on Empires (yes, the irony of the head of the last Empire pushing back on lost control isn't lost).

A Universal Basic Income could be one way to solve this. It may sound Utopian, but a UBI could be seen as the opposite of tax for individuals, but still a tax for companies. It effectively would make all Global Citizens participatory owners in multi-national companies. It means we don't have to answer the impossible question of how to cut up the pie. Capitalism isn't actually very good at that. It is good at pricing the pie. It solves difficult questions by pricing the things it can as cogs. The balance is left to the owners.

The number one rule in capitalism is be the owner. A Universal Basic Income makes everyone an owner.

Sierra Leone

Sierra Leone

Sierra Leone surrounds the third largest natural harbour in the world. It has suffered from the 'Resource Curse' or 'Dutch Disease'. The discovery of Natural Gas in the Netherlands contributed to a decline of manufacture as the success of one sector made other products more expensive to other countries. Sierra Leone is rich in Diamonds. This can be a good thing like in Botswana, a stable democracy, or a bad thing if it leads to Civil Wars as people struggle for control. Sierra Leone was established in 1787 to settle freed slaves after the American Revolutionary Wars and the 'Black Poor of London'. Slavery in the British Empire was only abolished in 1807 so the early founders faced the risk of re-enslavement. Although 'free', it was a still a colony (independence came in 1961), and tools like the Hut Tax were used to manipulate the labour force away from subsistence just like in South Africa. 

Hut Tax War Leaders

Bai Bureh in Sierra Leonne

Bambatha in South Africa