Balance Stimulus

Balance Stimulus: A New Approach to Public Policy to Address Unequal Opportunities for Income in the United States.

Abstract

I identify the key impediments to income opportunities for lower income people, establish the proportion of people whose opportunities for income are limited due to those impediments, and provide commentary on a few popular proposed solutions.  I introduce an idea to reduce government spending and public reliance on the government by making a direct appropriation to the most economically disadvantaged people allowing them to overcome the existing impediments to a higher income.  

Headings

Impediments to Income                                                                                             

Qualifying the Problem                                                                                             

Proposed Solutions                                                                                                    

Balance Stimulus                                                                                                       

References                                                                                                                  

Impediments to Income

After self deception, the root of all human problems is the unequal distribution of opportunities for time and money.  

Adam Smith wrote “Money, says the proverb, makes money. When you have a little, it is often easier to get more. The great difficulty is to get that little.” (1) This quote embodies the root cause for the unequal distribution of income: a person’s ability to make money depends largely on the amount of money they have.   

1: Adam Smith, 1776 “The Wealth of Nations” Book I, Chapter IX, pg.111 (I did not read the book, I came across the quote on a wikiquotes page years ago and remembered the quote for it’s accuracy in describing the main cause of economic inequality. 

A lack of money not only represents an impediment to creating your own opportunities to make money by starting a business or through some other investment, but also impedes people’s ability to take advantage of income opportunities that exist in the market.  

Returning to school to increase one’s human capital 1st requires the time and peace of mind to consider one’s interests.  While this sounds simple, when most of a person’s time is spent on long public transportation commutes, working long hours for wages that barely meet their needs, and constant stress due to financial obligations, thoughts are dominated by modern survivalism, or maintaining basic necessities defined by your accustomed standard of living.  For many people that accustomed standard of living is food, shelter, and low cost entertainment.  Many people don’t know what they would do if they had the time and resources to do it, because people rarely think about things that are not accessible by their immediate or foreseeable circumstances.      

A person who has poor credit has limited opportunities to access money.  More importantly, many employers conduct credit checks and a poor credit score will exclude people from taking advantage of worthwhile income opportunities that they may otherwise be qualified for. (2)

2: Yani Blumberg, 10/24/2018 “What Employers are Looking for When They Check Your Credit Report” CNBC.  CareerBuilder survey found that 29% of employers conduct credit checks.      

As previously mentioned when you’re without transportation, more of your time is spent commuting, but more significant, your income opportunities are limited to those accessible by public transportation.  As many as 28 million Americans do not own cars and are limited in time and income opportunities as a result of this disadvantage.(3)

3: Mike Maciag, 11/28/2017 “Vehicle Ownership in the U.S., Cities, Data, and Maps”.  Governing. https://www.governing.com/gov-data/car-ownership-numbers-of-vehicles-by-city-map.html 8.7% of US households do not have cars.  There are 128.5 million households in the US where 8.7% of households represents 11.2 million households.  There is an average of 2.52 people per household meaning the average number of people in the US without cars is 28 million.  Still a conservative estimate since those who are without cars tend to be in the lower portion of the income distribution and likely live in households with people who exceed the average household size.

Many drive, but do not have licenses, often due to fines and the inability to pay those fines.  A drivers license in itself is required for many employment opportunities.  As many as 11 million people in the United States have debt related suspensions of their driver’s license. (4)

4: Fines and Fees Justice Center, 6/25/2019, “National Driver’s License Suspension Campaign: Free to Drive. https://finesandfeesjusticecenter.org/campaigns/national-drivers-license-suspension-campaign-free-to-drive/ According to the research conducted by FFJC as well as my own experience many people without licenses continue to drive despite not being legally privileged to do so.  Something I mention to dampen the perception of statistical overlapping where it may be presumed that the 11 million American’s without drivers licenses, are represented by the 28 million American’s without cars which is often not the case.

Economists tend to attribute many economic disparities to the inability of the underclasses to save.  When your expenses often exceed your income there isn’t anything left over.  While it is easy for the economist to point out skipping cups of coffee as an example of how poor people can save, what the economist who likely has never known the prolonged circumstances of being poor does not understand, is that cup of coffee, bag of marijuana, television services subscription, night out at the bar or movies is not a discretionary expense but an emotional upkeep expense required to maintain contentment with their circumstances.  Without that cup of coffee the 30 dollars they would have saved on coffee isn’t there because they cannot perform as they do perform in that environment without it.  The amount is too insignificant to create enough satisfaction to offset the loss of the stimulation from the cup of coffee or whatever emotional upkeep is required to maintain contentment.  

Drug abuse is largely the product of people not having access to opportunity.  Human beings function from a very simple mechanism: what they do is determined by what feels good.  Those who have the means to do what they want to do can choose interaction that feels good, whereas those who do not, sometimes form dependencies around low cost substances that cause them to feel good.  I’m not implying that all drug dependence is a product of disadvantaged circumstances, drug dependencies occur among all classes for different reasons, but the bulk of drug dependencies are a product of a lack of opportunity.  

Crime is also a product of economic inequality.  Liberty consists not only of the means to do but also the time to do.  When opportunity consists of working a job that you may not enjoy, under the direction of someone who is overbearing who you may not like, to meet your basic living expenses with little left over in the little free time you do have, people are going to pursue morally questionable prospects to create better opportunity for themselves.  There may be no better statistical correlations than those that exist between crime, poverty, and inequality. (5)

5: Luke Flemming’s cross section global analysis of crime and inequality found a correlation between crime and poverty and crime and inequality. Luke Fleming 2011, “The Relationship Between Crime and Poverty: A Cross Section Analysis of the World”.  Bryant Economic Research Paper Vol. 4 No.7 Spring 2011.  Bernadette  Raybuy and Daniel Kopf measured the pre incarceration income of people in prison and found that the median income was only 59% of the median income of the general population. Bernadette  Raybuy and Daniel Kopf, 7/9/15  “Prisons of Poverty: Uncovering the  Pre-incarceration Incomes of the Imprisoned”.  http://www.prisonpolicy.org/reports/income.html A brookings study found that the lower the income of a man’s parents the more likely it is that he will end up in prison.  20x more likely to end up in prison is a male born in the bottom 10% of the income distribution than someone born into the top 10% and there is a steady reduction in probability of incarceration as income levels rise.  Lucius Couloute, March 22, 2018, “New Data Highlights Pre-Incarceration Disadvantages”.  Prison Policy Initiative.  https://www.prisonpolicy.org/blog/2018/03/22/brookingsreport_2018/

Qualifying the Problem  

Household income speaks to the means of someone in the household and does not represent the means of everyone in the household.  The average household size is 2.5 people and while this is typically represented by a couple, oftentimes it is not.  Furthermore, even when 2 people are represented as a couple, the income still likely disproportionately represents one of the two people’s income and these incomes may not be mutually accessible.  In some situations there may be financial dependence where one party is stuck in an arrangement they’d rather not be in.  

In considering individual opportunity, I refer to the individual median income which is 35,997 per year as of 2019. (6)  Roughly ¼ of people in the workforce earn an income that is less than 17,995 dollars per year.  The first statistic pertains to all adults, whereas the second referenced statistic only represents those included in the workforce.

6:  Federal Reserve Bank of St. Louis, 9/16/2020, “Real Median Personal Income in the United States”. https://fred.stlouisfed.org/series/MEPAINUSA672N 

7: Martha Ross, Nicole Bateman, 2019 “Meet the Low Wage Workforce”, Metropolitan Policy Program at Brookings. https://www.brookings.edu/research/meet-the-low-wage-workforce/  pg 9 “53 million Americans—44% of all workers aged 18-64—have low-wage jobs. This significant portion of the nation’s labor force is earning median hourly wages of $10.22 and median annual earnings of $17,950.”  Half of 44% of the workforce earns 10.22 an hour or less. 

Income becomes more relevant on an individual basis based on the cost of living in the areas where people live and in consideration of people’s living arrangement where bills may be split.  In situations where two low income people are sharing expenses they become locked into financial codepencancies, where neither could afford to live without the support of the other.  For the 10s of millions of American’s who earn less than 17,995 per year, such an income does not provide much freedom no matter where you live and in most cases no matter who you live with.  

There are probably quite a few people who have negative wealth and have a great deal of assets, but on the whole, this group represents the exception not the norm.  The norm is represented by those people whose income is insufficient to meet their expenses.  I think of the distribution of wealth as one of the best indicators of people’s income versus expenses.  Wealth is  surplus income in liquidity and all its storable forms.  I consider surplus income as all income saved or spent on non-consumables, and consumables as those expenses that do not result in stored value, like rent, food, entertainment, insurance, utilities etc. (8)  The wealth distribution reflects the ability of income to meet and exceed expenses.

8: My conception of economic function was developed outside of formal study in the field.  I don’t know if consumables is the right word to describe what I’ve described or not.  

30% of people in this country have negative wealth and the overwhelming majority have negative wealth with very few assets.  The next decile has .1% of the wealth distribution.  The next decile has 1.1% of the wealth distribution. (9)  This is an indication of how inadequate the opportunities are for those in the bottom 50% of the wealth distribution relative to their income, especially when we consider of those in the bottom 50% of the wealth distribution who have wealth are probably among the few who own homes, and their wealth is represented by the difference between what they owe on their home and its appraised value.  For some this wealth is not accessible because they lack the income or credit score to access it to put it towards some opportunity enhancing endeavour.  

9: Erin Duffin, 11/7/2019.  “Wealth Distribution in the US 2016” Statista.  https://www.statista.com/statistics/203961/wealth-distribution-for-the-us/

A more important indicator of the opportunity of the bottom 50% of the income distribution is the median checking account balance combined with the median savings account balance.  Which doesn’t represent those who have no checking account which would lower the median balance or the median amount of money people have.  The median checking account balance in the United States is less than $3400(10) and according to survey data nearly 60% of American’s have less than $1000 in savings, and over 30% have no savings. (11)  $3400 represents the median household checking account balance, where the median individual checking account balance should be in the neighborhood of about $1400.  The bottom 50% of the country has less than about $2500 to spend at any given time.  That figure still underrepresents the little that the bottom 50% have to apply towards creating an income or income opportunity since people’s checking accounts often contain money that is already accounted for in recurring consumable obligations.         

10: Chris Moon, 6/23/2020 “Average US Checking Account Balance 2019: Demographic Breakdown”, Value Penquin.  Source is US Federal Reserve Survey 2016.  The median household checking account balance is $3400.  The average household size in the US is 2.5 people meaning the individual median checking account balance is probably in the neighborhood of about $1400.

11: Cameron Huddleston Go Banking Rate, 5/15/2019 “58% of American’s Have Less Than $1000 in Savings, Survey Find.” Yahoo Finance https://finance.yahoo.com/news/58-americans-less-1-000-090000503.html

Proposed solutions

Andrew Yang proposed a $1000 a month guaranteed universal income.  A universal basic income does not solve inequality because it doesn’t increase the proportion of money held by the bottom 50% relative to the top 50%.  $1000 per month guaranteed income increases the proportion of money to goods and causes the price of goods to go up.  The income is partially paid for through a value added tax applied at different stages in the production process.  This cost will be passed down to the consumer which will also increase the cost of goods. (12)  Although the cost of the income will exceed what is collected through the tax, if the basic income was equal to what is collected through the tax the idea itself is less the providing of a guaranteed income, and more the subsidization of all goods and services to cover the cost of the price increase caused by the tax and increasing the supply of money.  His universal income is a universal price increase coupled with a universal subsidization of that price increase.  

12: Dan Cooney, 9/9/2019 “How Would Andrew Yang Give American’s $1000 per month?  With this Tax.”  PBS NewsHour Politics. https://www.pbs.org/newshour/politics/how-would-andrew-yang-give-americans-1000-per-month-with-this-tax

Popularized by Bernie Sanders in his effort to attract college voters, student debt forgiveness has been adopted as a component of the democratic party platform. (13)  This doesn’t address inequality for disadvantaged people since those who have a college degree are advantaged, typically with better income opportunities and perhaps more importantly, they have the opportunity to work doing something they want to do.  In addition to prioritizing the needs of advanaged people over disadvantaged people, the secondary effect (albeit minor relative to the overall budget) is student debt forgiveness reduces federal revenue where the repayment of that debt are funds that could be applied to the needs of disadvantaged people.  Prioritizing assistance for people who earn as much as $125,000 per year when half the people in this country earn less than $36,000 per year is an exercise in the exacerbation of the problem.  Of course the college educated are much more inclined to vote than the poor are who know regardless of who is elected their interests will go unserved even if they are pandered to rhetorically.    

13: Adam S. Minsky, Esq. 10/7/2020, “Biden Affirms: I Will Eliminate Your Student Debt”.  Forbes https://www.forbes.com/sites/adamminsky/2020/10/07/biden-affirms-i-will-eliminate-your-student-debt/#1906a63f58a7

Most programs aimed at helping the disadvantaged are short sighted marketable ideas proposed by politicians who are interested in improving their image to the public while serving their campaign financiers.  Their aim is not the creation of meaningful opportunity for circumstantially trapped people.

Elizabeth Warren when she began her bid for the democratic party’s nomination for president, began by promoting subsidized child care.  State and municipal governments typically already offer this service to people with qualifying incomes, and Warren’s plan to extend a federal subsidy higher up the income ladder may have attracted middle class votes but wouldn’t have contributed to the opportunities of disadvantaged people.  Stiff federal regulations to qualify for the federal money would have led to most of these funds being absorbed by some national chain of child care services able to comply with the regulations, where small locally operated childcare services would be less likely to meet the guidelines to qualify to care for federally subsidized children.  Even if Warren received the nomination and became president it wouldn’t have been something she would have passed.  It’s empty campaign rhetoric where the politically retarded people who comprise the large majority of the voting population think there’s a chance that they could save x amount of dollars per month if this person is elected.  

The same as her plan to tax the wealthy or any of the progressives’ plans to impose higher taxes on marginal wealth is an appeal to the frustration of the underclasses but in itself doesn’t create opportunities for the underclass.  A tax increase is only meaningful to the underclasses if it is going to be appropriated to some expenditure to improve their circumstances.  If there was a program that would significantly improve the circumstances of disadvantaged people it doesn’t necessarily have to come through higher taxes.  It’s absurd that higher taxes are proposed without worthwhile spending being proposed to justify a tax increase.  If there is a program that boasts the potential to significantly increase the opportunities of disadvantaged people that program could be financed, since the decrease in the number of people reliant on government services, coupled with an increase in tax revenue, and reduction in other costs associated with economic inequality would pay for the program plus the cost.       

Alexandria Ocasio-Cortez’s 2019 “The Just Society Bills” are another example of spending public funds which will not substantially improve the lives and opportunity of the 40 million most in need of improvement. 1: Access to full social services for formerly incarcerated people means what? Food share, health care, job training, and maybe the return to a small stipend, all of which is presently available to formerly incarcerated people in most, if not all counties in the United States.  Drug offenders are sometimes excluded from benefits which represents some improvement for very few people, but again, if these programs significantly improved opportunities for income, income inequality wouldn’t continue on a path of divergence. 2: Cap annual rent increases. People living on the bottom typically are not subject to substantial rent increases because they cannot afford housing of any significant cost, and when their rent is increased it is generally unsubstantial, likely not reaching the limits in the bill. 3: Push government contractors to improve benefits, doesn’t affect the lives of poor and struggling people who do not work for government contractors if that is the intended interpretation. 4: Changing the way the government tracks poverty is of little significance to anyone living in poverty, but may be of some use in expressing poverty related arguments, but these arguments already fall on deaf ears, and are taken up by people who as is apparent, have nothing substantive to contribute to addressing the problem. (14)

14: Now This Is News, 9/25/2019, “Alexandria Ocasio-Cortez Reveals Ambitious Just Society Plan” AOC presented a summary of her just society bills. https://www.youtube.com/watch?v=npVXKoAuk9U

Whether it is college debt forgiveness, medicare for all, child care subsidies, or some other poorly conceived idea intent on political grandstanding, nothing that has been done or would be done, significantly improves the quality of opportunity for those in the bottom 40% of the income distribution.  

Balance Stimulus

 “Money, says the proverb, makes money. When you have a little, it is often easier to get more. The great difficulty is to get that little.”  

What poor people need is money and they don’t need it incrementally, they need it in a lump sum.  What I propose is an allocation of 2 trillion dollars to be distributed to the bottom 50% of individual income earners.  Those who make less than $35,997 per year individually.  The bottom 20%, the middle 10%, and the top 20% of the bottom 50%. The purpose is to ensure a distribution that maximizes the servicing of opportunity creation.  The bottom 20% receive 1.2 trillion, the middle 10% 400 billion, and the top 20% (of the bottom 50%) 400 billion.  Per head the bottom 20% will receive $30,000 each, the middle 10% $20,000 each, and the top 20% (of the bottom 50%) $10,000 per person. A lump sum exempt from inclusion into the individual’s taxable income and exempt from interception from any debt obligation.

First, those who are too occupied with their present circumstances, meeting obligations and the entertainment required to maintain contentment with those circumstances, will have relief from that stress and cycle.  New ideas, interests, and consideration will emerge as a product of their access to a little bit of money sufficient to improve their opportunities for income, and for work that better suits their tastes.  While increasing their income is paramount to improving liberty and quality of life, not far behind is performing work that you like to do.  

  • Those who want to add new skills through furthering their education will have the means to pursue those endeavors in a reduced stress environment more conducive to success.
  • Those whose income opportunities are limited because they have poor credit scores will have the means to repay creditors and repair their credit.  
  • Those whose income opportunities are limited because they owe fines that prevent them from getting their driver’s license will have the means to pay off those debts and obtain their license.
  • Those whose income opportunities are limited to employers accessible by public transportation will have the means to purchase cars and access a greater range of income opportunities.  
  • Most importantly, individuals who have skills, ambition, and a vision will have the means to execute those ideas and start businesses.  Not sole proprietors only, but a wave of partnerships.  
  • Indirectly, an explosion of small businesses and independent contractors will create job vacancies placing greater demand on employees of all skill levels which will lead to increases in wages as companies compete for employees in a job market that consists of fewer people dependent on others for income.  

The cost of 2 trillion dollars will begin being recovered immediately since many people who rely on state benefits will not qualify once they’ve received their installment of balance.  This also means doing away with a great deal of bureaucracy which will create some unemployment but the private sector will provide opportunities for these public workers to apply their skills.  Many low income people will use the money to improve their opportunities for income where the real savings comes through the social mobility the balance stimulus will create.  The overall reduction in people who rely on state benefits to maintain themselves will decrease permanently and substantially. 

Second, as income increases among low income people so will government revenue through the taxes collected.  On the state and municipal level, people paying their fines will increase revenue for state and local governments, as well as fees paid in licensing, not only driver’s licenses as has been mentioned but through businesses licensing as well.  Local governments will also benefit from the increase in consumption through sales taxes collected.  

Third, people who have the means to create their own opportunity and improve their circumstances are less likely to commit crime.  The cost of enforcing the law and incarcerating those who break the law will decrease as people have opportunity that wasn’t previously available to them.  

Fourth, I anticipate an increase in home ownership, where the funds provided may be applied to repairing credit and used as a down payment for homes by some whose income suffices to make mortgage payments but who are unable to save a down payment.  

These are only a few of the implications among so many others that cause a balance stimulus to appeal to the interests of all people and entities in this country.  We’ve had the same programs and same kind of programs proposed as have existed in this country for decades.  These programs service the condition of being economically disadvantaged but do not provide opportunity for people to improve on that condition.  We’ve ran ourselves into deep debt by inefficiently spending money on expensive programs to do what was necessary to prevent discontent among the economically disadvantaged, when we would have done better for the people and the state to provide enough money to create and improve their own opportunities.  

I believe most will use the money to create or improve their opportunities for income.  Some will not.  Some will try and they will fail.  But imagine if 50% of the bottom 50% of income earners significantly improved their income?  Imagine if even 30% improved their income by an average of $20,000 a year.  What would that mean?  If this occurred and produced massive reductions in government spending and massive gains in public revenue, reduced income and wealth inequality, decreased crime, decreased problematic drug dependency, and caused the people of this country to be vastly more free, we would have a fiscally sustainable and equitable economic system, and it is something we could try again after measuring the success of the first balance stimulus. 

We create the opportunity for people to move themselves away from government dependence into self sufficiency.  The role of government is reduced to legislating laws concerning conduct and commerce, and maintaining the security of the nation, instead of also being the meeter of needs that people do not have the means to meet themselves.  Aside from regulating industry and whatever other policy is produced through political investment, the primary role of government in the economy will be once a decade (or whatever proves to be economically viable and necessary) the government will provide the most disadvantaged of people an opportunity to improve their circumstances.  Additionally, no one in this country will ever be able to say they were never given a chance.  We can continue doing the same things and experience the same results or we can try something new. 

References

Blumberg, Yani, 10/24/2018 “What Employers are Looking for When They Check Your Credit Report” CNBC.

Cooney, Dan, 9/9/2019 “How Would Andrew Yang Give American’s $1000 per month?  With this Tax.”  PBS NewsHour Politics.

Couloute, Lucius , 3/22/2018, “New Data Highlights Pre-Incarceration Disadvantages”.  Prison Policy Initiative.

Duffin, Erin, 11/7/2019.  “Wealth Distribution in the US 2016” Statista.

Federal Reserve Bank of St. Louis, 9/16/2020, “Real Median Personal Income in the United States”.

Fines and Fees Justice Center, 6/25/2019, “National Driver’s License Suspension Campaign: Free to Drive.”

Huddleston, Cameron, Go Banking Rate, 5/15/2019 “58% of American’s Have Less Than $1000 in Savings, Survey Find.” Yahoo Finance

Luke Fleming 2011, “The Relationship Between Crime and Poverty: A Cross Section Analysis of the World”.  Bryant Economic Research Paper Vol. 4 No.7 Spring 2011

Maciag, Mike 11/28/2017 “Vehicle Ownership in the U.S., Cities, Data, and Maps”.  Governing.

Martha Ross, Nicole Bateman, 2019 “Meet the Low Wage Workforce”, Metropolitan Policy Program at Brookings.

Minsky, Adam S,  10/7/2020, “Biden Affirms: I Will Eliminate Your Student Debt”.  Forbes

Moon, Chris, 6/23/2020 “Average US Checking Account Balance 2019: Demographic Breakdown”, Value Penquin

Now This Is News, 9/25/2019, “Alexandria Ocasio-Cortez Reveals Ambitious Just Society Plan”

Raybuy, Bernadette, and Kopf, Daniel , 7/9/2015  “Prisons of Poverty: Uncovering the  Pre-incarceration Incomes of the Imprisoned”

Smith, Adam, 1776 “The Wealth of Nations” Book I