Avoiding the drag of safety nets

Perry Willis’ recent post  distinguishes two alternative ways in which the state might transfer wealth to ordinary citizens:

  • Dragnets, in which everyone receives the wealth, regardless of need
  • Safety nets, in which only those who are in difficulty receive the wealth.

He characterizes Social Security and Medicare as dragnets, since virtually everyone is covered regardless of need.  Costing 15% of wage and salary for typical workers, these are very expensive programs which might be cheaper if the affluent were excluded from receiving benefits.  He also claims that  “Dragnet programs usually have one other feature — fraud.”

He does not cite any example of a government-funded safety net, tho it seems that Medicaid, which is offered only to those who can meet some need-related criteria, would be a good example. Like any “need-based” government program, it presupposes an apparatus for monitoring everyone’s income from all sources. And does it have fraud?  Take a look.

Perhaps the safety net isn’t much superior than the drag net.  Is there a better approach? Of course. The citizens dividend does not take anything from wages and salaries, does not require an income-monitoring apparatus (altho it might require some kind of citizenship certification), and gives each of us a fair share of what belongs to all of us.



Hong Kong’s “citizens dividend”

I have previously discussed Hong Kong’s land tenure system, under which the land is publicly owned, but improvement owners have security of tenure in exchange for paying significant land rent.  One result is that most working people don’t have to pay any sales or income taxes.  Another is that land is efficiently used.

But there are a couple of concerns:

  • Since Hong Kong doesn’t collect all the economic rent, speculation can still drive up the cost of housing as well as any activity which uses land (and they all do).
  • Wealthy mainland residents are moving to Hong Kong to take advantage of the increased liberties which HK residents get, further driving up costs for local people.

Now we read that every HK has declared a sort of citizens’ dividend, every permanent resident will get HK$6,000 (US$773, currently).  Bloomberg calls it a “handout,” but I think “share of economic rent” might be more appropriate.  Opponents of the move say it will be inflationary, and certainly it could lead to higher economic rent, with speculation driving land costs even higher. Of course, if people expected the government to collect all the economic rent, speculation would not occur. While the cost of living might still increase, giving an equal dividend to every resident would tend to flatten the income distribution, helping the poor much more than the wealthy.


Mongolia plans Citizens’ Dividend

Mongolia Fund to Manage $30 Billion Mining Jackpot

Sept. 11 (Bloomberg) — The Mongolian government will set up a sovereign wealth fund using mining royalties and tax revenue, and distribute part of the income to citizens to alleviate poverty, said Finance Minister Sangajav Bayartsogt.

The fund, to be run by professional managers from 2013, will disburse part of its annual income to every Mongolian…

Currently,  per capita income is estimated at $1680/year for the 2.7 million Mongolians.  A single large mining project is expected to generate $30 billion in tax revenue over 50 years. Apparently this estimate includes royalties.  Distribution of “mining wealth” to the people had been an issue in May’s elections.

Less encouraging:

Mongolia’s government on Aug. 25 passed laws allowing companies to carry forward their losses for eight years, build private roads and let Oyu Tolgoi developers use water they find on their land. The parliament will also repeal from Jan. 1, 2011, a 68 percent windfall profit tax on copper and gold.