Captain Goodhope is dead. Long live General Malaise!

I first came across the idea of "social contract" in graduate school.  "Aha!"  I realized that my teenage infatuations with various anti-social political elements were nothing but a result of my frustrations with the existing atrocious social contract and a desire to contribute to rewriting it.

In recent years, as the global economic geography began to tear up the fabric of the fabled middle-class life in America, I started yelling again my frustrations with the political system that was seemingly uninterested in rewriting the social contract.  Of course, nobody listens to me.

The frustrations got worse when the political faces for the rewriting came in the form of Bernie Sanders and the fascist!  Major Buzzkill got promoted to General Malaise ;)

The next best thing then is to wallow in excellent company.  Like with Laura Tyson and Anu Madgavkar.

The consequences of such failures are far-reaching. Stagnating or falling real incomes do not just act as a brake on consumption demand and GDP growth; they also fuel social and political discontent, as citizens lose confidence in existing economic structures.

Yep. And, unlike me, those two are awesomely qualified people to say that.

MGI surveys in France, the United Kingdom, and the US have found that people whose incomes are not growing, and who do not anticipate an improvement, tend to view trade and immigration much more negatively than those who are experiencing or foresee gains. The Brexit vote in the UK and bipartisan opposition to trade agreements in the US are clear signs of this.

In case you are wondering about MGI: It ain't any socialist think-tank!  McKinsey Global Institute is as pro-capitalist as it can get, as I am sure this guy would attest to.

Another expert--this time a male, for a change--who is a columnist at another pro-capitalist publication, The Economist, also states the same ideas, using different words:

I think we are headed for a really important era in economic history. The Industrial Revolution is a pretty good guide of what that will look like. There will have to be a societal negotiation for how to share the gains from growth. That process will be long and drawn out. It will involve intense ideological conflict, and history suggests that a lot will go wrong.

A lot will go wrong?  Looks like I have company in the buzzkill department ;)

 Bernie Sanders and Donald Trump are two sides of the beginning of this social evolution. Bernie is pushing along the direction of, "let’s distribute more." Trump is pushing along a related direction which is, "let’s exclude others who are not like us."

I tell ya, misery loves (excellent) company!

So, what kind of challenging political/ideological issues can we expect in the near future?

What comes next would be higher wage subsidies and in-kind benefits, like tuition-free college or subsidized health care. But it’s coming, and the debate will be: If we’re going to pay people to do work that isn’t necessary, who do we let into the system? Who is allowed to benefit?

If only we the people could talk about all these as responsible adults.  Oh well, democracy ain't perfect!

The poor will always be with us?

Soon after the fall of the Soviet system, in an issue devoted to poverty, The Economist included a lengthy essay with a title that was something like "the poor will always be with us."  Only when reading that piece did I know that the magazine newspaper was playing on a verse from the Bible.

Over the years, we have certainly seen a dramatic reduction in the number of poor around the world, and the percentages now are nothing compared to decades past.  But, we still have the poor, especially in rich countries.  When we overlay on this the issues of income inequality and the implications of the digital revolution, is there anything else that we can do?

Why not simply give everybody money and take care of poverty?

Figure out a reasonable amount — the official poverty line amounts to about $25,000 for a family of four; a full-time job at $15 an hour would provide about $30,000 a year — and hand every adult a monthly check. The minimum-wage worker stretching to make it to payday, the single mother balancing child care and a job — everybody would get the same thing.
Poverty would be over, at a stroke.
Being universal — that is, for the homeless and the masters of the universe alike — the program would be free of the cumbersome assessments required to determine eligibility. It would also escape the stigma typically attached to programs for the poor.

That is the very idea of Basic Income.  

In my classes, I present students with a thought experiment.  The digital technology is getting better by the minute and software and physical robots are making the economy highly productive. At the same time, quite a few, whose jobs have been eliminated thanks to the "digital workers" are earning little even  when working a lot.  So, in the near future, if the "digital workers" are productive enough and all it takes is a little bit of taxes on the rich to guarantee everybody a basic income, will the students support such an idea?

Switzerland put that to test, via a referendum:

Final results from Sunday's referendum showed that nearly 77% opposed the plan, with only 23% backing it.

Among those who opposed it, there was a worry that the open borders would immediately attract quite a few:

Luzi Stamm, a member of parliament for the right-wing Swiss People's Party, opposed the idea.
"Theoretically, if Switzerland were an island, the answer is yes. But with open borders, it's a total impossibility, especially for Switzerland, with a high living standard," he said.
"If you would offer every individual a Swiss amount of money, you would have billions of people who would try to move into Switzerland."

This is only the beginning.

Finland is gearing up to launch a large-scale trial next year, and a more limited effort is current underway in Utrecht, the Netherlands. Y Combinator, the US-based investment company, is doing a pilot in Oakland, California. The government of Ontario, Canada, is launching a test this year, and GiveDirectly, a cash transfer charity, is doing a test in Kenya.

Do not hastily conclude that it is only the knee-jerk liberals who support the idea.

Some thinkers on the right, too, have managed to overcome their general distaste for government welfare to support the idea. This month, Charles Murray of the American Enterprise Institute will publish an updated version of his plan to replace welfare as we know it with a dollop of $10,000 in after-tax income for every American above the age of 21.

We need to continue to think about these, and more, because we need to design a new social contract for the twenty-first century, in order to replace the highly frayed safety nets from the previous era.