Greedy Goblin

Friday, July 29, 2011

Cheap job coins

Guild update: tomorrow extra post about the guild, read if interested.

Yesterday I wrote about the Mylune-romantic economy of WoW. In WoW all people are employed and happy. The Gini coefficient is about 0.1 and no one lives on welfare, everyone makes his own living, making him feel accomplished, happy person.

The reason that makes it possible is a lie: people are allowed to gain top rewards for low-production value work. However we can re-formulate the WoW-economy to be working by tax. After all by giving 378 to non-raiders, Blizzard de-values 378 items. While the tax is invisible, it is there. If the bosses would drop 5x more loot, but there would be a 80% tax rate on items, everyone would get the same amount of loot and the system would be error-free. Now we pay the tax invisibly by our gear being de-valued every day. Yet the top earners are not voting with their feet, despite of the huge tax rate.

So we found the way to make a happy and working society: tax the productive to give protected jobs to the less productive. Please note that in this system everyone works, and generates some value, even if less than he receives. The ZG farmer creates all those cheap crystals that raiders buy to enchant their gear.

If it's so simple and happy, why not used in the Real World? Because governments are bad in organizing the economy. The government made protected jobs have terrible productivity, and often they are just mocks to cover welfare. These protected workers often literally just dig holes and fill it back. The government-organized protected job program has two differences from pure welfare: the recipients suffer while have to do useless work (what they hate), and the bureaucrats organizing the useless work get rich.

My idea below can create the perfectly market-driven protected job system. The government organizes nothing, just decides the amount of money allocated to the program and that's it. It would reward the successful people, enriching their lives while helping the poor to both support themselves and be somewhat useful to the society.

The plan is called the "cheap job coins". Let's say that the government currently spends half of its budget on social transfers, helping the poor with some form of welfare. They get this money from taxing the productive, working people, so half of their tax goes to welfare. Let's say John earns $100K a year and pays $40K tax. Half of this money goes to the army, police, juries and other governmental work. The other half is now given to people who don't do anything useful.

In the "cheap job coins" system, John would still pay $40K tax, but the government would have absolutely no welfare programs. John would get his $20K welfare-tax back as "cheap job coins". These can be both printed cheques and wired account money on a cheap job coin card. Also corporates would get half of the tax they paid back as cheap job coins.

What can they do with these cheap job coins? They can sell and buy it as they please, they can buy products with this currency if the seller accepts it.

Why would anyone accept this currency? How would it help the poor to get jobs? The trick is that if you have a legal job that earns you less than a limit (for example $20k), the tax authorities will change the cheap job coins in your possession to real money 1:1 up to the limit of your earnings.

So the most basic example is: John gets $20K cheap job coins. He hires the unemployed Mary to be his housekeeper. Pays her $20K a year with cheap job coins. Mary goes to the tax office, gives her tax form where she declares that she earns no more than $20K and turn in her $20K cheap job coins. As the tax rate is 40% in this country, she will get $12K real money back and another $4K as cheap job coins as half of the tax of everyone is refunded as coins. This way Mary would get a job, could support herself. Of course further tax cuts can be given to the poor.

The job does not worth $20K, that's why John doesn't have a housekeeper now. There is a direct social transfer between John and Mary, as John would prefer to keep the $20K for himself. He is forced to help Mary by giving her a job. But it is unquestionable that the system is better for John than simply being taxed $20K and game over. The housekeeper surely has some utility to John.

The market forces that optimize the system are obvious. The cheap job coins belong to John and he can spend it any way he pleases. Mary has to work for her coins, if she is bad, she'll be replaced. Also, John can spend it in the way that it maximizes utility. For example he lives in the suburbs and his office is in the city, forcing him to drive 40 mins in, 40 mins out every day, in the rush hour. He can choose to employ a driver instead who lets him spend this 80 minutes sleeping or reading news in the back seat of his car.

The above would be just the most direct way of helping, and most probably less direct, but more effective ways would exist. Companies that use cheap labor can sell their products for coins as they can pay their own low-earner employees with coins. Also, every companies would get tax back as cheap coins, motivating them to find ways to profitably employ low earners or buy the products of companies that found ways, therefore able to accept coins. This instantly stop cheap industries fleeing from advanced countries. John would surely prefer the homemade $40 T-shirt over the Chinese import $20 T-shirt, as he can buy the former with coins.

Non-profit organizations could gather donations in coins and have lowly-paid employees instead of volunteers. For example a "help the forests" organization can employ unemployed people to clean the forest from litter, build turist passes and to guard the nesting places of rare birds from the donation of supporters. They would get much more money if people could donate coins rather than real money. Such action can be motivated by tax cuts as they are today. If John gives $10k in coins to a charity, he can deduct it from his tax base, paying after $90k, saving $4k in real money (and losing $2k in coins).

The "protection" part of the system is that only poor people can cash the coins, so they don't have to compete with more productive people or foreigners. The companies employing skilled people and machines or foreign companies can't accept coins as they can't cash it later.

The market part is simple: no one will pay even coins for nothing, the poor people are in competition with each other to get coins. They are competing in giving useful services to the coin-owners: the successful people and the companies.

What if John finds a bum who signs a contract for a booze that he was gardener for John for $20k coins and they go to the tax office and then John take the $12K back? Then John performed tax evasion (he gained $12K without paying tax), and the government has the signature of the bum that he earned $20k this year, so when he whine that he is starving, no one will give a damn.


Beartholomew said...

Has a similar system ever been used by any country?

nightgerbil said...

Interesting approach to the citizen v civilian idea. If we earnt citizenship, giving us entitlement to welfare pensions and healthcare (and the vote!) whereas the citizens get squat except charity and what they earn themselves the society would also be fairer. At least for guys like me who have worked all their life in low end low skill low paid jobs, knowing that in fact I am the one who is a moron for not throwing in the towel and going on welfare, raising my standard of living, weekly take home pay and freeing me to play computer games 18hrs a day for the rest of my life. I blame my parents and their stupid protestant work ethics. Oh the woe of being a social.

Anonymous said...

Never heard of such a system. But as far as I can say, it doesn´t smell like rotten fish.

Actually, I´d like to get my own low paid employees. Get rid of some unwanted work.

Anonymous said...

Another usefull idea could be to pay your wife with these coins to raise your children. This way she would have an actual income for doing this tedious work.

BoxerDogs said...

To answer Beartholomew, the UK does have this system*, sort of. Let's say I earn GBP 1.0 million, and that I pay roughly GBP 0.5 million in tax. I have, although most people don't think of it this way, roughly GBP 250,000 of "Cheap Job Coin" charity donations. I can give this money to any charity I choose, any time I feel like it, by asking the Government to pay "back" to the charity the tax I paid. The UK government makes these "Cheap Job Coin payments not out of my wallet, but out of the tax it has received from me, i.e. from money that has been deducted from me*.

The only catch is that for each "Cheap Job Coin" I give to charity, I have to donate some of my own "Real Coin" money. The proportions are different than Gevlon's example, but the principle is the same, i.e. I can take a large amount of the tax given to the UK government, and have it paid to a charity of my choice, up to very high values.

The difference between this example and Gevlon's is that the UK government subsidises charitable giving, whereas Gevlon's arrangement subsidises the personal consumption of labour (gardeners, housekeepers). But the basic principle is exactly the same, i.e. part of your tax goes to the government, but part of your tax is available for YOU to spend how YOU see fit, reducing the price of the subsidised article. In the UK, this reduces the cost (to the individual) of making a charitable donation. In Gevlon's example, the subsidy reduces the cost of the housekeeper.

How does it work in the UK? Not all that well. First, it isn't that well advertised. Second, the proportions aren't that attractive. To "reclaim" £5,000 of my tax paid, I have to "donate" £20,000. It tends to work best when you want to make a donation anyway, and then the "Cheap Job Coins" are a nice little bonus on top.

* The scheme is called Giftaid.

** Because we don't have hypothecation it won't of course be the same notes and coins I paid in tax ,it all comes out of General Government Funding.

maxim said...

Sounds interesting. You are basically suggesting to create a labour market among the less skilled / productive people and have them compete for welfare money, which they previously received for free.

Two issues with this.

First is what about the genuinely disabled? There will be plenty of those who can't do anything productive at all due to what can only be described as bad luck. Are you proposing to just abandon these people, or is the coin system able to accomodate them as well?

Second reason is social. Under this system, people will have a simple and seemingly effective way to separate useful members of society from not so useful ones. The amount of "poor coins" you use will effectively become gear score, only in reverse.

It won't take long before the community of people feeling themselves more entitled due to having access to "real" currency will start abusing their superior position.

Ephemeron said...

If it's so simple and happy, why not used in the Real World?

There are two reasons for this, one obvious, and one less so.

The obvious reason is that WoW is a game, and its developers have absolute control over it. They can create epics and resources of thin air, change the parameters of encounters, adjust class abilities and otherwise rewrite the world as they see fit. To replicate this in reality, we'd need to replace our mortal governments with omnipotent gods - a literal theocracy - or, at least, a highly technological equivalent thereof.

The less obvious reason is that in WoW, developers and players are far less connected than real-world citizens and their governments. This prevents both groups from abusing their power: Ghostcrawler has no incentives to give out free buffs and epics to himself and his friends/relatives, and players can't force him into buffing them via bribery or threats to vote him out of office.

So basically, we need to put a Protoss overseer in charge of our planet.

Azuriel said...

I never thought there could be Europeans even farther to the right than Tea Party Republicans, whom are willing to force a default rather than raise taxes to rates they were at 10 years ago.

Incidentally, your idea has serious issues.

After all by giving 378 to non-raiders, Blizzard de-values 378 items.

This was a fallacious premise yesterday, and remains so today. The only thing about gear that can "devalue" is its social value - the actual stats and utility in killing bosses is always the same, forever.

He is forced to help Mary by giving her a job. But it is unquestionable that the system is better for John than simply being taxed $20K and game over. The housekeeper surely has some utility to John.

This is another failed premise. The benefit to John in an auto-disbursement system is that he (and every middle class family) won't have to suddenly become small business owners. You make it sound like it's a two-step program in that Mary cleans the house and John pays her. Did John do a background check on Mary? Will Mary steal from the house when John is away? Is she even any good? John is going to have to put out an ad in the paper just to spend these coins because he's actually getting less utility than he did before (assuming his time/effort is worth something). And are these cleaning jobs for the poor supposed to have been better than hole-digging? At least with the latter they have supervisors, schedules, payment schedules, and are otherwise "practicing" at a "real" job.

Nevermind the HUGE black market you create for these coins. Food Stamps are sold for drugs, etc, all the damn time out here in the US - I might quit my day job in this coin system and run a racket of turning John's $20k coins into, say, $5k cash to him and $15k cash to me. All I would need is ~10 people who can't/won't work, offer them $5k to cash my coins, and suddenly I am making the same $100k as John at the end of the year. The fact that individuals are the ones getting these coins - with zero oversight other than signatures at government offices that you already implied are not doing a good job - makes collusion and fraud that much easier.

Also, this system obviously does not work for people who are on welfare because of disabilities, disasters, a struggling economy, etc.

[...] and the government has the signature of the bum that he earned $20k this year, so when he whine that he is starving, no one will give a damn.

I don't know how many times you can flippantly say these things, as though people would just quietly starve to death. Would you? Assuming your country has some form of "no cruel & unusual punishment" law, said bum would just commit enough of a crime to go to jail, where he'd be fed. Meanwhile, the crime would likely cause more damage than the money to feed him (and you end up feeding him either way). You seem to leave out the inevitable "drag people into the streets and shoot them" phase of your absurd economic plans.

Finally, all of this has the big-ass unfounded assumption that it would cost the government less money in the short OR long term to have the private sector handle welfare. If one penny of those "protected gov't jobs" adds value to said government in any way, it is better for the government to handle the welfare itself - John gaining utility does not mean the government gains utility, especially when/if John gains utility in ways that makes the overall situation worse.

freakpants said...

I have just one question. What would stop John from using the money for other things? Because obviously if you create a second currency, everyone will start accepting it.
This in turn will create a exchange rate which will lead to speculation.
So after a while what you will have is a even messier economy and no welfare.

Gevlon said...

@Freakpants: Since the government accepts this currency 1:1 from poor people, I don't think that significantly different exchange rate would be viable.

Anonymous said...

I have an idea: make the Central Banks who create money NOT create money that's lent out to governments and banks at interest, and fix the fractal reserve banking system.

This makes the whole system inherently flawed, and getting rid of these two issues will go a long way to solving your problems.

In fact, changing the whole construct of society would likely be even more productive considering how much more you can access if resources are spent not on producing wasteful goods but on long-term, upgradable and reusable ones.

All the talk about "fixing" the current system by so many people just sounds to me like a huge social psychosis. The real human intelligence lies not in money acquisition but resource management, and it's about time a shift is operated.

Aureon said...

Freakpants is right.
FOREX is always there, as soon as currency is created, it'll be traded.
Doesn't matter that you can't spend it: Your average high-roll FOREX trader will trade, i don't know, Yen, that he doesn't ever plan to spend: He's just gonna sell them again, hoping to make a profit.
If there's someone who buys, there's someone who sells. That means, there'll be an exchange rate, and unmarried couples, friends in different economic situations, could easily abuse it.

There WILL be an exchange rate. If it's outlawed, it'll be in the black market. You're not gonna prevent it.

Gevlon said...

Why should changing be outlawed? There is nothing wrong with exchanging it. At the end, some poor person will get it and trade it 1:1 at the tax agency. He is the end user. That's the point. The number of hands the coin passes before it reaches him is irrelevant.

Anonymous said...

But what's to stop businesses from simply saying "I will sell you my goods for poor coin"? The unspoken assumption here (though I might be wrong) seems to be that because poor coin can only be exchanged for 'real' money at a 1:1-rate by the government, it has no 'real' value unless you actually are poor. However, 'real' money has no real value either. The reason people are willing to trade valuable items for money is that they know that other people are willing to trade valuable items for money.

But you're proposing just that - to make poor coin valuable to poor people. If it is valuable to poor people, it will also be valuable to people who aren't poor! Poor coins are given utility by the government by saying "these can be exchanged for real money if you are poor". Now they are valuable to poor people, so they are willing to trade goods for it. But then they will also be valuable to rich people, because they can trade it with poor people who want it, and hence it will be viable for rich people to trade it with other rich people and so on, so there's no real reason for businesses not to accept poor coin, and eventually there will be no reason for people not to spend the poor coin directly at larger businesses, bypassing the main idea entirely.

I think the idea is nice, but without some modifications all it amounts to is creating a new currency. Maybe it would be better to say that people who pay tax can get a free housemaid, who the government would pay with some of his tax money. This would eliminate the problem of an auxiliary currency (provided the government has some restrictions on what kind of work they'll pay for), but is a system with more governmental control, which you don't like.

Joshua said...

I do see one clear problem. Nepotism. Middle class guy hires his kid who is in college and considered an independent. "Pays" him 20k poor coins and the kid walks away with 12k real money and 4k poor coins and lives a very cushy college life AND Middle class guy doesn't have to spend as much on his kid while he's at college.

Anonymous said...

The rule of thumb is that everything must be accessible for the poorest in the nation. Anything that is not accessible by the poor in the nation will enter the black market in some ways. Usually, criminal organization will give out loans with enormous interest rates to these poor people as a way to gain access. Remember that everything in the black market is marked up in prices (in comparison to those that already have access by non-monetary reasons). The Black Market is the niche that helps bring access if the person has the money.

Anonymous said...

Suppose I'm an architect, self-employed with private clients. Should I take coins or cash in payment?

If I take $100k in cash, my net income is $80k because I'm effectively taxed for $20k; plus, I get $20k in coins.

If I accept payment in coins, I have zero tax liability since I have no cash income. Of course I would still need to pay for a place to live, food and the rest of life. Even if I couldn't pay for these things directly with coins (unrealistic), I could simply sell the coins to 5 people willing to buy 20k coins each. Since you think no other exchange rate would be viable, I would get $100k cash in exchange and the poor remain idle.

So I make $20k more by accepting coins in payment. Not paying tax is an obvious incentive to accept coins in payment for almost all goods and services despite the fact that the coin supply is limited to 20% of GDP. Demand for purchasing coins is a function of the number of people who can cash them in. There is a market equilibrium here: unless there is a glut of poor people able to cash in all coins issued, coins in the secondary market should be discounted by the amount of the tax rate.

Eaten by a Grue said...

This is a pretty good idea, if abuses can be minimized. In the USA, we have food stamps for the poor, and there is a huge black market for these, and this is only something that can be traded for food.

I suspect a huge black market would develop for poor coins. I understand your theory on tax evasion and so forth, but fear of being prosecuted on tax evasion had not proven to be a great deterrent in the past.

Anonymous said...

I've seen it a dozen times. Food stamps, WIC, EITC, school vouchers, job training vouchers, "the end of welfare as we know it". Sometimes the programs work, sometimes not so much. What is predictable is that no matter how low taxes go, people who bitch about taxes will bitch about taxes, and no matter how much the bottom quintile is squeezed and cajoled and browbeaten, people who bitch about the poor having it too easy will bitch about the poor having it too easy.

Alrenous said...

I think the idea is worth serious analysis. This will take time, mostly likely everyone but me will have moved on by then.

Still, for a preliminary analysis, you get more of what you subsidize. If you subsidize being poor, you don't get fewer poor people, you get more of them.

But principles are not enough. An actual causal mechanism is necessary. I'll have a look.

"Yet the top earners are not voting with their feet, despite of the huge tax rate."

To quote Mencius Moldbug, inflation is the philosopher's stone of government, an invisible tax.

In this case, the fact the tax is one step removed from currency makes it even more invisible.

Joe said...

Couple thoughts:

1) A guy works at a factory now, and he makes say $60,000 a year. If the factory is also getting "cheap job coins" back from their taxes, why don't they replace this employee with three $20,000 a year employees, paid through "cheap job coins"? The factory was always going to pay Payroll and Taxes - now they're taking half of their taxes, using them to make Payroll, so they save money overall (the $60K in payroll is now $60K out of taxes, so the original $60K is essentially saved). This would catch on, and essentially put large portions of jobs at working at only the minimum threshold for your "cheap job coins" scheme. You'd end up with a ruling, upper class, and no middle class, because they're all working jobs at your threshold for cheap job coins ($20K in this case). At that point, its probably simpler and easier to just say fuck it and go with straight Communism.

2) What keeps me from taking my $20K in "cheap job coins" and cashing them via other people who aren't making anything anyways? Now I just give my cheap job coins to someone who is either cheating the system, or isn't working, and take a cut for letting them make some money. For example, a disabled person who can't/won't work is going to get nothing out of this system, because they're not providing a service to a more productive citizen. So I call John Q Disabled and say "hey, I'll give you $20K in "cheap job coins" but you give me back $10K in real cash". It's a good deal for John Q Disabled (having 10K is better than having 0K), but I'm allowed to prey on his situation, and I'm making $30K now (remember, I only make $20K because my job replaced me with more employees).

Anonymous said...

Better system - pay anyone who can document having paid an employee more than 20k-'costs', 20k. 'Costs' includes education, damages, ...

For highly disabled people, 'costs' could include a very dull office and a janitor to clean up after messes. Cause, y'know, there are people where we're best off just paying them to sit in a corner and not bug anyone.

Less disabled people would presumably be worth paying more than 20k.

Assuming eligibility was restricted to people with a business license and appropriate documentation was required, et cetera...the incentive to cheat would be limited.

Azuriel said...

"Why should changing be outlawed? There is nothing wrong with exchanging it. At the end, some poor person will get it and trade it 1:1 at the tax agency. He is the end user. That's the point. The number of hands the coin passes before it reaches him is irrelevant."

You assume A) there would be no fraud, B) there would be no black market (see A), C) that there would be no wasted coins, D) you won't still be paying welfare when people start starving because of A, B, and C, and E) that any utility to the individual is better than both utility to the government (e.g. why would they give up control of these funds?) and utility to the individual from the government (you HAVE to spend coins else it was worse than government doing ANYTHING remotely useful with it).

Besides, you seem to be suffering under the delusion that the drain at the end of this process is poor people getting coins turned to cash. But if anyone can spend coins LIKE cash, there is no reason to actually cash them out at the end. John spends his 20k coins at the car dealership, the car dealership pays their employees bonuses in coins, the employees buy groceries with the coins, and in an ideal world the grocery store hires poor people and pays them with coins to stock the shelves. But there is no reason why said grocery store doesn't pay the shipping company and/or farmers in coins, and round and round said coins go, getting devalued due to inflation that occurs from an ever-increasing supply with no actual drain. No additional dollars could be printed, but the number of coins increases every year, forever.

By the way, is there actually any reason why poor people would cash out the coins? You would have to somehow force there to be things that coins cannot buy; things that specifically poor people would want, but not anyone else.

Anonymous said...

Awesomely good idea.

Some major analyses would be nice to read.

Some points:
One question: If I'm John, the CJC is useless for me as i can not change it back to the government. Does it really creates personal motivation for me to get better service for this kind of currency similarly to the real currency. Or this just ends up by not caring about the quality of work i got for it. Will be there a real competition among the service providers (this case the poor ones). Or will be there only a treshold between still non-working (because quality is so bad that noone pays for it even with CJC) and a standard level quality (still below what it would be done for real money)


The key factor seems to be that only poor (unemployed) people can change it back to the government. A, You have to very strictly enforce or it will free money for the middle and upper classes and black market

B, Forcing and checking this creates burocratic tasks in the public sector. Will be the cost of runnning the program less than the gain of a market-driven welfare system in a very low value added 'sector'?


Brindle said...

I think the biggest problem with the idea is the logistics of matchmaking the people with coins with the poor who need them. Most poor people live nowhere near the weathly (rural or inner city) so the gov't is needed to efficiently pass out the welfare since it is almost impossible for citizen to citizen job offers to really work.

Malcolm Nix said...

I quote from Gevlon's original text: "Also corporates would get half of the tax they paid back as cheap job coins". I would like to point out the major corporations in the US pay almost no taxes. Halliburton, to name just one, moved its company headquarters to Qatar to avoid American taxation. Taxes are paid by the middle class, not by the upper class or the large corporations.
There are so many flaws in this idea that I won't even bother to go over all of them. Besides, that seems to be Azuriel's job. I would, however, like to ask a related question. Why are so many people here obsessed by the idea that some people don't have a job and/or live on welfare? These people, including Gevlon himself, obviously don't have any financial trouble. They can afford an internet connection and a WOW-subscription. These are luxury products people in need wouldn't or couldn't pay. Why the constant references to those less fortunate?
Ah, yes, I call them 'fortunate'. the main reason these people have jobs, education, money, etc. is not their skill or motivation, but the family in which they are born. Pure luck.
And to finish off, another quote from the original post: " governments are bad in organizing the economy". If this is the real problem, I wonder why we had/have this banking crisis. Apparently, the companies themselves aren't very good at organising the economy either.

Alrenous said...

Overall, it's better than standard welfare, barring shenanigans I didn't think of.

There's a problem of relative scale.
Having job coins bids up the price of these jobs, but newly ambitious welfare clients bid them down again. Depending on the relative size of these two effects, the already uneconomic wages of servants may actually get worse. Why get one maid at 20k when you can get a driver for 10 and and two gardeners for 5? And then the government gets all huffy about minimum wage and the project dies in all but name.

As Joe mentioned, these job coins will put at least some previously employable people out of a job and replace them with former welfare clients. Subsidize poverty, get more poor people.

Like all welfare programs, the reason these jobs don't already exist is that they cost more than they produce. It is a system of deliberately wasting wealth and slowing growth. Still, it would reduce the incidence of antisocial side effects due to dependency.