Category Archives: Finance

UBI is not the solution

The idea of Universal Basic Income is like a band-aid on a sucking chest wound, it appears as though the situation is solved, but the underlying problem remains.

UBI tries to solve the problem of inequality but will fail at this. Why? Because the problem of inequality can only be solved by the equalization of wealth. Yes, giving cash — outright — to a select few individuals, or group does, generally, lift those people up out of the mire of poverty, or elevate them enough, give them a glimmer of hope so that the specter of impoverishment is pushed to the shadows.

But, give everybody the same allotment of cash and all you’ll do is inflate the currency and we’ll be back to Zimbabwe or the Weimar Republic. The elites will still be thousands of times more wealthy than the median population.

That’s the inequality that will not be cured. That’s why a full coverage UBI will fail.

But what can we do? Well, we could start with understanding why the wealthy are wealthy. If we figure that out, and universally distribute that — whatever it is — then perhaps the inequality will be reduced, eventually, to a socially acceptable level.

So, why are the wealthy wealthy? No doubt there are dozens of reasons we could cite, but the primary one is that they do not work for their income. As Warren Buffet famously said “If you don’t find a way to make money while you sleep, you will work until you die.”

Okay, so what can we do with that thought? Let’s see, if the wealthy let their wealth earn them money, and if this is predominately done with investments in the corporations, the means of production, the growth and expansion of productivity, then somehow we need to get that into the hands of everyone.

What about this: create a financial instrument which can be distributed — UBI style — to every citizen of the country. Let’s say we create an ETF, an exchange traded fund, which is comprised of the rolling top 10000 companies and utilities, include bonds and treasuries in the instrument – a smorgasbord of components that represent the country’s economy.

We take that EFT and we give shares of it away to every citizen, one share per month, for life. We make investors out of every single person in the country, invested in the country itself, its progress, its future.

Some people will turn around and sell their shares right away. That’s okay, let them. They can use that money like the common UBI that has been proposed.

Others will let their shares sit. Accrue. Gain value and multiply. When they need cash for emergencies or buying a house or car, they can sell them then.

We could label this ETF: USAA — United States of America for All.

This would give cash to those who need cash, but for most, I suspect, it would give them a sense of participating in the wealth growth of the nation. Their investment would be making them money – “while they slept.”

This let’s every citizen participate in the economy just like the elites on Wall Street. This distributes Wall Street level prosperity down to Main Street where it’s needed.

GO USAA!

~~~

Sure, this is not the whole solution — the wealthy still have thousands or millions of times more wealth than the median population. And there are solutions for that too — namely progressive taxation…

Employee Income Inequality Tax
https://anonymole.wordpress.com/2016/01/16/employee-income-inequality-tax/

Scaled Tax Schedule:
https://drive.google.com/open?id=1NOAMnmO8XQnUwZbUWDWETC8Bs9jPeTehOj1LGWyMi-4

Scaled Federal Tax Schedule
Individual Income %Tax $Tax $Net
10000 10 $1,000 $9,000
11000 10.1 $1,111 $9,889
15000 10.5 $1,575 $13,425
25000 11.5 $2,875 $22,125
50000 14 $7,000 $43,000
75000 16.5 $12,375 $62,625
90000 19 $17,100 $72,900
100000 20 $20,000 $80,000
200000 21 $42,000 $158,000
300000 22 $66,000 $234,000
500000 24 $120,000 $380,000
1000000 30 $300,000 $700,000
10000000 40 $4,000,000 $6,000,000
100000000 50 $50,000,000 $50,000,000
1000000000 60 $600,000,000 $400,000,000

Trading & gold mining: useless professions

To society gold mining is a useless profession.
The same is true for market traders.

What good is gold? It turns out gold is practically useless. A fraction is used in electronic circuits and an even smaller amount is used on the helmets of spacesuits or the surface of space telescopes. And it’s worn as a decoration, like beads of shell or glass ornaments for glamour and prestige. Other than that it’s pretty much useless.

Yet huge industries have been built, massive migrations of humans have traversed the lands and sailed the seas, all to converge on a location to shred the landscape, strip it of dignity, and tweeze out minute particles of Au. For what? Well, gold is money of course.

Only, it’s not. Gold has no real “value” to society. It’s only so called worth is that it’s rare, like gems, and as such coveted by humanity. You can’t eat or drink it, wear it (as clothing), use it to build structures or vehicles with, or make weapons or tools with. It’s, for all societal practical purposes — useless.

Yet still there are companies that dig for it. People who live for it. Television shows that exploit it. It’s a massive industry.

Hmm. Useless to society but huge investments of time and money and human effort put forth to pursue it. Kind of like market trading.

Market traders: day traders, high-frequency traders (and their algorithms), swing traders, proprietary trading shops, traders of every stripe, traders who don’t care a whit about the underlying trading vehicle, crude oil, or IBM, EURUSD, or VIX, or some derivative of any of these, these traders have no purpose.

Society does not need them. Just like society does not need gold miners. Both are useless professions.

Yet billions of dollars are spent to perfect the process and train the people. Billions of dollars that would be so much better spent for true societal needs. Worse still, thousands of the brightest minds and, like the gold miners — hardest working — people are lured into this emotionally empty and ultimately unfulfilling occupation.

Here’s a simple test to see if your job holds societal merit: if every trader or gold miner on the planet, today, chose to do some other society benefiting occupation, what would happen to the world? Would it stop? Would chaos ensue?

If every trader or gold miner quit today and did something else, something positive with their life, the world would instantly be a better place. Investors could still buy their stocks WITHOUT traders. Companies and farmers and produces could still trade commodities WITHOUT traders. Money would still exchange hands across borders through FX channels WITHOUT traders.

The system is setup to do all of this without the need for vampire like traders sucking drops of money like grains of gold from the machine that is the world market system.

Oh, but traders make it so much more efficient! No they don’t. That’s a rationalization for their existence which frankly just doesn’t work.

Just like gold miners have no real purpose in society, neither do market traders. They just don’t.


A call to periodic auction markets

Professor Budish,

I’ve read your papers on auction markets with increasing conviction that you have a fundamental understanding that when it comes to the exchange of value for value, between market participants, a human timescale might be a reasonable goal for all manner of exchanges.

I’ve long held that the speed at which equity, futures and even foreign exchange markets are executed is one which benefits no one but the exchange agents and society none at all. When it comes to trading anything, value for value, that such transfers need only ever occur at human conscious frequencies. I’m curious as to what your opinion of such a position might be.

When humans transact in any exchange, outside that of the financial markets, they do so at humans speeds. When you buy a car, it make take days or hours. When you buy a coffee, a minute perhaps. When you sell an item on eBay or Craigslist, hours to days. And even, when, as an investor, you move to purchase or sell shares in an ETF or equity, you do so with hourly, daily, if not weekly deliberation. Humans trade at human speeds.

Why so must we be told that the financial markets must transact at microsecond frequencies? Are not all of these transactions done for human purposes? What overarching body dictates that when it comes to Wall Street, that we must abandon our human heritage and be forced to do business at speeds which, frankly, only benefit Wall Street?

Your theories on auction technologies applied to markets mirrors beliefs I’ve been developing for some time, years and years. Specifically, that periodic auctions can allow fair value to be exchanged, that price discovery can be done at human understandable frequencies and that the need for technology, beyond that required to execute the auctions, record the transactions and perform the clearing, is not required.

By embracing auctions executed periodically at daily, hourly or if necessary, minutely frequencies, we can cleanse the markets of those whose sole industry is the extraction of, as you say, “rent”, from the machine that is the market exchange. Like grist from a mill, traders sap friction produced income which benefits only them. True investors, those whose intentions are to act with future purpose, have no need to feed these parasitic traders. Periodic auctions can eliminate such so called jobs in the finance sector; sending those, with no doubt high intellect, back into society where they might enjoin society benefiting occupations.

My core tenet is just this, at what cost to society does the furious frequency of the finance industry operate? What benefit, across all of society, is provided by this sector? And is it not in society’s best interest to guide the practice of exchange, value for value, toward a more reasonable frequency? Using a periodic auction, I believe, is the key.

My ideas are radical. I admit. I hope however, you might have insight that may parallel them, however slightly.

Many thanks for any reply.