Should there be a universal basic investment credit?

Forget universal basic income, if you really want to fight extreme inequality in the age of accelerating technology, I have an idea that is both less expensive, and way more ambitious.

Article updated: 9 July 2019 11:00am Author: Michael Baxter

Inequality, you hear that word a lot. Like many people, I worry about it, but in Britain inequality of income may not be quite the problem that it is in the US.

In fact, inequality of income grew sharply under the Thatcher years, but ever since the early 1990s it hasn’t really changed, not if you look at distribution of income after tax and tax credits. Or so the left leaning Resolution Foundation has found.

This is in direct contrast to the US, where inequality is a major and growing problem — a basket case, is how I have heard it described.

Inequality of wealth, on the other hand, is a big issue in the UK. The divide is partly because of the increases in property prices which have increased the divide between property owners and non-owners, a divide that is often generation related.

But there is another reason for wealth inequality and it is down to the divide between owners of capital (by that I mean shareholders in companies) and everyone else.

Of course, millions of people are indirectly owners of capital via their pensions, even so, this is a growing problem. (And worldwide.)

Quantitative easing and record low interest rates exacerbated the problem, pushing up asset prices. Ironically, while older generations may complain most vociferously about QE, they were the generation that gained most from this policy, on aggregate.

The hard numbers underline the challenge. In the US, corporate profits to GDP hit their highest level ever recorded (data goes back to 1949) in 2012. Although the ratio has fallen back since then, the latest data suggests that, if you strip out data from the last 14 years or so, US corporate profits to GDP remain at the highest level ever recorded.

And that is why we are seeing wealth inequality soar.

Furthermore, I expect this divide to continue, largely because technology tends to create natural monopolies (Facebook and Google, for example).

No, the big challenge for the egalitarians in the fourth industrial revolution will not relate to distribution of income, it will relate to distribution of wealth.

So what are the fixes? Educate kids at school about the whys and wherefores of investing becomes an obvious start. It is a no brainier, but on its own, I suggest this does not go far enough.

But you can’t invest what you don’t have.

No, I have a more radical idea: Universal basic investment credit.

Universal basic income is attracting headlines. One of the more interesting candidates for the Democrat nomination for US President, is Andrew Yang, a great exponent of universal basic income. In the unlikely event he is US President in 2021, universal basic income will become US government policy. Yang is one among many who favours the idea, Mark Zuckerberg and Elon Musk have both spoken in favour of it.

My own personal opinion is that universal basic income may be an appropriate policy towards the end of the 2020s, as the fourth industrial revolution gains momentum. But the timing isn’t right. Universal basic income would be enormously expensive and would only be viable at a time when the economy is operating well below capacity.

Universal basic investment credit would be much less expensive, but would be applied to children as well as adults.

So instead of giving every adult say $1,000 a month, as Andrew Yang has in mind, you give everybody, say, $50 a month, or indeed less, but with conditions attached. I am not sure if this would apply to all ages, or only people up to a certain age.

The money has to be invested in certain government approved vehicles — more likely, ISAs, and you would not be able to withdraw from it below a certain age.

Let’s say this scheme kicks off from birth, but for the first ten years, the money is automatically invested in a standard scheme, but from age 16, after kids are given extensive lessons on the do’s and don’ts in investing, are given control, subject to the conditions described above.

Switching from dollars to pounds, I calculate that £50 invested per month, if you assume an average annual return of five per cent, would create a portfolio worth £73,000 by age 40, or £125,000 by age 50. and £212,000 aged 60.

There would be another advantage. When your own money is at stake, there is a lot more incentive to do your research. The FT becomes a riveting read. Such a scheme would create the most financially literate populace in history, a populace more aware of business and who feel a much greater sense of engagement with economic issues.

A side benefit will be a better read populace who understand the benefits of reading around a topic and not just accepting a single view.

A universal basic investment credit could stop populism in the future and be vital step in avoiding a dystopian future, a future that technology could well create.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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