Thursday, April 28, 2016

Simple v. Simplistic

Complex v. Complexity

Last night, while watching the end of an East Coast baseball game and the beginning of a West Coast hockey game, a colleague emailed me the link to a long online read and posed a question: would universal basic income devalue a country's currency? Whoa. Between the methodical rhythm of baseball and the chaotic grace of hockey, I didn't have my economist hat on at that time of night. (And I still might not as I write this, but I've embarrassed myself before.)

In short, there is no direct connection between giving people money (fiscal policy) and affecting currency value (monetary policy) if the money comes from a nation's coffers or debt issuance rather than its printing press. Issuing more currency increases the supply and decreases its value; sending out checks to individuals redistributes money between citizens (via taxes) or generations (via debt).

Universal basic income is an unconditional cash transfer that attempts to solve a complex problem – poverty – with a simplistic solution. Is it the right solution? I have no idea. But it has complexities of its own: Will it affect the poor's desire to seek employment? Does it promote further growth even though the rich have a higher marginal propensity to save? (On the latter, we already subsidize housing and healthcare for the wealthy via tax expenditures.)

I'm not trying to demean advocates of universal basic income, but to me there is already so much complexity built into the tax and entitlement systems that it's really hard to discern outcomes – both intended and unintended.

Our economy is as complex as it is simple: people have myriad wants and needs that can be fulfilled with two basic inputs: labor and capital. Our government's programs are filled with man-made complexity and its tax code is a jumble of intertwining, simplistic solutions. In the essay "The Dog and the Frisbee", the authors from the Bank of England argue that complex problems require simple rules – in contrast to simplistic solutions. The challenge is undoing the rat's nest of disincentives from existing entitlements and tax mechanisms so that simple, efficient rules take hold.

To the uninitiated or casual fan, hockey may seem all frenzy and baseball a bore. But within each there is grace, beauty, and precision. Complex systems need simple rules, not further complexity from well-intentioned but simplistic pitches.