Saturday, October 01, 2016

Basic income guaranteed just might be the antidote to small time fraud

If you read the news at all, you might find it hard to miss the story of how more than 5,300 Wells Fargo employees were fired for creating two million fake accounts for their customers at their bank. Customer were given no notice of what happened. TechDirt has the story in full, and they have a very interesting list of what was done:
  • Opening deposit accounts and transferring funds without authorization: According to the bank’s own analysis, employees opened roughly 1.5 million deposit accounts that may not have been authorized by consumers. Employees then transferred funds from consumers’ authorized accounts to temporarily fund the new, unauthorized accounts. This widespread practice gave the employees credit for opening the new accounts, allowing them to earn additional compensation and to meet the bank’s sales goals. Consumers, in turn, were sometimes harmed because the bank charged them for insufficient funds or overdraft fees because the money was not in their original accounts.
  • Applying for credit card accounts without authorization: According to the bank’s own analysis, Wells Fargo employees applied for roughly 565,000 credit card accounts that may not have been authorized by consumers. On those unauthorized credit cards, many consumers incurred annual fees, as well as associated finance or interest charges and other fees.
  • Issuing and activating debit cards without authorization: Wells Fargo employees requested and issued debit cards without consumers’ knowledge or consent, going so far as to create PINs without telling consumers.
  • Creating phony email addresses to enroll consumers in online-banking services: Wells Fargo employees created phony email addresses not belonging to consumers to enroll them in online-banking services without their knowledge or consent.
It's important to note here that all of this activity generated fees that were charged to their customers. The fees were small, but generated substantial sums of money for the bank and the accounts looked great in the financial reports.

If an ordinary thief had managed to do any one of the above just one time and was caught and convicted, he'd be looking at doing hard time in prison for fraud. But this is Wells Fargo Bank, and 5,300 of their employees. Instead of going to jail, these employees were let go.

Some of you might be thinking, well, who authorized this? Judging by the winds in Congress, the CEO John Stumpf was taken to task for letting this happen under his watch. The following principle comes to mind: respondeat superior, or, "let the master answer". He has since resigned his seat on a Federal Reserve advisory board and has had to forfeit $41 million in stock options. That's it? No prison? Not even community service? Well, he's a member of the anointed class. He'll never see a jail cell wall or sit on a toilet in prison. This is how lax America has become with corporate governance.

Another question that comes to mind is what could possess all those people to commit such acts at the urging of their supervisors? How could more than 5,000 people be persuaded to commit crimes against their customers? Money, or lack of it. Could it be that Wells Fargo paid its employees so little that they could be persuaded to do the unthinkable for more money? Wouldn't their actions light up the fraud division like a Christmas tree?

Some of those same employees are suing the bank over aggressive sales quotas and for being punished for trying and failing to meet them. If a CEO could use fraud to pump and dump his stock, then low level front line employees could open fake bank and credit card accounts to earn more money. Notice also that this isn't just Wells Fargo. They just happened to be the first to be noticed.

Would those same employees face termination if they refused to participate in the fake account program? Probably, for "low performance". What would have happened if those same employees could rely upon a basic income guaranteed? Very wealthy people, we can call them "the rentier class", typically earn 74% or more of their income through rents, dividends, and royalties. In many cases, it's an absurdly high income just from rent seeking. John Stumpf is just one notable example, yet I find myself wondering why he would stoop to such measures.

I think there is a big difference between the typical banking CEO and the front line worker. The front line worker has a conscience and a stomach. The typical CEO of a multinational bank has a stomach, but we're not so sure about him having a conscience. That's because the CEO is insulated from the day to day perils of life. He doesn't live paycheck to paycheck. He doesn't have to worry about losing his job as long as his friends on the board of directors still approve of him. He has friends in high enough places that can ensure he will never see a jail cell.

The front line worker got his job in an adversarial process called a job interview. His pay is determined in an adversarial process called an annual review. He must compete with C-class professionals for his pay. The front line worker has no attorneys to represent him or review his contracts. The front line employee has no compensation consultant to ensure that he will be paid the maximum that the market will bear. The front line worker doesn't have his compensation package determined by his friends, like the CEO of the company he works for.

While the CEO has time to think about what he wants after work, the front line employee may have another job to go to. He may not have time for his family. While the CEO can lobby Congress to stall on raising the minimum wage, the front line employee has no such advocate working for him in the halls of power.

A basic income guaranteed would raise the floor to meet the employee, just like the CEO has raised the floor to support himself with passive income from rents. Knowing that there is say, $1000 a month coming to him every month, whether he works or not, allows the breathing room that many Americans do not now have.

But more to the point, a basic income guaranteed insures that all Americans derive something from increases in productivity from technology. Yes, this would be paid for with taxes, and there would still be wealthy people. People who are greedy will always find a way to make money, and that's fine. What is not fine is when greedy people take the money and use it to influence government to get more at the expense of everyone else. A basic income guaranteed means that there is a limit on how much business can shift their costs onto employees and customers.

A basic income guaranteed means that the rentier class must share the gains in productivity due to technological advance with the 99%. Consider that wages have been stagnating for 30-40 years depending on the economist you talk to. At the same time, the compensation for the one percent, usually in the form of stock options, dividends, rents and royalties, has taken off like a rocket relative to the 99%. In this context, we need not think of the basic income guaranteed as free money for everyone else. Instead, we should think of basic income guaranteed as a dividend for the gains from technology.

A basic income guaranteed would allow employees a way to exercise their conscience. They could decide whether or not take that job that asks them to work against their own interests and do something else. They could decide to use that extra money to get the education and skills they need to make more money. They could arrange their lives on that money to start their own businesses. Or they could hike the Appalachians and come back to work, rested and ready to contribute to society again.

Americans are tired of being played by the wealthy and powerful. They would like some say in their collective fate with other Americans. As we have seen with the way the Democratic primaries were handled, even the "party of the people" has turned a deaf ear to the rest of us. Republicans want nothing to do with this idea for obvious reasons, yet some libertarians have expressed some interest in it, as a basic income guaranteed would abolish much of the welfare state bureaucracy.

The only American political party that even comes close to giving serious consideration to the idea of basic income guaranteed is the Green Party. Here it is from their party platform:
Universal Social Security: Taxable Basic Income Grants for all, structured into the progressive income tax, that guarantee an adequate income sufficient to maintain a modest standard of living. Start at $500/week ($26,000/year) for a family of four, with $62.50/week ($3,250/year) adjustments for more or fewer household members in 2000 and index to the cost of living.
You'll notice that there isn't much talk about this plank in the Green Party platform in public discourse by any major candidate. Most people are unaware of how awful the social safety net has become. In many states, the safety nets are fraught with hoops to jump through, laden with shame and are designed to benefit some while abandoning others. Here is Scott Santens on the subject of basic income vs the current safety net we have now:
In the United States today, on average, just about one in four families living underneath the federal poverty line receives what most call welfare, which is actually known as Temporary Assistance for Needy Families, or TANF. It gets worse. Because states are actually just written checks to give out as they please in the form of “block grants,” there are states where far fewer than one in four impoverished families receive cash assistance.
In Oklahoma, seven out of 100 families living in poverty receives TANF. In Wyoming, merely one in 100 of those living in poverty receives TANF. Where does the money go instead? It goes to educate the children of those earning over six figures. It goes to programs trying to convince women to get married. And it goes directly to state government treasuries so they can cut taxes on the rich. The fact is that cash welfare, as it exists today, is not given to the overwhelming majority of those living in poverty who need it.
Santens has found that money that should be going to the poor is being diverted to anything other than the poor whenever possible. It is provided on a racially discriminatory basis. It is being used to enforce social norms that arise from religion. It is very much under the thumb of the wealthy who have the most influence in legislation. Is it any wonder that the Green Party would like to reform campaign finance laws to limit the influence of the very wealthy?

The Green Party is the only political party with a presidential candidate and a provision in their platform for basic income guaranteed. This is income that is derived from the gains in productivity from technological advance that should accrue to everyone, but it kept mostly at the top. It is a dividend that should flow to everyone, not just the 1%.

I believe that if basic income were guaranteed, that would help to stem the tide of small time fraud and give Americans the space they need to avoid being pressured into working against their interests. Remember, 5,300 front line employees at Wells Fargo Bank were fired. John Stumpf still has his job.
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