Swiss Vote for Liberty

On June 5, 2016, there was a vote that took place in Switzerland that was not widely publicized. It was a vote in which liberty prevailed, or at least the growth of the state was resisted.

This was not an election of candidates. It was a referendum for a guaranteed basic income for the Swiss people.

The idea of guaranteed basic income for all is not new. It has been floated around in some of the big welfare states, such as the Nordic countries.

It is rather odd that this initiative was first put to a vote in Switzerland. The Swiss have a long history and culture of liberty.

Switzerland has remained somewhat decentralized. It is more decentralized than the so-called federalist system in the U.S. This might not be true if we compared it to America under the Articles of Confederation or in the early times of the Constitution.

The Swiss are known for taking a neutral stance on foreign policy. This has been true for centuries. The country managed to stay out of World War II as it was being fought on all sides. Even Hitler wasn’t stupid enough to invade, knowing the well-armed citizenry would be a nightmare for any invading force.

Switzerland also managed to stay out of the European Union. Now that there is a possible British exit, and with the whole EU being called into question, the Swiss aren’t looking too bad.

In fact, the Swiss enjoy some of the highest living standards on the planet, while most of the rest of Western Europe is mired in stagnation or worse. Switzerland also enjoys a very low crime rate.

Unfortunately, even the Swiss people have not been immune to creeping big government. The central bank abandoned the last of the gold backing of its currency in 2000. The privacy of the Swiss banks has eroded significantly. And there is something of a welfare state, although still much less so than most others.

This latest referendum for a basic income would have been devastating for the economy, and it would have been symbolic of a degraded culture and a massive loss of liberty.

The Vote

The Swiss voters rejected this proposal with about 77% of the vote. Just 23% of the voters fell for this, which is really good.

If a similar direct vote took place in the United States, I don’t think the results would have been nearly as good, although I am still optimistic enough that I think a majority of American voters would have rejected it.

If this vote happened in Greece, Sweden, or any one of the massive welfare states, then we can be reasonably confident how this vote would have turned out. It would have been about 23% voting in favor of common sense and liberty instead.

The initiative was not all that clear, as it did not specifically outline what the guaranteed basic income would have been. But the advocates of the referendum were generally proposing that each adult receive 2,500 Swiss francs per month, while each child would receive 625 francs per month.

Currently, the Swiss franc is near par with the U.S. dollar, which makes it easy to consider. So imagine a proposal that every adult American or U.S. resident receive an automatic income of $2,500 per month.

Calculate that out for a family of four with two adults and two children. That is $6,250 per month for that family. For one year, that is $75,000. This is far greater than the median household income.

Of course, the big question, which many Swiss voters apparently pondered, is where this money would come from.

In the U.S., this one budget item would far exceed the approximate $4 trillion that the federal government spends annually by a few trillion dollars.

This Isn’t Coming to a Town Near You

If you are worried that something like this could be proposed in the U.S., you should stop worrying. Hopefully the Swiss rejection will send a signal to other countries to not even try.

In the U.S., Congress would never go for something like this. There are too many people invested in the status quo, even though the status quo is making many people unnecessarily poorer than they otherwise would be.

The one argument that proponents of smaller government could make in favor a basic guaranteed income is that it would be an excuse to get rid of the rest of the welfare state. In other words, if every family of four were making $75,000 per year automatically, then what justification is there for food stamps, free housing, free education, free child care, free health care, and a subsidized retirement? None of this is free, but that is how the politicians often present it.

With a single adult automatically “making” $30,000 per year, why would we need a minimum wage? Anyone could work for $6 per hour and easily make $42,000 per year when combining it with the basic income.

None of this will happen. It would be incredibly naïve for someone to think Congress is going to eliminate all of these government programs. Still, with a basic guaranteed income, it would become very hard to justify many of these things.

Congress thrives on the lobbyists and special interests, and vice versa. They would not risk such a dramatic change to this rigged system.

Such a proposal, even if it were much smaller, would not gain traction in the U.S. If you want to talk about France or Norway, that may be a different situation.

What is Guaranteed?

The numbers for a guaranteed basic income are meaningless. It wouldn’t guarantee anything in terms of living standards. The one thing it would guarantee is much higher inflation. It would have to be paid for somehow.

So that family of four “earning” $75,000 per year (before any actual work) would also be facing weekly grocery bills of $1,000 or more and $500 for a new pair of shoes.

For this reason alone, it is especially positive that this failed in Switzerland. While the Swiss franc is no longer backed by gold, it is still one of the stronger and more reliable currencies out there. That would have changed quickly had this referendum passed.

In the U.S., we already have a mess in terms of the budget, the debt, and the unfunded liabilities. Congress is running annual deficits of half a trillion dollars, and this is supposed to be during the time of a recovery. How bad will the deficits be if we hit another recession?

The budget is loaded with entitlements that will only get worse as more baby boomers reach retirement age. There is also massive spending on the military. The interest on the debt is not huge but could easily get worse quickly with a rise in interest rates. Most of the rest is devoted to special interests.

Most of the money is spoken for, and not much is going to change until it is forced to change. This is why more money creation by the Fed is a virtual guarantee. When times get tougher and the budget gets tighter, the first thing that will be tried is more debt that gets monetized by the Fed.

In other words, we don’t need a basic guaranteed income to guarantee that we get significant inflation down the road. It will happen either way.

In the long run, it might make sense to have more Swiss francs sitting in your bank account than U.S. dollars. Or you can turn to the other form of money historically favored by the Swiss, which is gold.

Until next time,

Geoffrey Pike for Wealth Daily