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chaosmage comments on Open Thread, May 19 - 25, 2014 - Less Wrong Discussion
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Lots of people are arguing governments should provide all citizens with an unconditional basic income. One problem with this is that it would be very expensive. If the government would give each person say 30 % of GDP per capita to each person (not a very high standard of living), then that would force them to raise 30 % of GDP in taxes to cover for that.
On the other hand, means-tested benefits have disadvantages too. It is administratively costly. Receiving them is seen as shameful in many countries. Most importantly, it is hard to create a means-tested system that doesn't create perverse incentives for those on benefits, since when you start working, you will both lose your benefits and start paying taxes under such a system. That may mean that the net income can be a very small proportion of the gross income for certain groups, incentivizing them to stay unemployed.
One middle route I've been toying with is that the government could provide people with cheap goods and services. People who were satisfied with them could settle for them, whereas those who wanted something more fancy would have to pay out of their own pockets. The government would thus provide people with no-frills food - Soylent, perhaps - no-frills housing, etc, for free or for highly subsidized prices (it is important that they produce enough and/or set the prices so that demand doesn't outstrip supply, since otherwise you get queues - a perennial problem of subsidized goods and services).
Of course some well-off people might choose to consume these subsidized goods and services, and some poor people might not choose to do that. Still, it should in general be very redistributionary. The advantage over the basic income system is that it would be considerably cheaper, since these goods and services would only be used by a part of the population. The advantage over the means-tested system is that people will still be allowed to use these goods and services if their income goes up, so it doesn't create perverse incentives.
Another advantage with this system is that it could perhaps rein in rampant consumerism somewhat. Parts of the population will be habituated to smaller apartments and less fancy food. Those who want to distinguish themselves from the masses - who want to consume conspiciously - will also be affected, since they will have to spend less to stand out from the crowd.
I guess this system to some extent exist - e.g. in many countries, the government does provide you with education and health care, but rich people opt to go for private health-care and private education. So the idea isn't novel - my suggestion is just to take it a bit further.
A sharp divide between basic, subsidized, no-frills good and services and other ones didn't work in the socialist German Democratic Republic (long story, reply if you need it). What does seem to be for various countries is different rates of value-added tax depending on the good or service - the greater the difference in taxation, the closer you get to the system you've described, but it is more gradual and can be fine-tuned. Maybe that could work for sales tax, too?
I'd be interested in hearing about this.
I'm no economist, but as a former citizen of that former country, this is what I could see.
There was a divide of basic goods and services and luxury ones. Basic ones would get subsidies and be sold pretty much at cost, luxury ones would get taxed extra to finance those subsidies.
The (practically entirely state-owned) industries that provided the basic type of goods and services were making very little profit and had no real incentive to improve their products, except to produce them cheaper and more numerously. Nobody was doing comparison shopping on those, after all. (Products from imperalist countries were expected to be better in every way, but that would often be explained away by capitalist exploitation, not seen as evidence homemade ones could be better.) So for example, the country's standard (and almost only) car did not see significant improvements for decades, although the manufacturer had many ideas for new models. The old model had been defined as sufficient, so to improve it was considered wasteful and all such plans were rejected by the economy planners.
The basic goods were of course popular, and due to their low price, demand was frequently not met. People would chance upon a shop that happened to have gotten a shipment of something rare and stand in line for hours to buy as much of that thing as they would be permitted to buy, to trade later. In the case of the (Trabant) car, you could register to buy one at a seriously discounted price if you went via an ever-growing waiting list that, near the end, might have you wait for more than 15 years. Of course many who got a car this way sold it afterwards, and pocketed a premium the buyer paid for not waiting.
Arguably more importantly, money was a lot better at getting you basic goods than luxury ones. So people tended to use money mostly for basic goods and services, and would naturally compare a luxury buy's value with those. When you can buy a (luxury) color TV at ten times the price of a (basic) black-and-white TV, it feels like you'd pay nine basic TVs for adding color to the one you use. Empirically, people often simply saved their money and thus kept it out of circulation.
Housing was a mess, too. Any rent was decreed to have to be very small. So there was no profit in renting out apartments, which again created a shortage of supply. (Private landownership was considered bourgeouis and thus not subsidized.) It got so bad many young couples decided to have child as early as possible, because that'd help them in the application to receive a flat of their own, and move out from their parents. And of course most buildings fell into disrepair - after all, there was no incentive to invest in providing higher quality for renters. This demonstrates again that to be making a basic good or service meant you'd always have demand, but that demand wouldn't benefit you much.
The production of luxury goods went better, partly because these were often exported for hard currency. The GDR had some industries that were fairly skilled at stealing capitalist innovations and producing products that had them, for sale at fairly competitive prices. Artificially low prices and subsidies for certain goods and products made pretty sure most of domestic consumption never benefitted from that skill.
Start by googling
"hard currency shop".Nor did it in other Soviet block countries, e.g. People's Republic of Poland.