As many of you know I’m a devout capitalist and libertarian. So when I initially wanted to present my thoughts on the topic of UBI, I was going to put forth a traditional argumentative article where I state my case, back it up with evidence, preemptively dismantle my opponents arguments, etc. After much deliberation, I figured that it would be much more fun (and intellectually honest) to put aside my bias (as much as I can) and attempt to tackle this topic with an open mind. In order to accomplish this, I made the decision to try and first “Steelman” the argument for UBI (the best I can anyways). And then, and only then, will I explore opposing ideas. The thought behind this tactic is to simply find the truth. Or at least get closer to it. I’d like to be clear and admit that I have a bias against this type of central planning, not only from a pragmatic standpoint, but a moral standpoint. That said I will do my best to set aside my bias and present the facts as they are.
What is UBI?
Universal basic income is a form of social security that guarantees a certain amount of money to every citizen with no requirements other than citizenship and adulthood. In other words, if you are a citizen and over 18 years of age, you get the dividend. If you make 10 billion dollars per year or zero, you would receive this dividend. Probably the most relevant form of UBI right now is what is being proposed by Andrew Yang, who is running for president in 2020. Yang is proposing a $1000 per month “freedom dividend” for U.S. citizens who are above 18 years of age. No strings attached.
Why do we need UBI?
There have been several arguments for a basic income, 500 years ago in the book “Utopia” Sir Thomas More contended that a basic income would lower the rate of thievery and thus would not only be a moral improvement but a socially just one as well. Thomas Paine argued for a similar service on the grounds of a natural inheritance. He believed that “the earth, in its natural, uncultivated state was, and ever would have continued to be, the common property of the human race”. And that once the land was cultivated, only the value of the improvements of the land were protected by property rights, not the land itself. Therefore, Paine proposed a “ground-rent” which would be a fund that would give 15 sterling to everyone over 21 years of age. Other notable proponents of a basic income were Dr. Martin Luther King Jr, Milton Friedman, and President Richard Nixon.
The present and most relevant reasoning for a universal basic income, is due to the impending technological advancement of AI and automation. By 2015, 4 million manufacturing jobs were lost due to automation. And many of the worlds greatest business and economic minds agree that in the next 12 years, 1 out of 3 Americans will be at risk of losing their jobs to automation. Compound that with the fact that right now labor participation is only 62.7%, lower than it’s been in decades. And 1 out of 5 working age men are currently out of the workforce. This is only going to get worse when automation takes over the rest of the marketplace, i.e. self-driving vehicles (destroying truck driving jobs), and other industries such as many white collar jobs like radiology. There are now algorithms that can see shades of grey that humans can’t, and can compute millions of variations of illnesses, whereas a highly skilled and experienced human radiologist might be able to know thousands. People will simply not be able to compete.
The Plus side of automation is that products and services will naturally go down in price. But if people don’t have jobs and as a result no money, what difference does it make. Which leads us to why we need a universal basic income. This way it won’t just be the big companies benefiting from the new technologies, but all of us.
Benefits of UBI
They’re are a ton of benefits of UBI, I’ve taken the liberty of presenting some of the more notable ones found from Andrew Yang’s website
Incentivizes employment – It might seem counterintuitive, but one of the biggest benefits of UBI would be getting rid of the current welfare system that de-incentivizes people from attaining gainful employment. I personally knew people growing up who were genuinely afraid to go get a job because they didn’t want to lose their benefits. According to the Washington Post in some cases a welfare recipient can make around $35,000 a year. Many welfare recipients are low skilled, making it difficult to find a job that can best their welfare benefits. But if everyone received $1000 per month, regardless of how much they made, it would eliminate (or at least mitigate) the fear of losing their benefits. Thus, pushing them out into the marketplace to make money.
Reduces bureaucracy – If we replaced the existing welfare system with UBI, it would obviously reduce the need for so many paper-pushers trying to appropriately allocate resources and find scammers. It would be a simple, no strings attached system. High-speed low-drag basic income.
Increase bargaining power for workers – Instead of having to take whatever job a worker can get to pay the bills, they can afford to say no, and search for a better job that pays more and is more enjoyable.
Creates more entrepreneurs – UBI would act as a safety-net for those who would otherwise be too fearful to incur the risk involved in starting a business. This would in turn create jobs and be a net positive to the economy.
Improves mental & physical health – Mitigates poverty and increases financial security. Which reduces stress.
Improves relationships – The leading cause of divorce in America is money related. UBI would alleviate at least some of the stress around money for couples. Which in turn would help to improve relationships.
UBI helps people make more intelligent decisions – Studies have shown that when people are in an environment of financial insecurity, they have a decrease in cognitive ability equal to 13 IQ points. UBI would help to increase financial security, resulting in better more intelligent decision making.
How would we pay for UBI?
According to Andrew Yang’s website we currently spend between 500 and 600 billion on welfare programs in America. According to the census bureau there are about 308,000,000 eligible people in America (18 years old and up). If we gave those 308,000,000 eligible citizens $12,000.00 per year, we would be looking at spending roughly 3.7 Trillion dollars annually.
So even if we replaced the current welfare programs with UBI, we’d still be looking at 3.1 trillion dollars per year. How do we pay for that? Well there are 4 main ways that have been proposed to pay for this program.
1. Current Spending
We already talked about getting rid of current welfare programs, which again would cut about 600 billion dollars off of the annual bill. On top of that, some studies have indicated that a basic income could save us an additional 100-200 billion dollars by helping people take better care of themselves, thus helping them stay out of hospitals and jail.
2. A Value-Added Tax
Every developed nation in the world uses a value-added tax. This is simply due to the fact that it’s a more efficient way to collect taxes with no loopholes. Currently, our tax system allows businesses and “rich” people to strategically move money around to defer or avoid a taxable event. Thus resulting in the people who make the least (employees), pay the most in taxes. If we implemented a VAT at half of the European rate (10% VAT), we would bring in around $800 billion in new revenue.
3. New revenue from economic growth
According to the Roosevelt institute, if UBI was implemented the economy is projected to grow by about $2.5 trillion and create 4.6 million new jobs. This would bring in around 800-900 billion dollars in new tax revenue.
4. Capital Gain/Carried Interest Tax
Our current tax system tends to favor investors in the sense that investors pay less in taxes on their gains than workers pay on their labor. For instance, if you’re an employee, you could end up paying around 35% income tax, whereas if you were to invest your money into dividend paying stocks, you could pay around 15% on gains. So ending the favorable treatment towards investors by getting rid of the “loophole” that is carried interest and capital gains could get us 18 – 100 billion in new tax revenue (I’m being very optimistic with 100 billion, Yang doesn’t claim that it would collect that much).
5. Carbon fee and dividend
According to Andrew Yang’s website, the “capital gains/carried interest tax” and the “carbon fee and dividend will be used to fund the remainder of the UBI note. The carbon fee and dividend is particularly interesting because not only will 50% of the revenue collected be used to fund UBI, but the remaining bit will be a massive benefit to our efforts of preserving our environment by incentivizing companies to go green.
So hopefully I’ve done a good enough job “steelmanning” the argument for UBI, that I can now in good faith, attempt to explore opposing ideas and opinions. If you feel that I left out important pieces of information in my attempt to make the case for UBI, it’s not due to malice, but rather ignorance.
The Case Against UBI
Why we don’t need UBI
As previously mentioned, the present and most relevant reasoning for a universal basic income is that the innovations in AI and automation are going to wipe out a significant portion of american jobs. It’s argued that AI and automation will take jobs at a rate and scale so astronomical that we won’t be able to adjust as a people enough for it to matter. As a student of history, this isn’t the first time “experts” have predicted that automation and technological advancements, are going to steal a massive amount of jobs and end the world as we know it. I also know that every time they predicted that, they’ve been wrong. It makes sense really, I mean think about, if you could go back in time to when the first tractor was introduced to the public, you would undoubtedly find “experts” screeching about how “everyone is going to lose their jobs!”, “people will starve!” and other knee jerk assertions. You can’t really blame them, they couldn’t have possibly predicted that because those machines were created, people could then afford to get off of the fields and live a more productive and creative lifestyle. The american economy is far stronger than it was before that period, and Americans are far better off because of automation and technology “stealing” their jobs on the field. The automation simply created new jobs, and people adapted, as we humans tend to. Fast forward to 1993 when Microsoft windows was introduced. Many “experts” feared that the new innovation would lead to massive job loss and put the american economy in a downturn. In reality, Since Microsoft windows in 1993, 37 million new jobs have been added, and the U.S. economy employees more people now, than ever before. There are other examples of these sorts, but I think you get the idea. That is, people adjusted for the changes in the economy and we went on to be the most prosperous nation in the world. Another thing to think about is; as baby-boomers retire, the working age population will grow at a slower rate than the economy. Likely resulting in a shortage of labor, not a shortage in jobs.
But suppose I’m wrong, suppose that this time is different. This time it will happen so rapidly, and at such a scale, we won’t adapt. OK, private charity does it better. About 75% of the tax dollars supposed to be allocated to welfare programs, goes to administrative costs. In other words, instead of the money going to the poor, most of it lines the pockets of middle-class administrators. Contrast that to private programs, where on average 75% of the money donated actually goes to the poor who need it. And before anyone says that “UBI will cut down on administrative cost!”, you’d be right, IF UBI was going to replace our current system, but according to proponents of UBI, it will not replace our current welfare programs, but rather be an opt-in/opt-out addition to our current system. Which leads me to my next point.
Why We Cannot Afford UBI
As a staunch capitalist and business owner, I’m typically antagonistic towards the phrase “we can’t afford it”, instead, I prefer to create a plan, execute accordingly and make it happen. However, in this circumstance, where the Federal government seemingly refuses to reallocate tax revenue from certain sectors such as, the “military budget”, it’s not obvious to me how we can afford UBI.
According to a study by “Bridgewater & Associates” UBI would cost an estimated $3.8 Trillion annually. Using the figures from Andrew Yang’s website, it’s proposed that we’d pay for UBI by saving $600B from fading out existing welfare programs, $200B in savings by people taking care of themselves better and as a by product using less healthcare, less incarceration, and less homeless services. In addition to our savings, we’d implement a VAT that would bring around $800B in new revenue, another $900B in revenue from economic growth, $100B (being optimistic) for a “capital gains/carried interest tax”, and according to the “U.S. Treasury a carbon tax starting at $49 per metric ton (more than what has been proposed) and increased to $70 per metric ton in 2028, would generate about $194B the first year, and $2.2T over the ten year period”.
So, if you’ve been doing the math, that’s only $2.8T towards the UBI bill annually. Which means, that we would still have to come up with another Trillion dollars give or take to make this happen. Unless I’m missing something, the U.S. government will have to print that money, Yang’s website mentioned that printing money isn’t going to be an issue due to the fact that the government printed around $4 trillion during the banker bailouts. I would argue that $4T is a lot different than printing $10T just in the first 10 years. The likely result from such a thing will be substantial inflation, products and services will simply become more expensive. The reaction to the price increase of goods and services, will undoubtedly be the proverbial “we need more welfare”. I can already hear it; some politician will say “$1000 a month?!?! Why no one can live on that! We need a living wage of no less than $3500 per month!” or something along those lines. Which will simply exacerbate the problem, and probably collapse us economically at some point.
Ergo, not only would the proposed payment methods not cover the bill for UBI, but some of the methods would likely hurt the economy as a whole. For instance, the “Capital gain/Carried Interest Tax” would act to de-incentivize investment into american businesses. Which would obviously negatively impact the U.S. economy. Carried interest capital gains income are the profits from a long-term partnership between private capital and expert investors. Private-equity funds are usually those who form these long-term partnerships. What they do is either buy a struggling business or grow a small business to scale, and then sell them for a profit When successful, everyone wins. Private equity grew dunkin donuts from a New England coffee shop chain, to a worldwide brand. Increasing the tax on carried interest capital gains would discourage these risk takers from investing their time, money, energy, and expertise into these business ventures, and would without a doubt negatively impact the U.S. economy.
The Negative Side Effects of UBI
Inflation – We’ve already touched on the fact that UBI will require the U.S. to print massive amounts of money in order to fund it. This will likely result in substantial inflation, which will most certainly collapse us at some point.
Decreases wages for workers – It’s pretty common concern for those particularly left leaning, that UBI will result in employers having an excuse to not only increase goods and services, but decrease employee pay.
Increases bureaucracy – Seeing as the plan isn’t to completely replace our current welfare system, I would argue that we’re simply adding to bureaucratic machine. Additionally, with all of the new tax plans, we would be adding even more administrators to the mix.
VAT will be paid by consumers, not big business – A Value-Added Tax is essentially just another way of saying a “Federal Sales Tax”. It would mean that businesses would collect a VAT when they sold something, and pay a VAT when they bought something from another business. This basically turns businesses into collection agencies for the IRS. The cost would move along the production line, until the consumer (you and I) eventually pays the entire cost of VAT. Often times unbeknownst to the consumer, due to the fact that the VAT would likely be submerged in the “price of goods”.
Harmful to the american family – A UBI would redefine the relationship between individuals/families and the state. Effectively turning the state into the provider. This will likely negatively affect the American idea of self-reliance and give the U.S. government more leverage over the american people.
Lack of meaning – Many people describe themselves by what they do. If they practice law, they’re a lawyer. Practice medicine, they’re a doctor. Work on cars for a living, they’re a mechanic. These people find meaning in what they do. If proponents of a UBI are correct when they assert that people won’t be able to adapt to the economic changes, and retrain themselves to do something else; It’s likely that even with a UBI, many people will lack a sense of purpose. This can lead to drug addiction and a host of other problems. In other words, I don’t think UBI is addressing the right issue e.g. “lack of meaning” and instead is focusing on giving people money that we can’t afford to give.
Conclusion
While I am perfectly willing to admit that there is a greater than zero chance that I am wrong. I don’t believe a UBI will be necessary, I think people will adapt, just as we always have. And if we can’t, I don’t believe it’s the role of the government to take care of us. I would assert that help can be given through private means, more efficiently and effectively. Additionally, we cannot afford UBI with the current proposed payment methods. And in the long run a UBI would most likely collapse us due to the inflation. That’s all for now.