A Primer on Universal Basic Income (UBI)

Updated: Mar 23, 2018



From Thomas Payne, Martin Luther King, Milton Friedman, Friedrik von Hayek and Richard Nixon to Bill Gates, Mark Zuckerberg, Elon Musk and Richard Branson, there has been strong support for Universal Basic Income for the past century from pioneers in diverse disciplines. It is nothing less than the most ambitious social policy of our times. My favourite definition comes from Arvind Subramaniyam who defines it as an unconditional payment to all citizens to augment their purchasing power in the open market.

Right now there is no consensus on what universal basic income is or should be. Some want to use it to eliminate welfare and curb bureaucracy while others want it as a free extra for existing programs or even want it to be so high that work itself becomes optional. I shall focus mainly on the minimum basic income or enough money to be above the poverty line. The money would not be taxed and it is up to the recipient to do as they please.


Why the sudden spike in interest?

Technological progress and automation are the biggest threats to livelihood and the growing income inequality and developments such as Artificial Intelligence shall further concentrate wealth in the hands of the few who own the technology and we need to think of a new social structure for human beings. As AI improves and people discover more avenues for its application, machines that will replace jobs like lawyers, loan officers, doctors and truck drivers won't be science fiction anymore and the result is likely to be a radical deepening of inequality that could challenge our very ideas about the nature of work. Any conversation about artificial intelligence or robots taking over is a distraction from the real question that we have to answer which is what are we going to do about the people whose jobs are displaced?

The famous Roman Policy known as "bread and circuses" introduced free grain and entertainment for Roman landowners who had slowly replaced their workers with cheap slaves from the colonies which resulted in high unemployment of the Roman population. The empire found itself in a situation where production flourished, yet the population suffered, something we might be seeing again as we try to answer bigger questions about what will happen to capitalism when scarcity is no longer a factor. When we build the tools that can fully automate processes, we're not limited by human labour to be able to put stuff together. Millions of people are expected to lose careers in the next decade from various forms of automation. While mobile phones changed us as consumers they didn't really change the way we work, this new generation of technology is far more disruptive.


Why it isn't just a Utopian dream

UBI is a way of transferring the wealth of a society while still keeping the free market intact but the common fear is that if we hand out free money, people will just spend it on alcohol and stop working. Conventional wisdom would suggest this to be true, however studies seem to suggest otherwise.

In 2013 a study by the World Bank specifically examined if poor people waste their money on tobacco and alcohol. The clear answer was that the opposite is true and other studies have shown that the richer you are, the more drugs and alcohol you consume. The lazy and drunk poor person is a stereotype rather than reality. Poverty is not a lack of character; poverty is a lack of money and eradicating poverty is actually an investment. There have been experiments all over the world, from Canada to Africa, from Finland to India, researchers and governments have experimented with giving people money. Time and time again, they have shown that free money results in lower inequality, lower poverty, less infant mortality, lower health care costs, lower crime rates, better school completion records.

Be that as it may, what about general laziness? Universal basic income test runs done in Canada in the 1970s showed that around 1% of the recipients stopped working mostly to take care of their kids and on average people reduced their working hours by less than 10%. The extra time was used to achieve goals like going back to school or looking for better jobs. Something that is critical for the populace as it transitions into new jobs created by the technology and robotics industry.

Sadly, current welfare or unemployment programs often come with a lot of terms and conditions like courses requirements, job application ceiling and non stimulating low return jobs. These are often a huge waste of time and only serve to make the unemployment statistics seem better. Often time would be much better spent looking for the right job, continuing education or starting a business. This brings me to another unwanted side effect of many welfare programs, the welfare cliffs. These non-adjusting parameters cut off all support once a person crosses the welfare threshold. Crossing the threshold not only results in loss of benefits but because of taxes and other costs like transportation the person ends up having less money than before. Therefore with UBI, getting a job and additional income would always make the financial situation better as work is always rewarded. The key to making the program successful would be to design carefully. The amount should be low enough that people would still want to strive for more and it should be built in such a way that the incentives would still be there for people to work.

The leftist generally view universal basic income as a way to eliminate poverty because it is a literal redistribution of wealth from the upper classes to the poor under this approach universal basic income would supplement other government programs such as free health care, child care, etc.

It is estimated that it would cost about $175b to eradicate poverty in United States which is about a quarter of the country's military budget. This means in another twenty years, it will turn out that the investment has paid for itself. Because the government will save billions in lower health care costs, there will be less crime, and there will be lots more productive citizens who will be able to fulfil their dreams. A study calculated that every extra dollar going to wage earners would add to about a 20% increase to the national economy while every extra dollar going to high-income Americans would add only 0.39%.

The replacement of social services or entitlement, if it worsens the situation of relatively disadvantaged vulnerable or lower-income people is a big problem. Universal basic income could replace at least some existing social policies but there is controversy among basic income supporters about how many and which programs it could replace and the issue of how high is high enough to eliminate absolute poverty.


Feasibility

The elephant in the room is where does the state get enough money to pay every citizen a monthly income? In a communist system the answer would be the state just owns all production but in a capitalistic automated economy anyone can start and own a business and the state will have to get its share through taxes. The greatest beneficiary of automation so far are the businesses as they won't have to pay any employees anymore this saves them a fortune. The businesses enhanced cash reserves and a growing income gap as ever more wealth is distributed among fewer employees means that taxes will simply have to be higher on company profits. This transition isn't going to happen overnight but gradually we need to put in place the right mechanics for it to be smooth one.

The easiest way to pay for a UBI is to end all welfare and use the free funds to finance it. Not only would this make a number of government agencies disappear which in itself saves money, it would also eliminate a lot of bureaucracy. On the other hand cutting them could leave many people worse off than before if the goal is to have a foundation for everybody. There still need for programs of some sort because unlike machines people can't be compartmentalised into a one size fits all solution.


Problems with UBI

With improvements in the standard of living, there shall be a shortage of people willing to opt for undesirable jobs. Jobs such as sanitation, slaughter and waste processing, which in the past have been the last resort of employment shall be avoided and demand a high premium. Services and domestic help would be harder to come by and significantly more expensive and in a way deduct from the saving made with the help of UBI. Robotics might not be dextrous enough and might lack the decision making capabilities of their human counterparts.

The other issue is that of the tax liability on the affluent strata of society. While UBI won't provide any meaningful benefit to them as a source of income, the subsequent tax burden to fund the effort is more than likely to de motivate the likes of industrialists. Already in places like San Francisco, there are proposals for a "robot tax", which in a way is a hurdle to innovation. As Friedrich Hayek said, there is a difference in the world between treating all people equally and attempting to make them all equal and it is not just the private sector. There are concerns that if all welfare programs are exchanged for one single payment, this gives the government a lot of leverage. Individual programs are easier to attack or cut than a multitude and populists might promise drastic changes to the UBI to get into power and a universal basic income doesn't tackle all problems when it comes to equality. While the cost of living in the rural areas might be mitigated with the help of UBI it's not an option for those residing in the more expensive metropolitan areas which could lead to poor people moving outwards and the difference between rich and poor would become even more pronounced.

And finally, probably the biggest deal breaker for UBI is the simple fact that most of the experiments have been on a small scale and for a limited time period. There are no studies that can predict the impact of heterogeneous population and cultures and people are bound to act differently when they know they can avail an opportunity for a limited time. They strive to better themselves to prepare for the day that crutch might no longer be available.


Conclusion

UBI is not a new idea, its constant recurrence hints to the fact that it is here to stay. Like many Utopian dreams it's only impossible till it's done. For now it can provide a safety net against deprivation and destitution, a boon for both victims of birth and victims of life alike.

Everyday new developments are strengthening the case for a citizen's dividend. Technologies like blockchain and Biometrically Authenticated Physical Update have found applications and we are guaranteed an exciting future ahead. For now I shall leave you with a question- How will you spend your share of guaranteed income?


#ubi #blockchain #income #robotics #AI #policy

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