November 20, 2021

UBI: The What, The Why, and the Why Not

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Everyone loves money, right? Wrong! Sort of. Well, let’s get into that.

According to the Oxford Dictionary, the term capitalism was coined back in 1854 in William Makepeace Thackeray’s novel “The Newcomes”. In his book, the term simply meant “having ownership of capital.” However, markets, as we know them, have existed since the dawn of civilization and likely evolved tens of thousands of years earlier in the form of simple bartering. As civilization advanced and more advanced forms of governance took hold, more advanced means of exchange began to become devised. Coins. Banking. Contracts. EasyBet Casino.

All of that led us to this point in time, where there’s talk that persists around the internet about a novel concept called “Universal Basic Income”. So, after all these thousands of years of advanced in economics and education, let’s break down exactly why Universal Basic Income (or UBI, for short) is a terrible idea, and its supporters have zero understanding of economics.

What is it

However, before I dissect the idea, lets’ go over what Universal Basic Income is. The idea is that the government pays out a sum of money to all its citizens with no strings attached. The money, according to the theory, should be enough to cover one’s basic needs so that people can focus less on working and more on… whatever else they feel like doing.

The Why

The idea of Universal Basic Income has been around in one form or the other since as early as the early 1800s. Thomas Paine discussed the idea of a lump sum granted to all citizens in adulthood. Belgian socialist Joseph Charlier discussed the idea of a “territorial dividend” that would generate regular income. In the 1930s, James Meade proposed the idea of a “social dividend”. The throughline through all of these ideas is that the government pays out some kind of dough to its citizens.

Universal Basic Income never really caught on in the mainstream until just a couple of years ago- and it really didn’t take off until 2019, when Andrew Yang ran on Universal Basic Income during his campaign for president. He called it his “Freedom Dividend”, where each citizen over the age of 18 would get 1000 dollars from the government every month. Yep, 12,000 dollars a year, no strings attached.

Ignoring the fact that he was implicitly bribing his voter base, let’s talk about how Yang justifies the bill. The first main reason he gives is the technological shift. He breaks it down in this interview. More succinctly, according to his website’s FAQ, “Andrew Yang wants to implement the Freedom Dividend because we are experiencing the greatest technological shift the world has ever seen. By 2015, automation had already destroyed four million manufacturing jobs, and the smartest people in the world now predict that a third of all working Americans will lose their job to automation in the next 12 years. Our current policies are not equipped to handle this crisis. Even our most forward-thinking politicians are unprepared.

“As technology improves, workers will be able to stop doing the most dangerous, repetitive, and boring jobs. This should excite us, but if Americans have no source of income—no ability to pay for groceries, buy homes, save for education, or start families with confidence—then the future could be very dark. Our labor participation rate now is only 62.7% – lower than it has been in decades, with 1 out of 5 working-age men currently out of the workforce. This will get much worse as self-driving cars and other technologies come online.

“The Freedom Dividend—funded by a simple Value Added Tax—would guarantee that all Americans benefit from automation, not just big companies. The Freedom Dividend would provide money to cover the basics for Americans while enabling us to look for a better job, start our own business, go back to school, take care of our loved ones or work towards our next opportunity.

The Problems

There are several fundamental problems with Universal Basic Income itself that we should look at- but let’s start with Andrew Yang’s “Freedom Dividend” and work our way backward.

I reject Yang’s premise outright. While I completely agree that there’s a technological revolution on the way (or that we’re, perhaps, in the middle of one), I don’t see it as something to panic about. I agree that certain specific jobs are going to be automated away. Cashiers in fast food restaurants are being replaced with touch-screen menus. Factories are being automated. Truck Drivers might soon lose their jobs to self-driving vehicles. All that is very possible.

What Yang doesn’t acknowledge are the inherent benefits of these new technologies. Car accidents are one of the leading causes of death globally. Self-driving cars have so far proven to be infinitely safer. The sheer number of lives saved surely outweighs the jobs of one industry? And that’s assuming that Truck Drivers are going to be simply thrown out of the workforce.

I say that because, for every new technology, an entire tertiary set of industries are created. Milton Friedman puts it quite nicely in a clip on YouTube called “I, Pencil”. He talks about how to make even a simple No. 2 pencil. Thousands of people across the globe had to come together to make and assemble it. The wood is grown in South America and chopped by a lumberer, whose tools were made by a factory in who-knows-where, and the wood is shipped across the world to the US- where it has to be combined with Graphite mined in a quarry in Washington, plus rubber made from Rubber Trees in… you get the idea?

Plus, there are millions of Trade and Vocational jobs that sure as heck isn’t being replaced anytime soon. You’d be hard-pressed to find a robot that can reach under your kitchen sink and replace your pipes.

The Sheer Cost

What is the actual cost of the Freedom Dividend? Even Yang’s team estimates that it would add an extra 1.3 Trillion dollars to the deficit every year and would cost nearly double that gross. Yang’s plan is to add a 10% VAT to all purchases to pull in additional revenue and save on dough by forcing welfare recipients to pick either their benefits or the thousand bucks a month, which he expects many not to do. (Which sounds like him admitting that the people that need the money the most won’t benefit from the system at all…?)

Regardless, he can’t cover all the expenses. When your costs enter the Trillions, you shouldn’t be throwing those numbers around haphazardly. A trillion is a nearly unfathomably large number. If you took a crowd of people and gave each guy a million dollars, you would need to hand out a million dollars to a million people in order to have just one trillion dollars. The US is already in debt twenty trillion dollars- so where is the money going to come from? I don’t think that the VAT and the various other revenue plans he mentions on his site are going to cover that- and it’ll be even worse as people drop out of the workforce and the economy slows down nationally.

Let’s talk incentives. One of the arguments that UBI proponents simply refuse to accept is the idea that the system would disincentivize workers from working. We can see this play out during Covid. When the government was just giving out $600 randomly, there were a number of workers who quit because the stimulus check was worth more than their income at Mcdonalds’ or wherever. “Aha!” UBI proponents would exclaim, “UBI isn’t dependent on employment status and wouldn’t cause people to quit their jobs!”

Eh, maybe? The overall impact, then, would simply be inflation. When everyone gets a thousand bucks a month, what stops businesses from raising the prices of everything by a thousand dollars? Yes, perhaps that’s slightly hyperbolic, but the point stands. Give out the cash for nothing, and it’s value decreases. This is simple supply and demand. When everyone has lots of money acquired easily, the value of each dollar decreases.

Capitalism isn’t bad. You just have to put some effort in.

Here is where we reach the bit that many people who haven’t really looked into economics stumble: The assumption that labor is bad, isn’t worth anything monetarily, and lacks inherent value. I’ve seen people complain that having to work forty hours a week is inhumane and evil- and all I can think when I hear that is how ignorant and privileged these people must be. The top earners in the US work more than double that. Voluntarily! Elon Musk, Donald Trump, Jeff Bezos, etc.- they’re all workaholics. But you don’t even need to invest that much more time into your work to earn significantly more. I’ve even heard that workers who work just 13% more than their peers earn 40% more overall.

Or maybe we can abstract Capitalism even further. What is money itself? Green paper? Obviously, there’s more to it than that. Money and currency are merely a universally accepted conversion of labor and produce. Money represents things that have actual value. Food. Clothes. Houses. Products.

When a billionaire buys a yacht, he isn’t just making an extravagant purchase for himself. Yes, that’s his intent, but there is loads more that actually happens. The billionaire is actually paying the business owner, who took the risk of opening a Yacht building business. The owner pays his workers, who exchange the cash for their labor in making and maintaining Yachts. Their labor has value.

UBI flies in the face of that. It’s a failure in many ways. A failure in the understandings of economics. A failure in its own intent and purpose. And a failure in the understanding of human nature.

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