Contact the Author | sample_mail@mail.com

Universal Basic Income (UBI)
16 Jan

The problems of unemployment and poverty have been around, to some degree, since the dawn of civilization. They seem to be intractable. Thankfully, efforts to solve them continue and recently, an idea has been gaining support that is intended to combat these very real economic concerns. This idea is called universal basic income, or sometimes simply basic income. It involves every individual of a nation receiving a sum of money that would suffice to fund their fundamental needs each and every year. In some versions of it the basic income replaces existing welfare payments. In some versions the basic income is gradually pruned to zero for individuals of increasing wealth. In some versions, both occur. However it is detailed, its sympathetic intentions are clear in that the problems of unemployment and poverty need to be addressed.

My hope is that this idea gains no further traction in our economic and social conversations. I contend that basic income falls into a category I call ‘good-hearted bad ideas.’ It is only gaining traction because we are, culturally, at a loss to see how capitalism itself can solve the problems of unemployment and poverty. In fact, many people believe that capitalism itself causes these problems. First let me address the perils of UBI and then I will address the perceived failings of capitalism.

The most obvious downside to UBI is the disincentive to work inherent in it. If everyone can have a livable ‘wage’ without entering the competition of our economy, only the more ambitious among us would choose to be employed. Assuming a low end job paid only marginally more than UBI, why would someone choose to submit to the whims of a boss and give up the freedom in their day?

This naturally leads to the second peril of UBI; inflation. As low end wages were forced to rise to make employment more attractive, a traditional form of wage/price spiral would be initiated. People who claim this inflation cycle would not be triggered, through a more modest UBI or whatever, are being, I will assume, willfully ignorant of human nature. Fundamentally, a UBI that doesn’t provide a livable ‘wage’ is not solving the problem of poverty. And the wage/price spiral will be triggered regardless, although an at admittedly more subdued level. However, if it is reduced below what would be a living wage, the UBI will not have achieved its goals.

The third peril of UBI is that it is an expensive proposition. It will require a significant portion of government revenue to fulfill. Among all the responsibilities that government funds must be used for; defense, law enforcement, infrastructure, regulation, debt, and welfare, it seems clear that if welfare spending were to rise in proportion to the rest (UBI replaces welfare, remember), infrastructure spending would be most vulnerable to cut-backs. Or else our tax burdens would have to rise. But the economic development of a nation is best achieved by improving its infrastructure. So UBI could easily end up having a perverse impact on our national strength.

UBI is a good-hearted bad idea because implementing it will briefly feel like we have addressed the long standing tragedies of poverty and unemployment, but in the long run, it will solve neither, and likely create problems of its own making.

Now it is appropriate to speak to the failings of capitalism as we know it. Yes, desperate poverty, stress from unemployment, bankruptcy from having bad luck in one’s health, are all either created or exacerbated by the way we practice economics. And we do practice capitalism. But we don’t practice it very well. My book, A True Free Market, covers this in more and approachable detail, including what’s needed to really solve desperate poverty and unemployment. I fear we are on the verge of making a mistake. It is premature to give up on capitalism.

The bottom line is we, as a culture, don’t appreciate that a free market can only work as capitalist ideals would have it when the root conditions for it exist. When we don’t recognize the root conditions, we make laws that alter them, then ask a free market to work regardless. And we get angry when it fails, marching into political camps to either defend the free market or to denigrate it. We also sometimes impose a free market onto natural circumstances where it could never work, and try to makes laws to force it to work, still inevitably to fail. Anger rises as people feel disappointment, or even pain. So those two camps grow ever larger.

Today we have a political environment that seems to prove this out. Some people are so passionate for capitalism that they think it is always the answer. Some people are so passionate against capitalism they think it is never the answer. But it is our own ignorance or stupidity that creates the vast number of unfortunate folk who many of us dismissively call ‘the takers.’ If we are willing to look, we can see that many of them are there because we have given them the wrong laws to create fair opportunity. I find people are not typically lazy about their own wellbeing. But they can feel resigned or hopeless.

Poverty and unemployment are worthy of our best efforts, as a society, to solve. They are a blight on the American dream, and on capitalism worldwide. So if we are going to make the effort, let’s choose a path to solve them for the long run and not address them in a way that predictably replaces them with new problems down the road. Let’s focus on the fundamentals required for a truly free market. Don’t be alarmed! A true free market is quite humane, securing dignity for poor and rich alike. Human nature is everywhere and always the same. The right rules for capitalism only need to follow what is in us. Lasting economic solutions are right under our noses.


About the Author

Written by Stephen Taft

I live in New York City, work on Wall Street, and think about justice...all the time.


6 Responses to Universal Basic Income (UBI)

  1. Alan

    January 17, 2016 at 9:18 pm

    steve:

    I think you got this one wrong
    First of hall luminaries as diverse as Martin Luther king and Milton Friedman support a basic income guarantee ( although MLK) called it
    Guaranteed icons

    Secondly you seem to contend ( in part at least ) that such a guarantee would be a disincentive to work, under the guise of give your kids enough to do something but not enough to do
    nothing the wealthy have been helping there kids get a leg up and yet no one
    seems to argue that such help is a disincentive to work forth kids of the wealthy.

    In addition your argument is very much akin to those whe argue against
    Welfare programs for exactly the same reasons

    Furthermore such a program would be simple and help eliminate loads of
    Government bureaucracy by simply giving people money and thus perhaps save money. Such a system also has the beauty of being egalitRian
    As it truly gives all people a better shot at achieving there dreams then they would otherwise have.

    I bet if u asked people in Alaska
    How those oil dividends have eotked for all these years they would say pretty dam good. Yet you would prefer s system where only the wethy
    With access to capital have this advantage

    Also instituting such a system would certainly help the one in four kids who live below (the already to low) poverty line crawl out and probably help make them more productive members of society .

    Well thanks for the post- gave me a break from s very shitty football game

    • Stephen Taft

      January 18, 2016 at 4:32 pm

      Alan,
      Thank you for taking the time to reply to my post.
      I believe this subject merits further investigation. I’ll go through your statement point by point.
      You are right is saying that Martin Luther King and Milton Friedman are luminaries who supported a form of basic income. Milton Friedman was hyperbolic in many of his views. He is most famous, I believe, for two quotations. One is that “If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand.” Obviously this statement feels right to some people, but it is clearly wrong. The government does many things reasonably well, things that governments are supposed to do like build infrastructure and provide Medicare, but we must remember that governments are not supposed to be run for profit. Ironically, it is now private industry that needs controlling by government to keep actual Saharan sands from disappearing to climate change. The second famous quotation of Friedman is that “inflation is always and everywhere a monetary phenomenon.” I used to abide by this one, but the last 8 years have taught me otherwise. The Fed pumped historic levels of liquidity into the economy during this time, with no discernable stimulation of inflation. My point here is that Friedman was not infallible.
      Martin Luther King, was a great man, a paragon of social virtue and a personal hero.. Before his movement turned to racism, his initial quest was to vanquish poverty, In that regard, I’m sure a guaranteed income (or basic income) felt right to him. It still FEELS right to those of us who abhor the suffering and destitution that comes with impoverishment. But feelings can lead us astray in economics. I will explore this further in a moment.
      Your next point to me was about the disincentive to work, but I said nothing about the point you make about it. What wealthy kids do is not my concern. My point is this: if a basic income is enough to cover your basic needs, then a job, which subjects you to a boss and takes time out of your day, has to offer more than what basic income does for someone to take it. So now we are into the dangers behind what feels right. It is at this point that government is intruding into capital markets. Since government is not, and should not be a for profit participant, its entry can only distort the market. As I explained in a prior blog post http://www.stephentaft.com/taxing-capital-is-a-big-mistake/ and far more extensively in my book, A True Free Market, the effect in the long run, as counter-intuitive as it may sound, is to exacerbate poverty and ensure that the need for such programs only grows. Besides, the competition for workers caused by capital intervention is risky. I don’t see how this can fail to trigger a wage/price spiral of inflation.
      Alaska’s example is a poor one, for the shared income there never amounted to more than a couple thousand dollars, far short of what a basic income would require. And their sharing is from one industry, not general economic activity. (Which itself is a bad idea that I’ll leave for another time.)
      Of course we both agree that children born into any address within our nation deserve the opportunity to flourish to the point that their abilities and the potential of our economic community can provide. What I am contending is that a guaranteed or basic income is one approach to this end, but not the best one. The best approach (a subjective statement, to be sure) is through re-organizing our land-tenancy system. Why is this important? Because every job a person can hold requires some degree of access to the land. If the value of this access is collected by the community, and the community stays out of capital markets, the free market will then be worthy of its name. We would actually be able to trust the free market to care for our dignity at every stage in life. This will threaten neither inflation nor the incentive to work, and will give all our children the opportunities they deserve. This too is fleshed out in my book.
      Till next time…

      • Alan

        January 18, 2016 at 9:01 pm

        Kaufman writes allot ( as I sure you know about your second point. Would be great if those who were wrong before on that point could change their views bases on evidence as u have. I admit I never changed my view o. That pint as I never really had one but the evidence seems overwhelming that the fed has not stimulated inflation..

        I have not read your book except the excerpt I read awhile ago so I am not prepared to address your central point.

        However it still seems to me that say a basic garuntee of say 10k would help all low income workers because employers would have to raise wGes above the pathetically low ones that now exist to get workers to accept their jobs and thus could cause s bit of wage inflation leading to overall inflation but that would be ok in terms of getting the govt and private to spend now not later.

        Anyway that’s how it appears to me

      • Phillip

        February 4, 2016 at 9:12 pm

        Hi Stephen. I have just started reading your book and getting my head around what you are saying but I think you have contradicted yourself with this comment.

        “My point is this: if a basic income is enough to cover your basic needs, then a job, which subjects you to a boss and takes time out of your day, has to offer more than what basic income does for someone to take it. ”

        That is exactly the point of a free market. They have a choice to work for someone or not otherwise as you pointed out it is not free. Perhaps you explain more later in the book.

        ” I don’t see how this can fail to trigger a wage/price spiral of inflation.”

        This I do see as a problem for a UBI. As yet I am not sure what the answer is. One point is that it would only trigger a spiral if wages where a significant part of the price (and with automation this is increasingly false) and if the product was composed in a large part of low wages.It is not going to material affect higher incomes in fact it could reduce them.

        • Stephen Taft

          February 15, 2016 at 8:13 pm

          Phillip,
          Thank you for your comment. I apologize for my delay in responding.
          I fully appreciate what you say the point of a free market is; to have the choice to enter a transaction or not, including and most importantly, the employment transaction. But UBI is not going to be set by the market, but by politics. Even if it happened that politics got the initial level correct, as the economy ebbs and flows, politics will not follow. UBI is doomed to fail in one of two ways: either, as you point out, that technology will decimate the workforce, or that the appropriate level for UBI will become an enduring political issue, much as the appropriate level of welfare is now. The point of a free market too is to have politics play as small a role in driving it as possible. And what is possible in this regard, as you know from giving my book a chance (thank you for that!) is how fundamentally well we find rules for the free market to follow.
          Again, please forgive my tardy reply.
          Steve

Leave a Reply

Your email address will not be published.