The Pragmatic Case for Universal Basic Income

Universal basic income or UBI has been creeping into the American political consciousness as it becomes clear that the era of robotics and workforce automation is upon us. I hadn’t given much thought on the subject until Andrew Yang, a Democratic presidential candidate, recently articulated a compelling case for UBI on the Joe Rogan show. Universal basic income is the idea of giving each adult, regardless of employment status, a basic income each month. The popular consensus recently is that every American would receive $1000 per month with no strings attached.

The $1000 per month is also the number being proposed by Yang, who distinguishes himself in many ways from the new ‘progressive Left’ by articulating pragmatic solutions, rejecting ‘identity politics’ and recognizing the inevitable advancement of automation that promises to make millions of jobs obsolete in the next decade.

At first glance, UBI seems like an idea that a typical libertarian would find utterly repulsive. However, there is strong support for it within certain libertarian circles. Even Milton Friedman supported the idea back in the 1970’s, arguing it to be an effective way to stave off poverty while actually reducing government spending.

So it is important to point out that UBI is by no means a ‘Leftist’ concept, but one that has been pondered by several economist, pragmatist and policy makers willing to think beyond the traditional welfare state paradigm. Proponents of the program, including Yang, reject the idea of UBI being labled as a form of socialism. Whereas socialism seeks to redistribute wealth by way of nationalizing industries or the ‘means of production’, advocates of UBI call for maintaining the market economy.

As Yang explains, UBI should be seen as a ‘freedom dividend’. In his own words, “ It’s not left or right, it’s forward.” According to Yang’s plan, if a person is already getting say $700 a month in aid from the government, then they would only get an additional $300, adding up to $1000.

Although many supporters of UBI would prefer to eliminate all welfare programs in favor of one simple monthly payment. While conservative opponents of UBI see it as a handout to encourage laziness, there is a strong case to be made that it could help foster economic growth and potentially slow down the widening gap of income inequality that is bound to get worse with advancements in workforce automation. It should be noted that UBI is also supported by two of the most influential figures in the tech driven economy , Elon Musk and Mark Zuckerburg. Musk envisons UBI as a buffer to give the population time to adjust as AI technology becomes omnipresent.

How do we pay for such a radical idea?

Critics are quick to bemoan the seemingly exorbitant cost of UBI. But most people mistakenly multiply the size of the monthly payment by the population. If you just multiply the adult population by $1000, the numbers are grossly misleading. To get to the actual cost, we have to understand the upfront cost (gross amount) and how that is redistributed back to the same contributors or net cost( real cost).

If one doesn’t account for the taking of a large amount of money and then giving that money back to the same population, one doesn’t get the true cost of such a program. In one study, Karl Widerquist, an associate professor of political philosophy at Georgetown University, estimates that the real annual cost of a $1000 monthly UBI program for every US citizen, including children would be around $539 billion per year, a fraction of the $3.415 trillion upfront cost (gross amount). $539 billion per year is less than 25% of the cost of current U.S. entitlement spending and less than 15% of total federal spending and about 2.95% of Gross Domestic Product (GDP). The passage below is taking directly from Widerquist’s paper.

Suppose the government gives $1 to Haveless, financing it by taking $1 in taxes from Havemore. The benefit of this targeted program is that Haveless gets $1. The cost is that Havemore has $1 less. This program effectively makes Havemore give Haveless $1. Next, the government universalizes this program by making Havemore give $1 to himself.

How much more does this cost Havemore? Nothing. The cost and benefit cancel each other out, because they go to the same person at the same time in the same form. There may be a small administrative cost of running the program (see below) but the $1 that Havemore gives to himself indicates nothing whatsoever about the real redistributive burden or feasibility constraints of this transfer. It costs you something if the government takes $1 from you and gives it to someone else, but it doesn’t cost anything if the government gives and takes the same $1 from the same person at the same time. There is no economic or financial limit to how much money the government can create out of thin air and give to you and everyone else, as long as it immediately taxes it back. In financial terms, this giving and taking-back makes up the bulk of what UBI does, but it is not a cost to taxpayers, to the government, or to the economy, and cannot truthfully be counted as a cost at all. Any realistic assessment of UBI’s cost has to subtract — net out — this taking and giving back. What’s left is the redistributive burden — the net cost, the real cost — of UBI: the amount of money the UBI transfers from one group of people to another plus the associated transaction cost. Any discussion of UBI’s cost that fails to consider the net-cost issue is misleading at best and deceptive at worst. In the Havemore-Haveless example, the gross cost overestimates the real cost of UBI by a factor of two because there was one contributor (Havemore) and one beneficiary (Haveless). If there had been two contributors for each beneficiary, the gross cost would have been off by a factor of three (as the Havemores pay $2 to Haveless and $4 to themselves). If the net beneficiaries also paid taxes equal to half of their UBI, the gross cost would be off by a factor of six (as the Havemores pay only $1 to Haveless and the three citizens pay a total of $5 to themselves). Because the gross cost can be off by so much, even a backof-the-envelope estimate of the net cost is far more meaningful.

In Yang’s plan for UBI, he proposes consolidating or eliminating some of the $600 billion we currently spend on social welfare programs annually. He also proposes a VAT (value added tax) to certain products, which is more or less an extra sales tax. This is a practice already common throughout Europe.

Yang also points out that the US spends roughly one trillion dollars annually on healthcare, incarceration and homelessness services. In theory, providing a basic income to meet the marginal necessities of modern life could deter crime, homelessness and ill health to some extent, which in turn would reduce cost in those areas. Another argument that Yang and advocates of the program make is that it would in theory generate economic growth as that money is spent back into the economy each month.

UBI is the logical solution to socialism

Surprisingly, it might be hard-left progressives that are most threatened by UBI. Not only does it make sense fiscally, but it is pro individual, a fact adored by libertarians. Rather than be subjected to long lines, arduous paperwork, bloated bureaucracy and disgruntled government workers, UBI would simply involve the federal government sending a monthly check to each citizen. As incompetent as the government can be, it is really good at cutting checks and making sure they are delivered to the correct address. At that point, each citizen can decide what to do with that extra $1000 without being hampered by the dictates of a government program. There would still be a small administrative cost with distributing monthly checks to each citizen, but not nearly the cost currently entrenched within the federal government.

Socialism involves the government taking control of the economy, the suppression of political discourse and playing a role in making decisions that impact the social fabric of society. In other words, economic socialism is inherently tied to a deep-seated ideology. These traits are exactly what the ‘progressive Left’ wing of the Democratic party is currently espousing. UBI should be seen as the pragmatic rebuttal to the progressive movement. Whereas the progressive Left preaches ‘equity over equality’ through a myopic lens of ‘identity politics’ and is open hostility towards capitalism, UBI is the sensible alternative.

The reality is that income inequality is only going to worsen as tech advances and automation displaces millions of traditional jobs. At some point, socialism will become an attractive concept throughout American society. However, we all know that socialism will get us nowhere. We also know that if there is one thing conservatives fear most, it is socialism. The logical solution is to grant every American a basic income to meet the marginal necessities of life.

Progressive critics of UBI argue that such as plan would redistribute income to citizens who don’t need it whereas traditional welfare is meant to uplift those suffering from poverty. However, advocates of UBI point out that even middle-class recipients of a $1000 per month could make good use of that extra income, which would ultimately foster economic growth and job creation. That $1000 would be reinvested back into the economy whether it is through consumerism, individuals returning to school or simply making economic transactions in their local communities. UBI would provide a logical social safety net equipped for the Twenty-First Century while maintaining a market-oriented economy. For those affluent individuals that don’t need it, they would have the option to simply give it away.

UBI could be the great catalyst for ‘entrepreneurship’ both in the inner-cities and in desolate ares of the Rust Belt

There are two areas of the country that have already been hit hardest and will continue to struggle as advances in automation encroach on the job market. The inner-cities, a majority of which are populated by African-Americans and some desolate parts of the Rust Belt, which are largely populated by working-class and poor Whites. Oddly enough, the former continues to support the Democratic Party unconditionally while the latter, once the foundation of the Democratic Party, now finds itself turning an ear to anyone willing to acknowledge their existence. That current populist is Trump, but rationality has a nasty way of reminding us that populism is merely a fad. What these two groups actually need are pragmatic policies rather than fear-mongering populism or progressive pandering. As Milton Friedman pointed out, when individuals are given a choice, they generally choose to make decisions to better their lives and the lives of their family.

Is a $1000 a month going to deter an individual from living in poverty accounting for today’s cost of living? Of course it isn’t. However, it could actually encourage individuals to work more if they know they have some sort of foundation to stand on. One problem with today’s economy is that individuals in economically poorer parts of the country are often discouraged from working simply because the cost to reward ratio is so low. If you are making $10 an hour working full-time at Walgreens, that comes out to $1600 per month.

After paying federal and state taxes, depending on which state, one is looking at roughly $1300 per month. This isn’t nearly enough money to support a family, serious relationship or to save. The result is that most individuals in this same situation have to take a second job, which means less time with family and more time that children are left to take care of themselves. Most of these types of low-paying jobs are also highly susceptible to sudden firings, which means that periods of little or no income become normalized. That is a no-win situation for both those families and American society since there is a direct correlation between economic hardship and crime.

But I would argue that the real appeal to UBI is that it could serve as a genuine catalyst for small business entrepreneurship, which ultimately fosters personal growth and has the potential to strengthen downtrodden communities. The reality is that we are already in a transition economy in which many individuals are freelancers, temporary contractors, running very small businesses, adjunct instructors and so on.

In parts of the country where well-paid, full-time work with benefits is hard to come by, the choice is to either work multiple part-time jobs or start a small business. UBI would essentially take the edge off of the income fluctuations of running a small enterprise. Whether that small business is landscaping, web design, printing t-shirts, home remodeling, growing vegetables locally, UBI would serve as the base to keep those businesses afloat until they become established.

Rather than taking on a second job, which provides no personal growth or benefits, that same individual can devote more time to studying and improving their trade, developing relationships with other entrepreneurs and ultimately reinvesting back into their local communities. It is fair to acknowledge that a small number of people simply will not work and function as ‘freeloaders’, but the vast majority of Americans, regardless of their socioeconomic background, are hard-working and industrious individuals.

In order for UBI to realistically work, some existing welfare programs along with government bloat would have to be eliminated. One idea is to keep social security, expand medicare or some sort of single-payer healthcare system and totally eliminate all other public welfare programs, which would also serve to deter partisan politics tied to specific welfare programs and mind-numbing paperwork.

Everyone just gets a $1000 bucks a month. It doesn’t matter your gender, skin color, sexual orientation or religion. Will inequality, crime, homelessness, discrimination, racism, sexism and drug addiction suddenly vanish? Not by a long shot, but we could slow down income inequality and improve the lives of millions of Americans. More importantly, UBI could prevent a citizen’s revolt against the system, which judging by today’s political climate, will likely lead to socialism. While certain elements of socialism are attractive on paper, it is ultimately a failed system and a self-limiting ideology. This is the pragmatic way to sidestep socialism and maintain a market-oriented society.

All Rights Reserved for James Rubio

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