Helping Hand

Universal basic income is more likely than you think.

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New Yorker

If you could be dictator for a day, which issues would you tackle? Climate change, hunger, budget, healthcare, and poverty? Perhaps you could ban fossil fuels, create food warehouses, public healthcare, and universal basic income (UBI)? Only if there was enough political will actually to solve these issues…

Blame it on a bureaucratic mess, but the reason these policies don’t get enacted right away is because, well, it’s more complicated than that. Take UBI, for example; some politicians are advocating for $1000 monthly payments to everyone in the US without restriction. Many would also like to ban fossil fuels, but the point is, these are not outlandish philosophy books, but real policies.

UBI is coming in some form or another. At the current juncture, it seems that fiscal austerity is more prominent than in the past, considering discussions on DOGE, tight monetary policy, and deficit reduction. It may seem like the wrong time to discuss something that lacks political motivation at the moment, but things can change.

What UBI

UBI is a welfare policy like social security and unemployment insurance, although it takes it a step further. Instead of restricting payments to certain qualifying cohorts, like the elderly or unemployed, it is paid out to everyone. UBI groundwork has already been laid with transfer payments during the pandemic.

During the pandemic, the government forced many to stay in their homes and not come to work. This widespread unemployment was covered by numerous rounds of stimulus checks that went right to consumer bank accounts. Not only did this contribute heavily to price inflation in the coming years, but served as a trial for one of the most radical social policies that could ever be implemented.

With innovations in robotics and AI, there is increased concern over rapid and widespread technology-driven unemployment. UBI proponents cite the destruction of poverty and unemployment stress as the primary motive. It is also suggested that it is more equitable, meaning everyone has the same base pay, so there is no discrimination or merit clauses. With unemployment insurance, you cannot pick up a part-time job without losing benefits. UBI reverses this incentive.

By receiving UBI, people will be free to start businesses, pursue their passions freely, and increase productivity. If people are getting UBI, “fake jobs” will decrease because there is less incentive to work in them. Crime will go down because you don’t need to do it, or future payments will be penalized.

While many herald it as a foregone conclusion of utopia, no policy is without consequences. The most obvious flaw is the cost and inflation. $1000/mo UBI in the US would cost ~$3 trillion/yr, which represents 60% of federal revenue. Not only does this pose funding problems, but it is a wealth redistribution scheme. An even more progressive tax structure would be needed to redistribute wealth across all US people. This is a coercive and unfair policy that leads to the next con of UBI.

The incentive of UBI is not to work, contrary to what proponents suggest. You are getting paid for providing no goods/services, which should tell you all you need to know. On top of that, those still working are getting taxed and their profits siphoned to fund the social welfare program. Further, the reason those people who wanted to start businesses or do art couldn’t because the market did not value them. These non-productive endeavors are incentivized under UBI, and there is no signal to tell people that they shouldn’t be working on them. It may even incentivise immigration to take advantage of the free money, depending on how the policy is enacted.

Another significant con is the slippery slope of social engineering. Want to eliminate crime and the need for jails? Just threaten to cut UBI if you commit a crime. Want to solve climate change? Cut UBI payments if you drive your car too much. How bout if you attend a protest, are the wrong religion, are the wrong ethnicity, have the wrong ideology, or buy the “wrong” things? What if Trump could decide this? How bout Harris? If either is scary, the problem is the policy, not the politician.

Pilot studies sometimes report very positive results, like this one in Finland. This will affect a small subset of unemployed people in a pilot differently than if it were applied universally. Other pilots in the US had opposite results, confirming some of the negative effects that critics suggest.

Why UBI

I clearly think UBI is an abomination of a policy, but with such disdain for budget deficits right now politically, why do I think it’s coming? The deficit talk in politics is all theater, as every administration contributes to the fiscal deficit, regardless of party. With only mild reprises, the US has been running a fiscal deficit since the Great Depression. Long-time readers will know this is a function of holding and defending the world's reserve currency in addition to aggressive federal spending by Congress.

While there is talk of deficit reduction, it is unlikely that Trump or the next president will be able to urge Congress into meaningful change. As you can see, wars and recessions make the deficit blow out even more. If things get bad enough, all bets are off for what policies are on the table. Trump was the one who signed off on UBI-lite in 2020, not the MMT’er democrats.

I disagree that AI, robotics, and automation will be the catalyst for unemployment that will bring UBI. Typically, technological change happens slowly enough that unemployed workers can learn new skills and shift to other lines of work. People think AI would be faster, but there will still be new jobs created because of AI.

I think the unemployment that will bring about UBI or UBI-like policies will be driven by a recession. A significant recession is likely from my research. Leading indicators like the yield curve and savings have been warning us for years now, leaving some complacent. Lagging indicators like the unemployment rate only dip once the recession is in full swing. Cracks are even forming here, with full-time employment being replaced by government and part-time workers.

If the unemployment rate goes sufficiently high that there is widespread uneasiness, more radical policies may be considered. More stimulus checks or outright UBI will likely be considered again, since they have already been implemented once. In the 1930s, the government sponsored public works projects like the creation of the Hoover Dam. These social welfare policies of Hoover and FDR laid the groundwork for modern-day welfare policies. While the Hoover Dam turned out to be a successful public welfare investment, others like the Wilson Dam were left unfinished for years.

There’s little difference between a failed public works project and UBI. Both incentivize the worker away from learning skills required in the new economy. UBI may be marketed as a way to increase productivity and reduce issues with unemployment, instead of the waste and theft of capital that it is.

Call me pessimistic, but it could be as soon as this Trump term if the economy deteriorates enough, or in the next term when Democrats take over an anemic economy with big ideas to save the day. Regardless of when and how, the why and the consequences will be clear. Those first few $1000 checks may feel nice for low/middle class Americans, but the world it will create is not in their best interest. Until next week,

-Grayson

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