Tag Archives: basic income

Basic Income Alternatives

It’s not that Medium.com writers are dumb or uneducated, but rather that many of them have no idea (like the post about Charles Darwin a few days ago) what they are talking about. The large web 2.0 font and portrait avatars lend a pretense of credibility, when the content itself is often poorly conceived and arguments unsubstantiated. MBAs just out of college who write on Medium are full of idealism but lacking in common sense or are unable to do even the most basic of research to try to substantiate their arguments or to anticipate obvious counterarguments.

Universal Basic Income Will Accelerate Innovation by Reducing Our Fear of Failure

After a huge rambling preamble about risk taking, evolution, and the decline of entrepreneurship, here is the crux of the author’s argument:

But the effects of basic income don’t stop with a reduction of risk. Basic income is also basic capital. It enables more people to actually afford to create a new product or service instead of just think about it, and even better, it enables people to be the consumers who purchase those new products and services, and in so doing decide what succeeds and what fails through an even more widely distributed and further decentralized free market system.

Such market effects have even been observed in universal basic income experiments in Namibia and India where local markets flourished thanks to a tripling of entrepreneurs and the enabling of everyone to be a consumer with a minimum amount of buying power.

There are obvious problems:

1. Although a basic income may create an incentive for entrepreneurship, it may also create an incentive for people to not work or to work less, thus negating any gains from the former.

2. The resulting inflation from the basic income will erode its purchasing power and cause all sorts of economic problems. A $10,000 annual basic income for 200 million Americans will cost $2 trillion, which is about the same as the total cost of the Iraq War, except imagine the $2 trillion compressed to just a single year, repeated indefinitely, instead of spread out over 14 years.

3. If the goal is to increase entrepreneurship, a basic income is the wrong solution, mainly because a $10,000 income is hardly sufficient to cover the costs of starting a business, unless, I suppose, your business is coding a simple app or something very minimalist. Just the advertising budget alone would be insufficient. It’s obvious the author didn’t think this through.

Here are some examples of how expensive it can be to start a business:

The author mentions Namibia and India as success stories, but a few thousand dollars goes much further in those countries than in America, that’s for sure.

Unlike free market purists, I am not totally opposed to intervention, but it should not be done out of altruism or indiscriminately, but to maximize economic value, an example being the funding of Tesla, as I describe here. Just as corporate welfare is better than regular welfare, a high-IQ basic income is better than a basic income for everyone. Rather than haphazardly giving everyone money, which is what proponents of a UBI advocate, let’s allocate it only to those who have the greatest biological potential to generate a positive ROI from it. Here are some ideas:

1. A high-IQ basic income (a government-funded equivalent of ‘Mensa’ that pays its members)

2. Profit sharing loans for high-IQ businesses and founders (these loans would not be fiscally profitable, but the economic value produced by the created businesses would make it worthwhile in the long-run)

3. A federal version of the MacArthur Fellows Program , which is a lump sum that pays more the the high-IQ basic income, for truly exceptional individuals and would have more recipients than the current MacArthur Fellows Program.

4. Student loan forgiveness for STEM majors, or income sharing loans (where the payment is deducted from future wages above a certain after-tax income threshold)

5. Generous government incentives for high-IQ couples to marry and procreate, creating a eugenic effect, versus the dysgenic system we have now that gives incentives for the less intelligent to have children and creating a feedback loop of welfare dependence. Also, financial incentives for the less intelligent to not have children, with possible mandatory birth control for low-scorers.

The odds this stuff will happen are about zero, which are the same odds of a basic income ever happening in America, but assuming deficits don’t matter and we want to maximize potential ROI (and we’re only talking hypotheticals here), this is how it should be done.

Jobs, Basic Income, Post Scarcity, and all that Jazz

There have been a smattering of wealth inequality/economics articles lately:

THREE GREAT ARTICLES ON POVERTY, AND WHY I DISAGREE WITH ALL OF THEM

Economics Has Failed America

Scott goes on about the unrealistic expectations of trying to teach everyone high-IQ skills, when biology imposes barriers to such hopes:

The QZ article warns that it might create a calcified “perpetually under-employed stagnant underclass”. But of course we already have such an underclass, and it’s terrible. I can neither imagine them all learning to code, nor a sudden revival of the non-coding jobs they used to enjoy. Throwing money at them is a pretty subpar solution, but it’s better than leaving everything the way it is and not throwing money at them.

It’s hard enough teaching young people algebra; coding is many magnitudes harder. A frequently voiced concern that the cognitive requirements to perform entry-level labor may rise to a sufficiently high threshold that it excludes too many people from the labor market. This may mean that while the total number of jobs does not fall, the IQ requirement rises. Another issue is the ‘hollowing out‘ of the middle, where there are too many low-paying jobs and lucrative creative-class jobs, but not enough middle-income ones. ‘Luddite Fallacy’ and ‘Lump of Labor’ may ignore job pay or cognitive demands.

As I explain in The Economics Debate: Jobs and Automation and Coming to Terms With Our New Economy, however, there is reason for hope:

New technologies seem to spawn jobs for all skill levels. Cars are much more complicated the carriages, yet there are jobs for all intelligence levels, from people who clean the interiors of cars to those who solve differential equations to model airflow. Also, the fruits of economic progress tend to be shared with everyone, even with rising wealth inequality, in the form of better technologies, larger social safety nets, and rising standards of living, as “Nathaniel_Bude” points out (this is such a good comments that I pasted the entire thing):

“Cost of living” is a misleading term, because the cost of staying alive has gone up much less. 1 kg of rice still costs about $1 in rich areas, rich people only choose to buy much more expensive food. And similar reasoning applies to all the other “necessities” that people somehow manage to spend so much less on in poor areas than in rich areas
.
But this increase in spending has absolute benefits. Homes with screen windows, non-leaky roofs, clean tap water, and flushing toilets – that are all factored into “cost of living” here – really can make the difference between early death and long life. It is not a “red queen’s race”. Rich people do not need these things any more than poor people. Poor people need them just as much, but can’t afford them.
So there have been huge benefits from rising GDP, and there would be huge benefits to raising levels of consumption in the poorest areas toward the levels typical in the developed world. Which is why it frankly offends me to discuss handing out more money to the poorest people in the richest areas.

Especially when there is a better alternative. Negative income taxes at the low end (like the earned-income tax credit) are not zero sum! They directly redistribute to the relatively poor, while incentivising more work and greater labor force participation rate, which raises their total income even more; and fuels economic growth, which produces a bigger pot of money that we can tax and redistribute as we see fit (like, say, to the absolutely poor).

The poor benefit as much as rich from new technologies, and new technologies create deflationary forces on prices and raise living standards. There’s perhaps a misconception that capitalists only cater to the rich. However, capitalists want to make their innovations and services as accessible to as many people as possible, provided capitalists can turn a profit. Consider an experimental cancer drug, for, say, liver cancer. Should it become successful, the potential market is enormous – tens of billions of dollars a year or even more. It does drug companies no good to restrict cures to the very richest.

From QZ: QZ: The universal basic income is an idea whose time will never come

I’ve written about the UBI here and here.

Regarding the UBI, some thoughts and ideas:

1. Means testing the basic income: those who are deemed unsuitable for a UBI are excluded.

2. Compliance: those who abuse or fritter their income are bumped back to regular welfare. If a UBI is supposed to replace most welfare, a UBI recipient going on welfare indicates a failure of the program.

3. Find ways to reduce living expenses, making a UBI more effective.

In “Average is Over”, economist Tyler Cowen floats the idea of the unemployed, unable to adapt to a changing economy, moving to low-cost regions or ‘camps’, subsiding on inexpensive food and cheap entertainment. Automation wrought by technology may make enough goods cheap enough that such a post-scarcity society may be possible. These ‘camps’ may be a much cheaper alternative to rent, which can be very expensive.

People could leave the camps when they have the financial means or motivation to do so, but the location of the camps may make getting work difficult unless the work is online or on the camp itself. It may end up resembling something like Kiryas Joel.

The resurgence of nuclear families are another possibility. Millennials living with their parents longer to save money, for example. Families would form multi-generational domiciles or clans, passed-down from one generation to the next, rather than everyone splintering off.

4. Unfortunately, a UBI will not make much of dent in healthcare or education, given that those can easily cost tens or even hundreds of thousands of dollars a year for a single person.

5. Will a UBI replace the minimum wage? Eliminating the minimum wage could be deflationary, auguring well with #3.

The future will be one where there is an abundance of free time, for all socioeconomic levels, with fewer hours worked, a shrinking labor participation rate, and possibly even a shorter workweek. There is a tendency among some on the ‘left’ to want to ‘put everyone to work’ when it’s not necessary or possible.

Even if there is enough abundance created by technology and a generous, paternalistic ‘elite’ to give everyone, both working and permanently unemployed, a comfortable standard of living that would rival that of kings 500 years ago, people may still complain about wealth inequality and lack of fulfillment, because someone will always have more. Studies have shown that relative wealth is as important, if not more, than absolute wealth (also known as big fish in a little pond vs. being a small fish in a big pond). That’s why a solution involving camps may be effective, by lumping everyone together and thus eliminating class envy.

Post scarcity also won’t provide status, ‘ownership’ ,or ‘participation’. The paradox, I suppose, is that you have all this technology and economic expansion, but the average person’s contribution to the process is becoming less and less. People generally want to believe that they are valued, that they have some sort of ‘agency and purpose’, that they have some sort of ‘stake’ in society, that they are contributing, and that they have some form of control. A post-scarcity ‘system’ will need to provide and or emulate those things.

The UBI Revisited

In continuing on the debate over the viability or lack thereof of the Universal Basic Income (UBI), from Slate.com:

What If We Just Gave Poor People a Basic Income for Life? That’s What We’re About to Test

Despite the the fact that the likelihood of a UBI in America is pretty much nil, that didn’t stop the article from being shared by 17,000 hopefuls.

And also the transcript of a recent Freakanomics podcast about the UBI: Is the World Ready for a Guaranteed Basic Income?

The pro-UBI argument seems to be predicated on some assumptions:

1. It will be in lieu of some or all existing welfare programs

2. It will be cheaper than existing welfare

3. Recipients of the UBI will use it to ‘better their lives’, ‘start businesses’, ‘go to school’, and the money ‘will not be wasted’.

From the Slate article:

As it turns out, that assumption was wrong. Across many contexts and continents, experimental tests show that the poor don’t stop trying when they are given money, and they don’t get drunk. Instead, they make productive use of the funds, feeding their families, sending their children to school, and investing in businesses and their own futures. Even a short-term infusion of capital has been shown to significantly improve long-term living standards, improve psychological well-being, and even add one year of life.

But I’m still not sold on the UBI, and maybe that makes me a ‘mean person’ because I don’t think the government should be writing checks to people willy-nilly? If it can be demonstrated that a UBI will be less expensive than existing programs, maybe. If the UBI is being spent on non-essentials, likely won’t help. IQ and education may be good filter for determining who stands to benefit the most from cash payments, versus regular welfare. Smarter, more educated people are more likely to use their income efficaciously, providing a positive ROI to taxpayers.

Maybe individuals who squander their UBI and have to resort back to welfare should have their UBI revoked, since apparently they were unable to ration their money wisely.

The UBI also assumes that the fiscal multiplier is high enough that the UBI will pay for itself, which is a matter of debate:

So what do the data say? There aren’t many studies of the issue. But two stand out: Robert Barro’s work and research by Valerie Ramey, an economist at the University of California–San Diego, on how military spending influences GDP. Both studies found that government spending crowds out the private sector, at least a little. And both found multipliers close to one: Barro’s estimate is 0.8, while Ramey’s estimate is 1.2. This means that every dollar of government spending produces either less than a dollar of economic growth or just a little over a dollar. That’s quite different from the administration’s favored multiplier of four. What’s more, Ramey also found evidence that consumer and business spending actually decline after an increase in government purchases.

Form the Freakanomics transcript, this passage stood out:

ALTMAN: Maybe 90 percent of people will go smoke pot and play video games. But if 10 percent of the people go create new products and services and new wealth, that’s still a huge net win. And the kind of American puritanical ideal that hard work for its own sake is valuable, period, and you can’t question that, I think that’s just wrong.

FORGET: Well, I think that there are lots of kinds of work. I think that people do need to create meaning in their lives, and for a lot of people that does come through work. I’m not sure that they necessarily need eight hours of work a day and 40 hours of work a week to find that meaning.
Forget, like Sam Altman, sees a potentially huge upside in freeing people of the need to work.

FORGET: If you look at the 18th and at the 19th century, some of the great scientific breakthroughs and some of the great cultural breakthroughs were made by people who did not work. These were gentlemen of leisure, right? These were people who had enough family money to support themselves. They certainly didn’t have to dirty their hands doing the kinds of work we take for granted. I don’t think these individuals felt useless; I don’t think their contribution was negligible. I think it was very important to the development of the world.

That’s probably true, so why not give the income to the 10% who will actually use it better their lives and society, rather than everyone? That’s my motivation ind the high-IQ basic income: if studies show smart people are morel likely to be creative, to make breakthroughs, then the best results would be obtained by only limiting payouts to the smartest of society, not everyone. Give high-IQ people the financial freedom to tinker and create, improving society in the process, instead of them having to worry about making ends meet. I think that’s compromise that can satisfy both proponents and opponents of the UBI.

In regard to the Slate article, another problem is a UBI may not be enough for some expenses, like higher education, starting a business, medical bills, or certain types of job training, so projections about what a UBI may be able to accomplish may be too optimistic. Whether it’s education, healthcare, or a basic income, some rationing and judiciousness is needed to ensure not too much taxpayer money is wasted.

Universal Basic Income – Why It Can’t Work in America

From Bloomberg: A Basic Income Is Smarter Than a Minimum Wage

The Universal Basic Income (UBI) is one those economic debate topics that will never be resolved to anyone’s satisfaction, unlike Newtonian gravity, for example, which with the exception of possible quantum gravity, has long been long settled. That’s the problem with the social sciences. Excluding fundamental concepts (comparative advantage, trade, supply vs. demand), pretty much everything else is subject to debate, whether it’s supply side vs. demand side, govt. debt vs. GDP growth, minimum wage vs. flexible wage, fair tax vs. flat tax vs. progressive tax, free trade vs. protectionism, or the best interpretation of the Laffer and Philips curves. Even studies aren’t good enough, because if you look hard enough, you’ll likely find the same number of studies that oppose your viewpoint, and it seems all studies in the social sciences are beset by methodological flaws, if not outright fabrication. The best anyone can do is present evidence, and it’s up to policy makers to choose whether or not to heed said economic these models. In the Case of Bush and Reagan, they went with supply-side (Mundell and Laffer). Obama went with demand-side (Keynes, Solow, and Krugman). Even when something seems certain (Enron’s fraud, for example) doubts can remain – was the trouble with Enron that its management didn’t tell us enough—or that analysts failed to make sense of the data it supplied?

Some try to re-frame it as an immigration issue – ‘either basic income or immigration’ – but eliminating immigration won’t magically make the basic income workable.

A prosperous country with a small citizenry, such has the UAE, could probably sustain a UBI. In 2013, the UAE’s total population was 9.2 million, of which 1.4 million are Emirati citizens and 7.8 million are expatriates. The gross domestic product of the UAE for 2013 was
$402.3 billion, with a nominal GDP per capita of $43,000. Sweden, Norway, and Luxembourg rank much higher, with a nominal GDP per capita of around $90,000. For the UAE, after excluding the guest workers, the per capita GDP surges to $285,000. The USA ranks in the middle at around $55,000 per capita. A basic income for every adult American citizen at $10,000 a year would cost $2.45 trillion annually, or about 13% of GDP. In the case of the UAE, a $10,000 a year basic income for every citizen (including children) would cost just $14 billion, or only 3.5% of GDP. A low or average GDP per capita in an otherwise very large economy implies a Pareto distribution of only a small percentage of citizens producing the bulk of economic value, which is why a UBI may work for the UAE but not America.

Some approaches to the UBI:

High-IQ basic income (a basic income only applicable to individuals of a sufficiently high IQ)

The high-IQ basic income would have the effect of only making the program applicable to only a small percent of the population (the most economically productive and or the potential to be productive), which seems more fair than giving it to everyone indiscriminately. This would dramatically lower the cost relative to GDP and guarantee the highest ROI from the program.

Mandatory birth control for low-IQ recipients of the UBI, with revocation of UBI for repeat offenders.

Credits (food, housing, gas, and electricity credits) instead of cash. the former much less susceptible to abuse, unlike cash which may be squandered on non-essentials.

A UBI is also similar to negative tax rate, which due to entitlement spending already exists for about 20-40% of the population (people who consume more in benefits than they produce in taxes):

A UBI without preconditions will only compound entitlement spending, because what is to stop people from wasting their basic income on frivolities while also drawing from existing welfare programs.

Many people may agree to work for less than the current minimum wage, and on more flexible terms, if they’re supplementing a guaranteed income, not scrambling to avoid having to beg for food.

But this is not the case. Somewhat counterintuitively, the poorest are not starving to death; in fact, they’re more likely to be obese than higher income earners:

More than forty percent of student loan borrowers are not making payments, sometimes even when they are financially capable. So that’s effectively like a ‘basic income’ as far as education is concerned. Similar patterns are observed with healthcare, with medicare, medicaid, and free emergency room treatment for millions of Americans who are uninsured and cannot afford to pay.

The assumption that a UBI, on top of existing welfare programs, will make people more compelled to work seems like a stretch.

Ultimately, given existing negative effective tax rates and the surge in entitlement spending, we’re probably much closer to something resembling a ‘basic income’ than many realize.