The UBI Debate: Mixed Socialism

The article Universal Basic Income is Capitalism 2.0 went viral.

I’m a huge fan of capitalism and free trade, as laid out in Adam Smith’s genre defining book The Wealth of Nations. The first core component of capitalism is the understanding that when everyone performs the work they are best at, then trades with each other, everyone wins.

Now supply-side economics makes sense, and products have become cheaper over time. However you always reach a point of diminishing returns where you’d have to spend vast amounts of money to make your product only a fraction of a percent cheaper, and thus it’s not worth the investment. When a company starts to reach this equilibrium they cannot lower the price enough to gain enough new customers and they start to become demand-constrained.

As the passages above show, the author can hardly be considered a ‘Bernie bro socialist,’ yet the viralness of the article suggests many neoliberals and neoconservatives (or at least people who hold similar views) seem to be coming around to UBI. It is not so much that capitalism and socialism must be mutually exclusive, but that the later can help with he former in certain cases.

1. Conservatives and neo-liberals alike are coming to the realization that America is no longer a ‘free market capitalist system,’ assuming it ever was one to begin with. The US is going down the route of mixed socialism–more stimulus and bailout programs, plus private ownership and massive wealth creation/ownership (such as the likes of Bezos, Gates, Zuckerberg, etc.). You have tens of millions of Americans getting a soft form of UBI, which benefits privately massive companies such as Walmart and Amazon. It is a form of the government picking winners and losers, the losers being small and medium-sized businesses and the winners being these huge big box and tech companies. This is not necessarily a bad thing from a productivity standpoint, because having Amazon, Shopify, Google, and Walmart runs things is possibly more efficient than hundreds of small, barely-profitable small and medium-sized businesses, or having the government trying to coordinate it. These massive corporations are like a sort of optimum between having planned socialist economy on one extreme and fully-autonomous, atomistic capitalism on the other.

I think the realization is dawning that massive stimulus and quasi-socialism can be used to improve living standards, engender social stability, and boost productivity (by concentrating/shunting economic activity to efficient large firms such as Amazon), especially given that the US can borrow at next to nothing, with minimal to no inflation. Other countries do not have the luxury of borrowing for nothing and using that money as pure top-line, inflation-adjusted growth for the private sector and to fund social programs. The treasury can borrow $2 trillion at .5%/year, and then a chunk of goes to Amazon and Walmart indirectly through consumer spending, which then Amazon and Walmart invest to streamline the production and delivery of goods, so living standards improve. The counterargument is this entails outsourcing manufacturing to China for those cheap goods, but this is unavoidable, with or without stimulus. In spite of tariffs and tough talk, Trump has been powerless to reverse this trend. Also, Amazon still sells plenty of goods manufactured domestically, by Amazon itself or independent third-party sellers.

But isn’t capitalism always better? As discussed in the post The capitalism vs. communism debate, part 2, studies that purport the superiority of capitalism compared to communism tend to have glaring methodological flaws. For example, the US is used as the base/control-group for the purposed superiority of capitalism, but you cannot use an outlier as your control group (it is called a ‘group’ for a reason.) When the former USSR, China, and other socialist and communist systems are compared to an average of developed and developing countries, the difference is much smaller. Another flaw is that the US began the 20th century with a much higher per-capita income and per-capita GDP compared to to Russia, China, and elsewhere, but this is often not taken into account. That is not to say that capitalism is worse or that socialism is better, but if you cannot make an intellectually honest argument for your case that passes even slightest of scrutiny by anyone with at least a 105 IQ, I have less reason to believe you.

Mixed socialism can be used to improve life in other respects, such as improving the quality of consumer goods. Appliances and electronics break too often and easily, because companies often skimp on quality to boost profits, but under the hypothetical mixed-socialist system, the government would force such consumer goods companies to improve quality and then reimburse the extra costs, so there would be no loss of profit. The reason why conventional socialism does not work as well is because there is no reimbursement mechanism, so companies have no incentive to produce.

2. It is better to have people who don’t want to work or who do their job poorly, to not be working. Productivity and customer satisfaction will improve by getting these people out of the workforce and on some form of UBI.

3. But wouldn’t everyone, if given the choice between a UBI or work, choose the UBI? Not necessarily. The typical conservative argument against a UBI goes along the lines of “people will not work if they are getting a UBI; it disincentivizes work,” but such arguments fail to take into account individual preferences. Yes, some individuals if given a choice between $1,000-2,000/month versus working, will choose the UBI, but enough people will choose both (such as people who value money over leisure), ensuring that there will be enough workers even under a UBI. As mentioned above, it is better for productivity that people who value leisure over work, not be working.

4. But what if there are not enough workers? As the post-Covid recovery has shown, there was never a labor shortage even with low unemployment. Rather, there has always been a glut, now made acutely and permanently worse by Covid. Even low-skilled job positions were inundated with applicants during 4-5% unemployment. There are just too many low-skilled people looking for work but not able to find any, regardless of what the official unemployment stats say. Millions of people lost their jobs, many permanently, due to the Covid shutdowns, yet the US economy and stock market has seemingly recovered/stabilized. The harsh reality is, many of these jobs that were lost were useless/redundant anyway. The trend is is towards fewer workers needed relative to the total US population (a lower labor force participation rate). It is not that automation and technology will make low-skilled work obsolete, but that mega-companies such as Amazon and Walmart can generate equal or greater output with fewer workers, due to increased productivity.