Why Universal Basic Income Will Fail — Part 1
(and how to make it work!)
This is a work in progress so I’ll be editing and adding links as I can. I ask that you please bear with me as I slog through this (sorry for the excessive length!)
To put it bluntly, you can’t pay for it.
Let me say a few things up front. First, I am by no means an economist. I am just someone that has been captivated and somewhat fascinated by the idea of a Universal Basic Income. I’ve read a lot. But I keep coming back to one major problem. By and large, the people advocating on behalf of a UBI tout it’s benefits (It tastes great AND it’s less filling!) but when it comes to how they’ll pay for it, they shrug it off or throw out vague quips about carbon taxes or eliminating rent-seeking. I guess we’re supposed to pretend that we can implement some major system who’s cost would be near equal to the entire Federal budget and pretend that it will get paid for by throwing fairy dust into the air. I refuse to play that game. No one is going to agree to implement any system of that size and scope without being told up front how it is to be paid for. The numbers I use may very well be wrong. If you have some reference that corrects them please let me know. In the mean time, I can at least explain how I pay for my plan of action.
Yes, I’ve read and heard several of the “big plans”. They’re often touted by anarchists or Marxists who foresee a collapse in the world order, society in disarray and the need for a massive nanny-State to feed everyone a basic income for subsistence. Progressives tend to tout a idea of a Universal Basic Income (UBI) with an eye towards implementing their ideas for social controls to eliminate all the world’s problems and Libertarians see it as a way to simply the welfare state. That’s not to say every proposal meets that sort of description, but a most of them do. The UBI itself is really a secondary means to achieve some other political objective. It’s simply a means to an end. By and large, the idea of a UBI is being co-opted in order to push through other social controls on the populous instead of being just a UBI. The general consensus in all of these is that of some dystopian, post-capitalist, post-scarcity future where the Federal government will control all, execute the “will of the people” and those people will be free to spend their time creating art (as if anyone will buy their crappy pottery now!) and studying philosophy while eating organic/non-GMO fruits and veggies in small agrarian communes all managed for them by robots.
That isn’t going to happen. There are probably less than 10,000 people that would actually be interested in doing ANY of that stuff and they don’t even like each other. Within a week they’d be voting each other off the island.
If you read almost any article advancing the Universal Basic Income (UBI), they tend to mix terms trying to make things sound plausible. But when you dig deeper, the numbers simply don’t hold up. GDP is neither income nor expense. It has no purpose in this discussion. It’s a total value of goods and services.
You’ll also see many discussions about income inequality where people incorrectly make comparisons to “wealth”. Wealth and income are two very different things. If I earn $100,000, save half of it and spend the rest on non-durable products (food, rent, energy, etc…) then I have $100,000 in income but only $50,000 in remaining wealth. If I do the same the following year, I would end up with both $100,000 in income and wealth for that year. In year three my wealth climbs to $150,000 while my income remains as $100,000. When discussing the “.1%”, people aren’t talking about their income. Those in the top .1% are there because they have built up WEALTH. And generally speaking, we don’t tax wealth. There is no calculation of your net worth when you file your annual tax returns. We tax income. Comparisons of what a UBI would cost to some calculation of wealth are false comparisons. Wealth and income are usually related but they aren’t the same thing
And therein lies the first problem with all of the UBI proposals I’ve seen. They all dream up some imaginary “other people” that will pay for it. Go read the articles here in Medium. They all tout numerous benefits of a UBI but I’ve yet to see one that actually says how they’ll pay for it. They may give some vague references to “carbon taxes” or “rent-seeking” but I have yet to see even ONE that puts together a coherent process of implementation never mind vague ideas that a majority of people would ever agree to.
Proposals have varied on whether a UBI should (or could) be implemented at a national level or on a global scale. There are issues either way but for now, let’s stick with a national level program within the US of A.
Most of the ideas floated seem to target a total annual cost of between $3 Trillion and $3.5 Trillion based on an idea of $12,000/year for each adult + $4,000/year for each child (under the age of 18). These numbers are often used because they correlate closely to the current US government poverty level guidelines. (there are others that use other targets and some that start with a smaller amount and slowly grow the payment amounts.). This is often tied into the idea of offsetting some of the cost by reducing or eliminating existing welfare programs.
In order to provide $3+ Trillion in income, the government (who would presumably run this system) would have to raise that amount in taxes. That is NOT going to happen. You can dream up all the taxes you wish but the probability of them being put into effect and applied to a UBI are pretty much nil. Our entire Federal budget is right at about $3.7 trillion. You’d have to double the entire tax base to pay for this and you’d have to leave those tax levies in place forever. Some proposals offer up some welfare programs in order to offset the cost but does that really work? What’s the point in giving someone a $12,000 UBI and then taking away the existing welfare system from them leaving them in essentially the same place? If the whole basis for a UBI is to eliminate poverty, what good does it do to give poor people money from one account and then take it away from another account? Yes, it grants them a measure of freedom to make their own decisions but they are still poor.
If John Doe is disabled from birth and unable to work, he is eligible to collect SSI and Medicaid under our current systems. That’s usually about $10,000/year + the cost of all medical care which is just barely enough to keep someone alive. If you give him $12,000/year in UBI, he’s in much better shape. But if you tax carbon (as is often promoted in UBI discussions), all of John’s essentials are going to go up in cost. Company’s aren’t going to eat those additional taxes. They will pass the cost on to their customers. John’s costs for food, heating, electricity, etc.. are all going to increase.
If you try to offset the cost of the UBI and pay for it by eliminating existing welfare systems, you just took back John’s SSI payments. So now you are giving John $12,000 in UBI but you took away his $10,000 in SSI and increased all of his expenses. John is no better off than he was and if you cut other welfare programs like that Medicaid program he’s on, he ends up being even worse off. He’s no longer treading water, he’s floating just below the surface and drowning.
Yes, there have been experiments with a BI in Kenya and other countries and they’ve shown some positive benefits. But, have ANY of them become self-sustaining? All of these tests were funded from outside sources and then ended. The funding dries up and the people involved go right back to where they were before the test. It’s interesting as a study of social interaction but it isn’t a test of whether such a system can survive long term. And NO ONE is going to adopt a national level UBI for 3, 7 or 15 years as a test. In order to get a mass UBI implemented, we’d need a proposal that can be shown to be self-sustaining. It HAS to last and there is NO outside agency to pay for it. “We”, you and I, are going to pay for it.
I suppose I should also mention in here that some people have the idea that we should get rid of “money” entirely and somehow base our system on a number of types of “credits”. Those are all irrelevant. “Money” is simply a means of conveying value. You can dream up any type of credit system you’d like. Within hours of announcing it to the public the first question that will be asked is “How much is a credit worth?”. Within a matter of days people will have figured out that 1 credit = X dollars, everyone cashes in their dollars and buys credits and you are right back in the same race. Your employer values the work you do for them at $XX.XX/hr. You are willing to pay a plumber $XX.XX/hr. To come and fix your toilet. Whether you call it a credit or a dollar, you will pay more for a house than you will for a pair of socks because you value a house more.
A few concepts try to replace “money” with “social capital” and claim that a UBI will enhance social cohesion. But that ignores history. Try mapping the implementation and expansion of social welfare programs to the drop in social participation as documented by people like Dr. Robert Putnam. Increasing government intervention correlates directly with a drop in social capital. If people can rely on some faceless government bureaucrat, they don’t need to rely on (or even talk to) their neighbors. In today’s world they don’t even need to talk to a bureaucrat. They simply log into the State agency’s web site and conduct their transaction on-line without any other human contact. Forced social capital doesn’t work. People invest their time in other people because it accrues social benefits for themselves. You do something nice for your neighbor, hopefully they’ll return the favor when you need one. If they don’t, you cease investing in them further. The suffer the consequences of their choices down the road when they suddenly need help again and no one steps up to help them. In a welfare state, you don’t need your neighbor. You call some government entity and they dispatch some government flunky to take care of the problem and leave or they send you a check and you pay for it to be taken care of from that.
From my viewpoint, there is no point in marketing a product if you can’t tell the person you are selling it to how much it will cost them. So how about we skip all the nonsense and actually have a UBI that stands on it’s own and addresses the issue of poverty?
Next up: A real UBI that works!