UBI: Andrew Yang’s Freedom Dividend Is Mathematically Sound (Part 2)
Presidential candidate Andrew Yang has an ambitious plan to give every US citizen in the United States over 18 $1000 a month with no strings attached. This raises several concerns among both democrats and republicans. Chief among them are (A) People’s spending decisions and (B) The cost of government. We already addressed the first concern in a pre-emptive response to Ben Shapiro. But how much will this our government?
During a presidential debate, an MSNBC moderator projected the cost of the freedom dividend would be $3.4 trillion a year. When asked to address this, yang appeared confused and asked him to reclarify. Why did this happen? Yang himself calculated a different figure. $2.1 trillion per year. If you have been reading the news, you will see people arguing over these figures. Let’s see articles stating one of two of these figures. Let’s see if we can figure out how they did the math, starting with the $3.4 trillion figure.
MSNBC’s Figure
US population: 327.2 million
US citizens under 18: 74.2 million
(327.2 million — 74.2 million)*1000*12 = $3.03 trillion/yr
Analysis
MSNBS’s figure is oversimplified. Not all people over 18 are US citizens. And not all US citizens are in a position to spend money. In an interview with the Breakfast Club, Yang Mentioned that if someone qualifies for social security, then they can not have both social security and the freedom dividend.
Yang’s Figure
US Population: 327.2 million
US citizens under 18: 74.2 million
Illegal immigrant population: 11.4 million
US population on Social Security: 62 million
(327.2 million — 74.2 million — 11.4 million — 62 million)*1000*12 = $2.15 trillion/yr
Yang’s figure is far more accurate because it includes people who would clearly be ineligible. But $2.15 trillion per year is still a ton of money. So how will this be paid for?
Financial Transaction Tax ($50 billion)
A financial transaction tax works exactly the way it sounds. It is a tax on financial assets such as stocks, bonds, derivatives, etc. But will we actually save $50 billion from FTT’s?
Yang proposed a 0.1% tax on financial assets.
The Economic Policy Institute found that the lowest estimate for return comes from the Tax Policy Center, which concluded around a $55 billion return each year. The Economic Policy institute also concluded that, in 2015, equity transactions totaled to $45 trillion. This does not include derivatives, but derivatives are smaller in comparison. This alone should mathematically conclude a near $50 billion return at least.
$45 trillion * 0.1% = $45 billion
https://www.yang2020.com/policies/financial-transaction-tax/
Carbon Tax ($100 billion)
Yang proposed a carbon tax rate of $40 per ton of carbon emitted. Half of the revenue would finance UBI while the other half would finance projects to reduce carbon emissions.
According to the EPA, the US released 15.1 trillion pounds in 2015. That is 7.55 billion tons.
https://www.epa.gov/climate-indicators/climate-change-indicators-us-greenhouse-gas-emissions
7.55 billion * 40 * 50% = $151 billion
https://www.yang2020.com/policies/carbon-fee-dividend/
Reduced Poverty Expenses ($200 billion)
Yang claims we can save $200 billion in government services for the homeless, healthcare and incarceration by simply reducing the need for those programs. I don’t actually know how Yang came up with this number, but there is strong evidence to connect UBI with a reduction in poverty, crime and an increase in health. So what we will do is break down how much each of these programs currently spends. Once we find the total spending, we will need to see how much needs to be reduced in order to hit our $200 target.
Homelessness assistance: $3 billion
Prison: $80 billion
Healthcare: $3 trillion (assuming single-payer $30 trillion in 10 years)
https://endhomelessness.org/ending-homelessness/policy/federal-funding-homelessness-programs/
https://www.crfb.org/blogs/us-spends-80-billion-year-incarceration
The equation we would normally use to figure out the combination of percentage reduction in each program would be
$3 billion * x + $80 billion * y + $3 trillion * z = $200 billion
This is extremely difficult for what we are trying to do, so let’s just pretend we all save the same amount on each program. What percentage of each program must we save to make $200 billion?
$3 billion * x + $80 billion * x + $3 trillion * x = $200 billion
x = 0.0648 or 6.48%
Projected Poverty Reduction: Economic professor Salehi-Isfahani at Virginia Tech found that UBI reduced poverty in Iran from 10.2% to 5.1% in a 3 year period. As you can already infer, this is a 50% reduction in poverty.
Projected Healthcare Reduction: The Minicom experiment in Dauphin Canada concluded that hospitalization rates were reduced by 8.5%.
https://sevenpillarsinstitute.org/universal-basic-income-more-empirical-studies/
Projected Crime Reduction: The Namibia experiment in 2008 concluded that poverty-related crime was reduced by 20%
https://basicincome.org/news/2018/02/big-pilot-project-namibia-positive-impact-2008/
I have no doubt in my mind that we will save at least 6% of all 3 spending points.
Economic Growth ($600 billion)
Yang claims that the economy would grow by $2.5 trillion and generate $600 billion extra in tax revenue.
Yang cited a paper from the Roosevelt Institute. This paper estimated that an increase in per person spending at $1,000 per month would lead to a 12.56% increase in GPD.
So how accurate is Yang’s claim?
$19.39 trillion * x = $2.5 trillion
x = 12.89%
Not too far off. I’m certain Yang fudged the math a bit for the sake of more marketable answers. Just for fun let’s use the more accurate figure.
$19.39 trillion * 12.56% = $2.43 trillion
According to Hauser’s law, roughly 17.9% of the US’ GDP goes to taxes. Using this fact, we can find.
$2.43 trillion * 17.9% = $434.97 billion
Welfare Cost ($600 billion)
The Washington Post did some very comprehensive calculations on welfare spending. They concluded the total welfare cost is $668 billion. They explained it much better than I could so I will leave this here if you care to get into the specifics.
VAT Tax ($800 Billion)
Yang claims that a VAT tax of %10 would create $800 in tax revenue. Since this is a value-added tax, you will have to remember that only luxury goods will be affected by any significant degree. Remember that 39% of the wealth is in 1% of the population.
Let’s do the math.
$19.39 trillion * %10 * 39% = $756.21 billion
This is JUST from the 1%. If you include everyone else, the number will be roughly $800 billion.
Final Figure
$45 billion + $151 billion + $200 billion + $434.97 billion + $668 billion + $756.21 billion
2.255 trillion
As you can see, we are already $105 billion over budget give or take. In either case, $2.15 trillion is a target that we will have absolutely no problem meeting.
Will Inflation Occur?
There is an economic myth which state that demand will increase prices. In other words, if you give people more money, then prices will go up because people will need to spend more on resources. That’s not really how it works. I already addressed the research in the previous article, so I will simply explain the principles.
Demand is a 2 part metric. Price is based on the “optimal pricing index” which is a combination of the price people are willing to pay, and how many people are willing to pay at that price. The one that generates the most revenue is your final price.
Let’s say you want to sell apples for $1 in a community of 10 people. Everyone is willing to pay $1 for the apple. That’s $10. If you raise the price to $2 an apple, only 5 people will be willing to buy it. Both of these strategies are equally effective.
Let’s say some inhumanly rich person moves in. He has so much money, that he is willing to pay $20 for one apple. It is much more effective to raise the price of the apple to make sure this one new person buys it and leave everyone else out.
In conclusion, taking the $20 from this one person and smoothing out the wealth gap means that prices will actually go down, not up.
