Economics of ‘basic income’

Is it really a solution?

Proponents of AI argue that basic income is the solution to the job-loss that might arise post successful transfer of self-learning and real time adjusting capabilities to machines. This, although, sounding seemingly easy solution is an equally difficult to implement from policy perspective.

In simplistic terms, basic income is a small allowance to the job-less people to support their living for as long as they do not find a permanent job. On finding a job, this person is removed from the list of people with right to get a payment from being unemployed and would be required to pay taxes for supporting the basic income supply of the remaining job-less peoples.

My concerns to the right to basic income are as follows:

1. Defining the sustainable income level
I have yet not been able to convincingly find the most appropriate method to find the minimum level of income, which would be sustainable. I would look more into it. Till then it remains mystery to me.

2. What about moral hazards?
 Since, the income comes without any effort, most people would be reluctant to take up any permanent job for as long as they believe that the marginal utility (function of consumption and leisure) of the additional income will be higher than the marginal returns of the effort put into earning that money. In other words, people would like to stay unemployed and receive the free income which would be considered ‘rightfully’ theirs, for as long as they do not find a job which pays them enough to compensate for the loss in the ‘no requirement of work’ and gives them their expected quality of life. They would also account for the impact of the additional taxes required to be paid and thus the threshold level of acceptable income would be shifted by an amount equal to the tax levels. 
We should not forget, once employed, there would be increased paper works to get back to the list of benefits receipt and this hassle is expected to add to the reluctance.

3. Price adjustments
With an income available to each consumer for accessing basic products (assuming the rational consumer, who would consume the necessity (basic) goods and would not dedicate any part of it to luxury goods) the demand of the basic goods will become high. However, the producers of those good would not anticipate the increase in such a demand (in the short term) and thus the supply would be less. This is expected to push the prices up. 
Over the time the supply would increase but not at the same rate because of the resource constraints and a new equilibrium is expected (general equilibrium laws) at a price higher than current prices. This may lead to two situations. First the basic income may no longer be enough to meet the basic needs, raising the concern in point 1. Second, the people who would have been paying out of their pockets would no longer be motivated to pay the extra cost for their basic needs and may have a tendency to drop out, which in turn would lead to increase in the taxes on the lesser number of people in the job-market. This will further shift the threshold levels for entering the job market, mentioned in point 2.

These concerns are over-looking the possibility that the successful machine learning projects may increase the income-inequality and may raise questions on appropriate tax levels. I am working on trying to understand the impact of such inequalities and would be interested in posting something once I have an understanding.

While I am a believer in technological advancements, which is indeed allowing me to post my own views with such ease, my main focus is to understand how successful ‘basic income’ would be in solving the problem that would arise when people would go jobless due to such advancements.

I believe, we would also need a shift in the skills available to the market to allow people adjust to the coming change. The real question would then become, how accurately are we able to the predict the skills shift and how easily can we make our education system adopt to it.