A Better Way to Do UBI
Resolving the difference between Cost and Benefit.
Universal Basic Income is a new concept in wealth redistribution, spurred on by populous concern over growing wealth inequality.
My first instinct was to dismiss UBI as a mere solution to a symptom, which fails to affect the underlying cause of the disease. But I was mistaken. UBI is addressing the underlying cause of wealth inequality.
Most economist date the emergence of wealth inequality to the 1970’s, but what happened in the 1960’s laid the ground for what was to come.
Centralizing America
In the 1960’s the Economic Opportunity Act of 1964 was enacted by the federal government, promoted as an program to combat poverty. This was followed by the Intergovernmental Cooperation Act of 1968, a design to centrally coordinate every unit of government, from the federal to the local, using government grants (wealth redistribution) as its instrument.
The United States was founded on a belief in small government and limited federal powers. The Intergovernmental Cooperation Act of 1968 was a diametrically opposite idea of that which gave birth to the United States. Intergovernmental Cooperation as it established a centralized wealth redistribution economy in the USA, promoted as serving the public good, but arguably not within the federal powers enumerated in the United States Constitution.
Public Law 90–577 October 16, 1968 A N AC T To achieve the fullest cooperation and coordination of activities among the levels of government in order to improve the operation of our federal system in an increasingly complex society, to improve the administration of grants-in aid to the States, to permit provision of reimbursable technical services to State and local government, to establish coordinated intergovernmental policy and administration of development assistance programs, to provide for the acquisition, use, and disposition of land within urban areas by Federal agencies in conformity with local government programs, to provide for periodic congressional review of Federal grants-in-aid, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act be cited as the “Intergovernmental Cooperation Act of 1968”.
Wealth inequality has been expanding since Intergovernmental Cooperation was codified into federal law in 1968, establishing the ground for the decade that most economist identify as the time when the wealth divide began to radically multiply.
Some say the divide has always been, but that ignores the 1950’s was a golden age for America’s middle class. As my Dad told, it was a time when the distribution of wealth took the form of a bell curve with the greatest amount of wealth distributed among the greatest number of people.
Then came the 1970’s, the decade when the Maine Legislature deemed that centrally managing the economy is an essential government function which must be done by public-private relationships. It is reasonable to speculate that the reinvention of the Maine government was a direct response to The Intergovernmental Cooperation Act of 1968. The centralized economy of Maine came into being eight years afterwards. The wealth disparity has been multiplying in Maine ever since.
Reconsidering UBI
As I gave UBI further consideration, I began to see UBI as a turn toward decentralized government. It is true that a universal basic income is wealth redistribution by government but with a radical distinction. UBI does not dictate how redistributed wealth is to be put to use, and in being less obtrusive in private lives, it also reduces costs of administration.
In studying the wealth redistribution economy of my own state, Maine, I can fairly say that wealth distribution policy is designed to provide opportunities at the top of the economy and to oppress opportunity at the bottom of the economy. In addition it is a system that relies on an implicit understanding that people will lie in adapting to it, and likely resort to making a better income under the table.
The bureaucrats that administer wealth redistribution for the bottom half of the economy can be considered to generally understand that it is not a reasonable system. In example, affordable housing is distributed by units determined by the income of the resident. If the resident’s income goes up by as much as taking a half time job (20 hours a week) at minimum wage, it will put the resident above the income level qualified for affordable housing, and the resident will be required to move. Even if an applicant suggests during the application process, that a part time job at minimum wage is a consideration, it will disqualify the applicant for affordable housing. However if the applicant keeps silent and presents himself as being permanently stuck in a rut without a chance in sight to raise himself a modicum above his current circumstances, then the applicant will qualify for affordable housing. It is implicitly understood is that lying, directly or by omission, protects the bureaucrat’s job.
UBI, the Chameleon
UBI is wealth redistribution, but it has no strings attached and so a recipient might even use it to grow a small side business without breaking the rules of the system. The current system of the wealth redistribution, in my state, Maine,is to distribute capital to the top of the economy and living rations to the bottom.
UBI is a radical change to the existing wealth redistribution format. A person in the bottom half of the economy can use the basic income at his own discretion including using UBI to develop entrepreneurial opportunities. It may be a shoestring entrepreneurial budget, but it reintroduces that old time American philosophy of pulling one’s self up by one’s bootstraps.
Since the wealth redistribution economy has manifested as an economy with a missing middle and a expanding disparity between the haves and the have nots, it will continue to evolve into a totalitarian class system unless an opposite movement is introduced. UBI is a chameleon. It is wealth redistribution but it is not central management. It changes the structure and philosophy of current wealth redistribution systems by opening a door for opportunity in the bottom half of the economy.
How to resolve the economics of UBI
The problem with every UBI plan that I have read is that the payment plan covers, at best, half of the cost of the program. In the Yang version, cost is calculated on $1000.00 a month and distributed to every adult regardless of income.
As a PBS article states, “[Pomerleau] estimated the tax increases Yang is proposing would raise $1.3 trillion total, of which more than $950 billion would come from a 10 percent VAT. That would not be enough to pay for the $2.8 trillion that Yang’s proposed universal basic income would cost each year, according to the analysis.” Why Andrew Yang’s Freedom Dividend Won’t Work by Aaron Schnoor
The answer to this problem seems obvious. The UBI should not be distributed to everyone regardless of income. It should be distributed to those whose income is below the medium income, which would cut the cost of UBI approximately by half and address wealth inequality, raising the bottom and at the same time keeping the bureaucracy simple.
Taking Yang’s figures, the cost of UBI would be roughly reduced to 1.4 trillion. The vat tax would raise $1.3 trillion, still short, but the vat tax could be slightly higher or the UBI slightly less.
Mr Schnoor makes the point that a vat tax costs the bottom half of the economy a much greater percentage of its income than it costs the top half. Since the vat tax would be used to provide a basic income only to those whose income is below the medium, the disparity in percentage of income is not an injustice.
UBI is better than raising minimum wage
The popular idea that minimum wage should be raised is based in a paradigm in which all workers are employed by large corporations who are have abundant resources to pay employees more but are refusing to do so.
Many, if not most, large corporations are receiving corporate welfare. In Maine corporate welfare is a trade off for providing X number of jobs at higher than average wages. Corporate welfare benefits include public subsidization of the corporation’s worker training costs.
In the case of taxpayer subsidized industries in Maine, minimum wage laws affect the State’s targeted sector only marginally because the terms of the trade agreement for subsidization dictate higher than average wages. The corporate welfare packages cover worker training so the corporation will not incur risk of loss on training an employee.
Within the free enterprise system, defined as that which exists outside the State’s corporate welfare economy, minimum wage is used as a training wage. It costs a business to train employees, and there is always a risk that the training will not pay off to become a loss carried by the employer.
Minimum wage used to mean the minimum amount that an employer can pay an employee, incorporating the understanding that it accounts for the cost and risk of training employees.
UBI can allow minimum wage to be kept low enough to be fair to the employer who trains employees on the job. These employees are often budding entrepreneurs, in the bottom half of the economy, risking their own resources for a chance to follow their dreams. Give dreams a chance. UBI can do that.
