Paying the poor to solve poverty — not as simple as it sounds.
A universal basic income (UBI) is defined as a monthly cash payment to every citizen of a nation. The amount of cash varies depending on who proposes the idea, but the general gist of it is that the monthly payments should allow a person to be able to afford the necessities for life, but not so much that people can live comfortably above the poverty line. While the idea of a universal basic income has been an idea that has gained traction around various times in US history, there has never been a large-scale test of UBI. Nevertheless, UBI has continued to gain traction in the United States as a method to decrease the poverty rate and close the inequality gap between the rich and poor. To do this, modern implementations of UBI typically suggest one funding source be taxing the wealthiest individuals in society. This taxed money would then be redistributed to everybody in the country, thus closing the gap between the rich and the poor. In particular, amidst the pandemic, new conversation on whether UBI could be good for the US has reemerged. According to a Washington Post article, during the pandemic, Yang’s idea of a UBI went from being dismissed as a silly idea to actually being the blueprint for our stimulus packages that were passed in order to help our struggling citizens during the pandemic. Even if the pandemic stimulus packages weren’t perfect, they showed that partial implementation of a UBI during the pandemic is feasible and could serve to help struggling Americans. With the recent uptick in popularity surrounding UBI, it is natural to ask, if this has been implemented in the US, could it work globally to reduce poverty and close inequality gaps? While some argue that a global UBI could help poverty by redistributing wealth from first-world to third-world countries, I argue that first-world countries that partake in UBI will inevitably do more harm than good to the global economy and poverty in general.
While some might argue that UBI does in fact help global poverty, these people tend to ignore the costs associated with implementing such systems. UBI is an immensely costly program to run indefinitely even on a national scale. This has not been clearer as a result of the pandemic. During the pandemic, the US used 2 trillion dollars in order to help fund relief efforts as part of the CARES act. One portion of the CARES act involved “one-time payments consist of $1,200 per adult and an additional $500 per child under the age of 17. No payments were made to individuals earning more than $99,000 or married couples earning more than $198,000,” (Baket et. al, 2020). We can see that this implementation of relief is only a partial form of UBI. This program did not last indefinitely and was only given to a certain subset of the population, yet the cost was astronomical. It is impossible to ignore the true costs of a permanent UBI in the United States. According to a UPenn study, “…before taking dynamic effects on economic growth into account, implementing an annual $1.5 trillion dollar UBI — -approximately the cost of giving every adult $6,000 per year — -would ramp up spending levels by over 40 percent.” An increase in spending of 40 percent would be a large consideration given our federal budget is already stretched very tightly. While the costs of a national UBI are frequently ignored by proponents of UBI, when moving to a global scale the problem of costs only gets worse.
Implementing UBI on a global scale would be levels of magnitude more expensive than a national UBI, which makes it even more unsustainable. First, we have to consider that a UBI is most likely going to be an all-or-nothing plan. A first-world country only helping certain poorer countries would draw suspicion to the true purpose behind the donations. Conversely, a plan where first-world countries give UBI payments to third-world countries without directing any of that support to their own citizens would be unpopular. Reasons for this are complicated and varied. Some may just be greedy and don’t want to pay more taxes, others who are nationalists could refuse to help global poverty when poverty still exists in their home countries, and others may simply want to donate to poorer countries on their own accord. Therefore, it is likely that these countries would need to provide a UBI for their own citizens as well as tens of poorer countries. As such, when proponents of a global UBI must calculate the cost, they will need to calculate the cost of creating a UBI where many people must receive a monthly stipend. While the intricacies of a system such as converting currency or adjusting the amount received to consumer price indexes and cost of living, the major idea is that this UBI would be very expensive. If we have already seen the inability for rich countries such as the US to fund stimulus checks forever, how can we expect a global UBI to ever be sustainable economically?
Some may argue that the financial costs of funding a global UBI are second to the main goal of reducing poverty in poorer nations. Unfortunately, this viewpoint fails to take into account the possible negative effects of stressing our financial systems. Even if we were to split the cost of this global UBI across a few countries, we would still be responsible for the majority of the burden because our GDP is the largest in the world. Other first-world countries with smaller economies can only afford to contribute so much money compared to the United States because less money flows through their economies. In a scenario where the US is paramount on ending global poverty, it may resort to spending furiously to satisfy the financial demands of such a program. However, this puts the US at risk of default, which means that we won’t be able to pay back our debts. To see the precariousness of our national economy, there have already been recent worries of the US defaulting on its debt due to us being near the debt ceiling. The only way to solve the debt ceiling is to increase the debt limit or to suspend it. However, the more we spend the more likely we will have to raise the debt limit, thus increasing the possibility of a default. If we were to spend even more on a global UBI without a sustainable source of cash, we only increase the risk of the United States defaulting on its debt.
If the United States’ financial system were to fail as a result of trying to fund a global UBI, it makes sense that we should not blindly suggest UBI because of the possibility of a default. A failure of the US financial system would cause damage of far greater severity to the poorer countries compared to the benefit of a global UBI. This is because the US holds a powerful position in our interlinked global economy. According to Moody’s Analytics, “when the government did make good, it established the sound credit of the U.S. and paved the way for the U.S. dollar to ultimately become the global economy’s reserve currency,” (Moody’s 5). Therefore, the US as a country has gained the reputation that it pays back on its debts. As a result of this fact, the US dollar has become the global reserve currency, which means that the US dollar is used in most international economic activity. However, if the US were to overspend because of UBI and were to default, poverty might actually increase. Moody’s gives a grim outlook if the US were to default on its debt, stating “the U.S. and global economies, which still have a long way to go to recover from the recession caused by the pandemic, will descend back into recession,” (Moody’s 4). The message is clear: no matter if a UBI temporarily helps our tough economic situation in the future, a default caused by overspending will not only harm US citizens, it will harm the global citizens we aimed to help. Besides the cost worries, many proponents of UBI have little to rely on to substantiate the benefits of UBI.
While the idea of handing people money may sound like an easy way to solve global poverty, there has been no widespread proof that this actually works. While there have been some studies into how UBI can help education rates in poorer countries, there has never been a true UBI experiment where every person receives an income in a developing country. In addition, we can learn from history to see how modern first-world countries mostly gained their wealth. These modern nations became truly wealthy because of the industrial revolution and later some countries used their power to exploit other nations to gain even more wealth. According to Bob Allen, “the rise of the west, therefore, comes down to the invention and utilization of labour saving technology,”(Allen, 6). However, the crux of the matter is that these wealthy nations industrialized, and used their newfound power to snowball into gaining more power and wealth. With industrialization, output and productivity increased manyfold, allowing these countries to produce more products at a cheaper cost to producers. However, giving poorer countries’ citizens money isn’t going to build up their infrastructure or economy to support an industrialized economy.
Since it is primarily the citizens receiving money under a global UBI, infrastructure will be neglected because governments and larger organizations are required to build up infrastructure. According to Felipe et. al, “to escape this situation, these [poorer] countries need to implement policies that would help them accumulate the capabilities needed to manufacture and export more sophisticated and better connected products,”(Felipe, 2). Therefore, the key for these poorer countries to escape poverty is to industrialize and produce more sophisticated products. Instead of producing agricultural products, these countries need to industrialize and produce goods more similar to advanced economies like the United States. However, if we give citizens of poor countries a basic income, these people are likely going to focus their money on basic necessities. After all, why should a struggling citizen not spend money on food when their family is starving? In the long run, ordinary citizens aren’t likely to look at the big picture and donate their scarce financial resources for a benefit that won’t be realized for many years. In order to get these poorer nations out of the rut they are in, a larger organization like a government or non-profit needs to pool funds in order to help industrialize. Therefore, UBI will actually do little to help poverty in the long run and instead causes these countries to be dependent on richer nations if they are unable to become industrialized. While the effectiveness of UBI as a whole is put into question, is there still a light at the end of the tunnel? I
I think there is. While the industrial revolution increased production manyfold in developed countries, I think that the next revolution is coming soon — the artificial intelligence (AI) revolution. Much of these benefits would come from the restructuring of our economy increasing productivity while decreasing costs. According to a report by the Future Society for the OECD, “according to many economists, the expected wave of productivity gains has the potential to sustain growth and development over the next decades…” (Miailhe and Hodes, 1). In our current economy, an ideal economy is one with low unemployment. This makes sense, as we want everybody who wants to work the ability to get a job. Unfortunately, this leads to many inefficiencies within our system. Companies have to hire more people and policymakers have pushed the economy to create more jobs at the cost of efficiency. Therefore, companies today are less efficient and have lower profits compared to an ideal world where companies only hire how many people they need.
However, with artificial intelligence, companies would likely hire fewer people and many repetitive, low-level, and inefficient jobs would cease to exist. While this would leave many people jobless, this new economy is inherently more efficient. Miailhe and Hodes argue that “productivity gains will not reside solely in the replacement of humans with machines, but also through the advent of new forms of collaboration between humans and machines harnessing the complementarity of biological intelligence with digital intelligence,’” (Miailhe & Hodes, 12). Therefore, while unemployment is sure to go up in such an economy as humans will be replaced by machines, the economy will be more efficient and productive. These productivity gains will translate into economic growth.“Accenture published a report in 2016 analyzing twelve developed economies, and claimed that AI has the potential to double their annual growth rates, and increase the productivity of labor by up to 40 percent by 2035,” (Miailhe & Hodes, 12). With such high growth, prosperity, and lower costs in our economy with high rates of unemployment, we can begin to take a serious look at UBI as a feasible program not just nationally but globally.
As a result of these corporations being extremely profitable with high unemployment in our nation, taxing them is natural. If they were untaxed, it would leave the unemployed to fend for themselves in an increasingly harsh economy to unskilled workers and would increase inequality as corporation owners will only get richer. Miailhe and Hodes highlight “…most recent literature points to the likely need for progressive tax policies to rebalance the labor to capital shift that is likely to be seen in the AI revolution, in order to protect the most vulnerable from socio-economic exclusion, as well as to avoid an explosion in inequalities of wealth and opportunities,” (Miailhe & Hodes, 24). It only makes sense to heavily tax these AI-wielding companies so that inequality doesn’t get worse. Imagine if all the first-world countries today had a 40 percent increase in productivity. Surely there could be much more surplus cash to fund a global UBI in the future than we could ever safely distribute today. Therefore, the financial risk of richer nations defaulting becomes dramatically lower and the potential damage to poorer countries almost vanishes. In addition to the cost of UBI may no longer be a concern in an AI-dominated economy, there are many other benefits to waiting to implement UBI.
In the future where AI powers our economy, the benefits of a more technologically advanced economy make helping poverty many times more efficient. As discussed earlier, using the funds to encourage economic development and build infrastructure makes cash transfer look underwhelming. In a future economy, many technologies that improve infrastructure like solar power, building roads, and hospitals will be cheaper. These technologies will be cheaper because the cost of manufacturing is likely to go down as the technology matures. Solar power has dramatically decreased in price since the technology’s infancy. In addition, a solar panel production line fully staffed by AI would be more efficient than our current production capabilities. Thus, it becomes more effective to help these poorer countries’ infrastructure. Instead of only being able to afford to help one poor country, in the future we would help all struggling nations with their infrastructure and economic development. As stated earlier, infrastructure and industrialization are key for these countries to escape being agricultural exporting economies.
Even if proponents of UBI were to insist on helping these countries right now, a cash transfer-based solution like UBI would not be ideal. Instead, we should help these countries build out their infrastructure and help them industrialize so that in the future when we harness the power of AI, these poorer countries will be ready to harness the full benefits. It is much harder to move from agricultural production to using AI to power assembly lines than to move from producing cars using people to using artificial intelligence.
When we wait until AI is the backbone of our economy, a much more targeted and effective approach to solving global poverty emerges. While a universal basic income could help alleviate global poverty in our current time, it is only a short-term band-aid solution that would cause more harm than good. While the feasibility of a global UBI is never guaranteed, it becomes much more practical once our economy becomes powered by artificial intelligence. Therefore, we should wait until we are ready and able to embrace UBI, opening the doors for much more efficient and effective methods of reducing global poverty.
Sources:
https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_2020109.pdf
https://www.levyinstitute.org/pubs/wp_644.pdf
https://www.sciencedirect.com/science/article/abs/pii/S0016328717300046
https://cdn.dal.ca/content/dam/dalhousie/pdf/faculty/science/economics/boballen.pdf
