Economy, Business And Markets

Just a Plan for the Future

Business & Markets Desk
Just a Plan for the Future
Just a Plan for the Future

Technological advancement has painted a future where machines do all our work for a long time, making jobs extinct or scarce, especially those performed by the unskilled.

In that future, people would be paid a steady income to care for their needs. That future is yet to arrive. Machines have made life easier, but as they replaced unskilled labor, the capitalist system created jobs elsewhere.

Yet with so many disruptive technologies changing our daily lives these days, interest in the old idea of Universal Basic Income—an unconditional government payment given to all citizens as a supplement to or replacement for wages–has been renewed.

The idea has never looked so plausible. It has sparked pilot studies from Finland to Canada. The Swiss rejected it in a nationwide referendum by a wide margin this month. And in Iran, a misshapen version of it has been running for six years. Mention of the latter has been left out of mainstream media, but we’ll get to it.

UBI has created strange bedfellows. As the Wall Street Journal writes, “Its advocates on the left see it as a move toward social justice while its libertarian supporters see it as the least damaging way for the government to transfer wealth from some citizens to others.”

  For Humanity and Old Injustices

Swiss supporters of introducing a monthly income of 2,500 Swiss francs per adult and 625 francs per child under 18 said it would promote human dignity and public service.

“It would enable people to have greater control over their own lives, allowing breaks from the formal workplace for short periods of time to study, retrain, care for family members or try out new business ideas,” writes The Independent.

Having a safety net to fall back on encourages risk taking and tinkering. As Nicholas Nasim Taleb poses in his book ‘The Black Swan’, much of human development and ingenuity has come from tinkering and taking small risks. People would risk trying out more business ideas with a basic income. That could lead to the creation of more Ubers and Apples and light bulbs.

A basic income would also force more responsibility on people. Having a universal safety net means no one can claim helplessness. Unless extorted, being utterly broke would mostly mean very poor spending or investment decisions.

“The availability of a guaranteed income wouldn’t relieve individuals of responsibility for the consequences of their actions. It would instead, paradoxically, impose responsibilities that didn’t exist before, which would be a good thing,” American Enterprise Institute scholar Charles Murray writes in WSJ.

Liberal supporters like Murray want UBI to replace other benefits and social services. That would get rid of the inefficient bureaucracy that plagues these programs. It would mean a smaller government.

A basic income could also help right certain old injustices, as The Economist writes: “Women do the lion’s share of the world’s unpaid labor. In most of the world, they work more hours a day than men do, but command a lower share of financial resources, largely because they take on more unpaid child care and responsibilities for the family home. A universal basic income would shift purchasing power toward people who do work which, though valuable to society, is not rewarded financially.”

  The Freeloader Narrative

One of the biggest concerns about the plan, however, is increasing idleness. If people are given money to live off, they will stop working altogether.

The fear of loafers may be greater than the actual increase in the number of loafers. A national survey showed a mere 2% of Swiss citizens would discontinue any employment if given a basic income, whereas two-thirds felt it would “relieve people from existential fears”. And 40% said they would volunteer more as a result, according to Politico.

As The Independent writes: “Human anxieties about free-riding are deeply embedded in our psyche, but they play out most harshly when it comes to the weakest and the poorest. We don’t think for a minute that a handsomely paid chief executive might be demotivated by their large income, but suggest £70 a week for every citizen would mean we’d take to our couches en masse.”

WSJ notes: “Some people who would otherwise work will surely drop out of the labor force under the UBI, but others who are now on welfare or disability will enter the labor force. It is prudent to assume that net voluntary dropout from the labor force will increase, but there is no reason to think that it will be large enough to make the UBI unworkable.”

Also, work, as Lawrence Katz of Harvard once pointed out, is not just what people do for a living. It is a source of status, organizes people’s lives and offers an opportunity for progress. None of this can be replaced by a check. So, getting the check may not discourage people from getting jobs as much as some fear.

American liberals, including Paul Krugman, an economist and columnist, and Robert Reich, a former labor secretary, are also interested. Along with writers such as Anthony Atkinson, a British economist, and Andy Stern, an American union leader, they see a basic income (in some form) as a way of expanding the welfare state to reduce growing inequality.

The New York Times counters that since the program’s financing would require cutting other state programs designed to support the poor, UBI “would redistribute wealth upward, taking money targeted to the poor and sharing it with everybody, including you and me. It would be hard to finance that in a way that wouldn’t burden the programs that help the poor.”

Also as The Economist proposes, a basic income would make it almost impossible for countries to have open borders. Immigrants move to developed countries for jobs. UBI change their motivation, making open borders unworkable.

  Ruinously Expensive

Funding is the Achilles’ heel of the idea. The Swiss government opposed the idea, worrying that a basic income would be ruinously expensive.

The government estimated the proposal would have cost 208 billion Swiss francs a year. Much of the cost could have been covered by existing social security payments, but sharp spending cuts or tax increases would have had to make up a remaining gap of 25 billion, Reuters reported.

As Robert Greenstein of the left-leaning Center on Budget and Policy Priorities put it, a check of $10,000 to each of 300 million Americans would cost more than $3 trillion a year.

Such costs would take the taxation system to unchartered waters.

“A basic income worth 20% of the average income requires average taxes to be 20 percentage points higher, at 45%, and so on. Eradicating relative poverty, defined as income beneath 60% of the median, would require tax rates approaching 85%,” The Economist said.

No country is ready for that, nor have the effects of such change been studied.

Cutting the amount of basic income would reduce the plan’s costs, but also curb its effectiveness, while remaining expensive.

The Iranian government started UBI in 2010, though it is now carving a more targeted welfare program out of it, and its costs have been monstrous. Every Iranian was paid $45 each month. The money was to replace lavish subsidies on food and fuel that cost the government a third of Iran’s GDP each year, but ended up costing more.

The previous administration financed it by printing money and selling oil, adding to runaway inflation and helping devaluate the currency. Today the UBI sum is worth $12.4 and the government still struggles under the burden of payment. It is worth noting that tax revenues in Iran barely reach 3% of GDP.

Regardless of how good UBI sounds, its costs prohibit its execution. That utopia of technology is far from us and may never come. If and when its time comes, we would have to redefine the value of work and perhaps our identities. Taxation and business regulations would need overhaul.

Our picture of that future is as deluded as our predictions of the turn of the century in the 60s. We ought to be going on cruises to the moon, if we’d been right. For now, as The Economist writes, “A basic income is too costly and inefficient to act as a wholesale replacement for welfare. It is feasible only if it is small and complemented by more targeted anti-poverty measures.”

Better and free education and training for the poor would cost less and do much more in our times.