Universal Basic Income is Not the Answer – Eccentric Economics

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As of late, the concept of a universal basic income has been the subject of much discourse. Contrary to what one may expect, the proposal is supported by both the left and the right, and even among those in libertarian circles.

At first, I was vehemently against the government implementing a universal basic income. It is nothing more than an allowance granted to its subjects to ensure they have a financial cushion and a fallback in order to combat the effects of poverty, and to ensure individuals have income from the impending automation takeover from technological capital.

After further reading, many of the universal basic income’s drafters announced they intend to replace our vast amount of welfare programs, including social security. Not to mention the extensive decrease in administrative costs from the many bureaucracies that currently handle the welfare system.

Even though this began to question my position, I still remained uneasy.

This is an attractive trade off. My only question, however, is whether the government is actually going to abolish all of these other programs? Understanding how politicians function, I assume they would be reluctant to do so.

While there are 430 known agencies, there have been only 31 agencies or government programs that have been removed from service, with many of these simply being replaced by another. If there was a transition, I also expect it to be an administrative disaster.

Even if the government were to take the unusual course and abolish the existing programs, I still maintain my criticisms.

Let us further analyze the proposal’s feasibility and its effectiveness, focusing on two major factors which the universal basic income intends to address, poverty and automation.

It is rightfully regarded that welfare programs can cause a great deal of harm to those they intend to help.

For one, welfare programs remove the incentive to engage in more productive behavior. In roughly 34 states, it has shown that welfare recipients can generate more income by collecting from these programs than taking a minimum wage job. In the ten most generous states, recipients can collect over $30,000 annually.

Due to the human tendency to prefer leisure over labor, this system would incentivize recipients to maintain their benefits and refrain from seeking employment, which would not only force them to work, but also have a substantial loss of income.

An important feature of these programs is that the benefits the individuals receive are not necessarily cash income in which the recipients can freely utilize. This disallows them the ability to save, which is a vital action to raise their standard of living in the future. Instead, welfare programs force recipients to maintain a state of constant mediocrity.

It should be also noted, regardless of the increase of expenditure on welfare programs, there has been little effect on the poverty rate.

Could the universal basic income (UBI) address this?

Depending on the amount proposed as a monthly stipend, the effects would hardly vary. Let us use two basic numbers that reflect common proposals: A conservative $1000 and a generous $3000.

If the stipend was $1000, therefore $12,000 annually, wouldn’t this amount incentivize the recipients to seek employment to supplement the stipend? Not exactly.

In Finland, where 2,000 random unemployed recipients were granted a monthly stipend of €560 ($630 USD), a preliminary report said UBI made people “happier,” but it did very little to incentivize the recipients to seek employment. After the program’s completion, there are no firm plans to continue it. Although Finland’s experiment had many faults, it did a fairly decent job at reflecting a UBI’s effect on the unemployed.

Regarding the $3000 stipend, very little needs to be elaborated: I am led to assume it will reflect similar results as our current welfare system. Why work if you are guaranteed $36,000 annually?

Another common argument in favor of the UBI is that it is inevitable due to technological advancement and automation.

I am inclined to believe the proponents who argue this pay very little attention to economic history.

For centuries, dating back to Marx in the 1800s and to the technocrats of the 1930s, there have been dire warnings of capital replacing the labor factor of production. This notion has very little merit in practice. For one reason or another, many are led to believe that with the introduction of capital, there will be a loss of labor factors and will entirely abolish need for that factor of production.

Over time, it has been shown that the introduction of new technologies have in fact made labor in some industries obsolete. However, the emergence of new technologies is accompanied by more productive processes that not only increase output, but are accompanied by new demands for labor. This process is foreseen to continue, and I personally do not see this changing for some time.

“Emerging tech will create more jobs than it destroys. At least for the next four years. Specifically, The Future of Jobs Report 2018 predicts the loss of 75 million jobs by 2022, and the creation of 133 million jobs over the same period, for a net increase of 58 million jobs.”

Even with the massive increase in automation and technological innovation, unemployment has remained around the same levels in the past century, excluding the periods of boom and bust.

Does the fact that our current unemployment rate sits at an impressive 3.9% not dispel this myth?

Additionally, we have witnessed an increased standard of living over time with the introduction of utilizing efficient capital goods in the production process. Automation has benefited the human race extraordinarily, ensuring the lower classes can enjoy the same luxuries that were once only available to the upper classes.

If you take a look at the graph below, you will note that real median household income in the US has remained fairly stagnant compared to productivity. At first glance, this appears troublesome, and is commonly referenced by labor activists. However, I chose this graph intentionally to illustrate that the steady increase in productive output (Real GDP/Total Households) due to automation has maintained a steady purchasing power of real income when being exchanged against consumer goods. The increase in output allows consumers to exchange their income for the goods which were once not affordable to their particular income class. (Note: The claim that income adjusted for inflation has not kept up with productive output is erroneous.)

This fear of automation is misleading, and if it reaches the desks of legislators, it can potentially reduce the economic growth necessary to ensure an increased standard of living in the future.

I will reserve the rest of my criticisms on the UBI, as I find the potential errors too numerous to address in a single article.

Though I find it economically at odds with market forces, particularly reallocating money from producers to consumers of scarce resources without creating any value, I can’t help but find it repugnant ethically. It is one thing to force people to help those in need; however, the UBI proposes to have a portion of my income go to those who don’t need it, hence the word ‘universal’.

I do not see the UBI bringing about any effective results to combat poverty nor unemployment. Rather the contrary.

Regarding automation and labor displacement, perhaps in the distant future automation may harm the human labor force to some extent, but as mentioned earlier, this claim has been consistently stated yet refuted by what actually occurs. I find it nonsensical to enact legislation at this moment, or even in the near future, to combat an issue that has yet to manifest.

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Logan Davies

Logan Davies is a Regional Manager in the Banking Services industry, and the director of the non-profit organization, Voluntaryism in Action. He graduated from Middle Georgia State University with a degree in Business Administration. He is the father of a loving son, an avid outdoorsman, firearm enthusiast, and unwavering supporter of liberty.

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