UBI: Socialist Dream, Capitalism’s Savior, or Farfetched Economic Theory?
Can universal basic income help the economy and grow shared prosperity?
California can’t afford universal health care. Even as one of the wealthiest states in the world, it simply can’t afford it — says countless wealthy individuals, experts, and everyday people. (Meanwhile, Cuba and the U.K. both offer universal healthcare to their citizens; the U.K. since 1948) If California can’t afford universal healthcare, how could any country afford a universal basic income? Where would the money come from? Who would pay for it? “Either the basic income has to be unrealistically low or the tax rate to finance it is unacceptably high.”
This is a straw man argument. These questions presuppose that money is something like gold. There’s only so much of it in the world. As if money, like gold, is a precious commodity that comes from mines deep in the earth and requires much human toil to extract. Yet we contradict that notion whenever we speak of money as something that is spent. We tend to view spending money as akin to evaporation. It disappears, as it were, leaving us with less money. This might be true in our relation to money as individuals. But on a social level, it is just not true.
Since at least the 1970s, money has value simply because we declare it so. The world runs on fiat currency. All currencies fluctuate in value and are tied to the dollar for comparison. The dollar in turn also fluctuates in value. If the Euro goes up and the dollar goes down, the Euro has both gained and lost relative value. In other words, all money value is determined by a ledger — varying numbers on an excel sheet. As a final backstop, oil — the lifeblood of the economy — is bought and exchanged in dollars. This means if a country wants to fuel their economy, they must rely on dollars. In that way, oil safeguards the dollar’s hegemony as the world currency reserve. Saddam Hussein, allegedly, in part lost his regime over plans to start accepting Euros for oil. His plan could have destabilized both the dollar and the world currency exchange system.
So, if money is simply printed and not, in fact, a mined resource that evaporates after use, why can’t we afford UBI? Do we really need new taxes like the VAT proposed by 2020 presidential candidate Andrew Young? To that point, where does money come from? Who owns it? Perhaps money really does come out of thin air. Or perhaps it comes from the rich; the “producing class.” And where does money go after it is spent? Back to thin air? No. Sometimes toward other consumers, but more often than not, to banks and various capital institutions like Goldman Sachs. Would it cause hyperinflation? Well, the Fed has printed trillions of dollars to fight the Great Recession, and inflation is still extremely low.
In some ways, these points are all tangential to a more basic question: Are dreams like UBI even worth considering, and if so, why? Can UBI really solve social-economic issues, or would it enable more of the same? How could it ever be more than a dream if we have to raise taxes extremely high to pay for it? Wouldn’t high taxes make the economy worse off?
Well for one, UBI is not a dream. The U.S. already has a UBI. Since 1982, Alaska has used oil proceeds to pay every resident a small stipend. Saudi Arabia does something similar; plus they use a sovereign investment firm to distribute investment returns nationally. (Money makes money, after all) Meanwhile, other localities in the U.S. are beginning to experiment with the idea. Stockton in California, for example. States like Finland, Italy, the U.K., Namibia, and India have already held their own studies.
Results from these UBI tests have been interesting — and mixed. Increases in employment are questionable, to be fair. Part-time employment does tend to increase. As Jodi Dean points out in a recent BBC article, “Try and find a job when you can’t afford a hair cut or clean clothes or transportation to an interview. Basic income gave people those opportunities…” Unfortunately, while having a job moving bricks from one pile to another is counted as employment, it certainly isn’t dignified or poised to provide upward mobility. Considering wage declines since the 1970s in spite of productivity increases, people are not being paid an honest wage. UBI could enable people to afford the chance to train for more skilled, in-demand jobs without taking on more debt. Many Americans struggle to switch fields because they feel trapped; living paycheck to paycheck while working innumerable hours.
On the other hand, in all of these UBI studies entrepreneurship jumps. People are free to pursue their ideas for self-improvement without fear of total loss — that is, being reduced to living on the streets and unable to feed their children. Is entrepreneurship not prized more, or at least as much as employment? How many times have you heard that small business is the true driver of the economy?
UBI studies have something else in common. “Soft benefits.” These are harder to measure monetarily, but they are individually and socially valuable nonetheless. “People who had basic income found that their trust in other people, in the government, and even in their future prospects for work went up…” Time spent volunteering, “unpaid work,” also goes up. Currently, it is hard, expensive, and time-consuming to support aging relatives like parents; especially if they have a degenerative disease like dementia. People are well aware that social services drag behind needs. Quality hospice care is often out of reach. UBI would and does allow people to spend less time working and more time caring for others.
UBI could also help democracy and fight fake news by giving people more time and reason to engage in the discussions so critical to the democratic process. Money is clearly a motivator. Why would UBI not motivate people and give them a sense of greater ownership in the collective process? It would definitely give them more to lose by not engaging. Whatsmore, UBI could allow everyone to vote economically, to become mini-philanthropists and political funders. A single mom who can barely feed her kids, nevermind send them to college, — despite working three part-time jobs — can’t afford to donate to a political candidate who would help her interests. She certainly can’t take time off to volunteer for a political campaign either. Yet what value she could provide her democracy by knocking on her neighbors’ doors and talking to them! Who’s to say this wouldn’t make a neighborhood safer too. In fact, if neighborhood watch programs show us anything, it most definitely will.
Plenty of UBI studies conclude that “scrapping the current benefits system and replacing it with a basic income could eradicate destitution.” Yet Neoliberal economists will tell you if you can’t assign a monetary value to something, then it is valueless — at least in a quantifiable way. As such, assigning a supposed value to something that is unquantifiable would throw off the whole pricing and “free-markets” system. UBI can be seen as threatening to do just that. Yet this logic, flaunted by ivy-league graduates, is severely flawed. It ignores the plethora of corporate handouts and regulations designed to subsidize corporate profits. Corporate-socialism also drives depression in individuals, declines in wages, and climate destruction.
But let’s take for a moment the Neoliberal perspective that everything should have an assigned monetary value. Could a system of free money help grow the economy, thereby allowing an assumption of value to be applied based on the corresponding growth by small business and consumer spending? Neoliberals suggest taxes and deficits would increase too much to ever make UBI viable. They point to the fact that most Americans struggle financially as evidence why UBI taxes would only hurt them. Of course, they ignore the fact that current tax codes funnel money up the income spectrum. These conservative economists call for more tax cuts, despite decades of evidence showing tax cuts for the rich worsen income inequality and drive Americans into financial instability.
Perhaps we can pay for UBI just by the increased economic growth. The developed world has long stagnated below the 5% annual GDP gains of the post-war economy. Perhaps UBI is an antidote to this malaise?
After all, UBI fits into a historical narrative of successful supply-side economics; namely those used to fight the Great depression and build the post-war middle class. Italy’s UBI experiment aims exactly for this. “Any money left on the cards at the end of the month goes back to the state, an incentive to spend the full amount which M5S leader Luigi di Maio hopes will help boost the economy.” This is problematic because it ignores the importance of savings. But it makes clear the point that UBI can drive the economy by boosting consumer confidence and spending. Just as the Public Works Administration drove jobs and dispersed capital to consumers during the Great Depression (while simultaneously creating magnificent works of art and public spaces still in use and appreciated today; almost a hundred years later). And to that point, the U.S. spent billions with the Marshell Plan on rebuilding Europe after WWII in order to have a politically stable and allied market to sell goods to.
Taxes or revenue proceeds (such as the sale of oil) currently fund UBI. But are those are only options? As the economy automates, and we enter a new age with new tools, new science, and new needs to drive sustainable economic growth, we will have new options to finance UBI.
I offer two ideas to fund UBI, which can be intwined or separated from each other. First, consider a new global bullion; artificial gold as it were. For this we could use blockchain, a technology hyped but still not well understood. Blockchain essentially creates an unerasable record of transactions, thereby ensuring authenticity. Why could it not be used as a backing for currency instead of the dollar? As opposed to always volatile prices untied to any tangible assets, this artificial gold could support greater currency stability. How many trillions have been lost because of financial crises that are caused by unstable currencies? The 2008 Great Recession, the 1998 Argentina peso collapse, the 1997 Asian financial crisis, and the 1994 Mexican peso crisis were all caused by (in some part), and undeniably exacerbated by, the unstable global currency exchange system put in place when Nixon nixed the gold standard during the 1970s.
Secondly, and moreover even without a new global bullion, UBI could be backed and distributed by capital projects that provide tangible value. Just as the Tennessee Valley Authority electrified vast swaths of the United States, a global clean energy system could create jobs to complement UBI, combat inflation, and provide clean, cheap energy to billions. Some pundits might say this too is too expensive. How expensive was it to electrify the United States? But we did it, and we’re better for it. Lives have improved, and we’ve created even more wealth and prosperity than was ever spent investing in the grid.
Imagine for a moment if the whole western hemisphere tied together a grid of wind, solar, and other renewables and energy storage systems. Prosperity would increase by providing more people more electricity without the harmful environmental damage, social crime, and health costs associated with scare fossil fuels and desperate poverty. Such a grand system would serve as both physical capital and production capital, thereby offering a source of ongoing value by which UBI could be funded — as well as serve as an incentive to keep the clean grid well maintained beyond just the social value of abundant electricity. This would be one way to disperse UBI without necessarily printing ever greater amounts of money in a fight against hyperinflation.
Selling endless renewable electricity to pay for UBI is similar to selling oil, right?
If all this sounds like ideal fluff, consider that most investments today move money around to create money on a balance sheet. In the old days, a tractor factory made money selling tractors, which meant there were more tractors available to farm fields and thus more grain could be produced. Cheaper grain meant consumers could afford more food. Farmers could produce more, so they could, in theory, make more money and buy more tractors. These days, the rise of financialization means that money is made on paper and is not tied to physical capital. The Dow Jones traded at 2,700 in 1990. Now it’s at 25,000. Where did all that money come from? Why else do corporations spend more time trying to increase their stock value than on producing physical goods? It is far more profitable for the tractor company to earn money on a rising stock value than it is to build more tractors — especially when the middle (or farming) class consumerism is being squeezed by declining wages and a rising cost of living.
So if UBI is possible and beneficial, why not do it?
Counter-arguments often suppose a state welfare system would do better. People need vital services like protection, healthcare, and education. Why not focus on providing these services instead of handing out “free” money that might not be spent to fund them? What if these services become unavailable to purchase?
These kinds of arguments ignore several important points. First, who decides what is a basic human right and what is a luxury? Do we collectively decide through a democratic process, or let technocrats tell us? Is access to food (especially when it’s abundant) a human right? What about access to housing, healthcare, education, energy, and the internet? If each dollar counted as one vote, as it tends to with today’s level of extreme wealth inequality, then the rich would decide. In an important concession, UBI doesn’t remove the challenge of deciding what is “subsistence living” either. UBI could be set at just enough to afford food. Or it could be expanded to include more services and goods.
Secondly, and more prudently considering the challenge of establishing a “subsistence level,” state-run welfare systems tend to eliminate the perception of freedom. Individuals must conform to the check boxes of bureaucratic machines. These apparatuses herd people like cattle, eliminating choice for citizens and a sense of ownership or responsibility for bureaucrats. How often have you begged a low ranking employee at a government office or even a corporation to help you with an unfair dilemma only to be shrugged off? “Not my problem” or “nothing I can do about it,” is the subtext of so many of these conversations. In that way, welfare systems can instill more fear and insecurity into the average individual. True, the UK’s healthcare system has consistently been ranked highly trustworthy by citizens. But imagine if your livelihood depended on unemployment benefits; benefits you wouldn’t receive without proving certain criteria. Yet, the officials in charge of reviewing your case made mistakes, were careless or even negligent. Sure, there may be an appeal process, but that would take even more time while you wait to receive benefits you desperately need as an unemployed person. Perhaps you lose your housing because you can’t pay rent because of the delayed unemployment checks. Getting them all as one big check after going through the appeal process won’t get you your apartment back, and it didn’t keep you off the street. This does actually happen!
Charitable giving also tends to subside in welfare systems as it is assumed that the state takes care of social injustices. Charitable giving is a powerful way for citizens to build community by connecting and helping others. The United States has a long history of giving at the local and national levels. As long ago as the early 1800s, people like Tocqueville marveled at the propensity U.S. residents have for taking care of their neighbors. While this is a grand and idealized vision of reality, it certainly has its truth. And there is an intrinsic value to charitable approaches, which UBI could help support. It’s hard or impossible to design perfect laws and systems of justice. Diversity matters. To quote John Stuart Mill, “The only unfailing and permanent source of improvement is liberty since by it there are as many possible independent centers of improvements as there are individuals.” Charity gives people a sense of collectiveness and responsibility in their society. To quote another article that states this more simply, if not a bit caustically, “we must consider a basic income to promote economic security and freedom, as an alternative to today’s unpopular, threadbare and hostile welfare state.”
Ultimately UBI may be most effective when combined with funding for essential social services like education. It’s fair to say handing out money won’t solve everyone’s problems. But on the flip side, funding education doesn’t guarantee people will have the opportunity to make enough money to afford a secure, stable life either. Some pundits, like Jonathan Yates, childishly argue that UBI would discourage education. Yet he of all people should see that current scholarship, grant, and debt-forgiveness plans help average people get a university education. About two-thirds of U.S. students pay for college in part with financial aid. In that way, these programs are like a mini-UBI experiment. If Ph.D. students did not earn a stipend, only the rich could afford that level of education.
Some who are extremely rich have cause to worry about UBI beyond just the burden of taxes. UBI has the potential to shift power dynamics. Active citizens, those engaged in the democratic process (collaboration, activism, and voting), don’t tend to support policies that are tailored to subsidizing corporations over the interests and wellbeing of millions.
UBI could also lessen the value of extreme wealth. After all, wealth is competitive by nature — it comes from social perception. Owning three homes is so luxurious in part because many people can’t afford one house at all. Plus wages costs could increase as people are no longer desperate to make ends meet. If money suddenly became as abundant as receipts, it wouldn’t have the same power over individuals. But that doesn’t mean it couldn’t still play a role in directing production.
However, these UBI fears might easily shift as the economy automates. A mass of unemployed workers who feel desperate to make ends meet is scary in a very different way. Also, as goods and essential needs like food become more abundant, withholding them over money-scarcity becomes perceived as more, shall we say, immoral in the face of starvation.
Unfortunately, UBI doesn’t necessarily mean more equality or shared prosperity. In fact, it can work to stabilize living conditions while also exacerbating inequality at the same time. By keeping UBI at a level that is enough to meet basic needs, but not enough to raise general prosperity, the comparative wealth of the elite is maintained while everyone else gets enough security to wane the threat of riots. And, by ensuring the rate of return on money — investments — is higher than the redistribution of wealth through UBI or taxes, the wealth of the rich will continue to grow while that of the other classes stagnates.
So it seems UBI could make inequality worse, better or keep things similar to what they are today. It has tremendous value for society and individuals. It can help maintain democracy and a sense of personal freedom compared to semi-authoritarian welfare states. Ultimately, however, UBI is a social choice, not an economic or technological guarantee. The debate will continue as the economy further automates through the 20s.
