The Basic Income Guarantee of Failure

This post is in response to the concept of Universal Basic Income (UBI) and, specifically, to Richard Reeves’ February 23, 2016, Real Clear Markets, It’s Time to Consider a Basic Income Guarantee.  All block quotes are from the referenced article.

As an advocate for capitalism and the productive power of free markets, I feel a strong necessity to respond to UBI and Mr. Reeve’s anti-family, anti-poor and anti-worker policy prescriptions.  His “advice” will only serve to further destroy opportunities for everyone, and worst of all, for the most vulnerable in our society.  While shrouded in a veil of “cutting edge”, “new” and “radical” idealism, the outcome of his, and a legacy of like-minded “basic income” approaches, is a trail of misery and are best left to the dustbin of history.  Where to begin?

It is an old idea, too. Friederich Hayek endorsed it. Milton Friedman advocated a version in the form of a “negative income tax.”

Milton Friedman and Friederich  Hayek did advance misguided basic income policy prescriptions, but only in the context and framework of the highly socialized and political economy of their day.  They did not advocate for basic income as a stand alone policy measure.  They both recognized that in a socialist political, crony, union, occupational and trade protectionist economy, like had been prevalent for decades in the US and Europe, the distortions in the economy and, in particular, in labor markets, were insurmountable.  Both Soviet Russia and Communist China, under Stalin and Mao, respectively, learned this the hard way when, due to a misguided allocation of resources, tens of millions died in central-planning-induced famines.  Socialism, Friedman and Hayek deduced, required welfare, or “basic income”, if that is what you wish to call it, to prevent mass starvation.

An economy based on private property and ownership of the means of production and a level playing field of free enterprise and non privilege, not only does not require welfare, it it recognizes it for what it really is, slavery.  When you force payment, or threaten punishment through physical violence or imprisonment for failure to comply with a prescribed payment, to a third-party, from a human being’s hard-earned income and wealth, you have subjugated them to a position of slave to that third party.  UBI is a request for government-approved slavery, and failure to comply with UBI mandates would no doubt lead to harsh and inhumane infringements on the financial, civil and economic liberties of every person so enslaved.

What is the labor market for? The answer might seem obvious: to provide jobs. But in fact the labor market performs three crucial roles:

1) Allocating labor to capital in the interests of economic production
2) Boosting well-being through structured, socially-endorsed activities
3) Distributing national income through wages

What is the labor market for?  The labor market is not there to provide jobs to people.  It is there to help produce products and services that people, through their own free will, are willing to pay for.  The labor market does not exist to redistribute income or enslave business owners to the cause of some social construct.

By and large, the free labor market in most advanced economies has performed these functions well in the last seventy years or so. Skills have been matched to capital, producing (over the long run) dramatic increases in economic output. Paid jobs have provided a social anchor for men (and now women), packaging purposeful work into manageable pieces. And until recently, wages have proved a successful mechanism for sharing the proceeds of growth.

To somehow suggest that we have had a free, and unhampered, labor market over the last 70 years is remarkably absent of common sense and history.   The actual answer to the riddle of income inequality and the lack of jobs that support one person, let alone a family, is that labor and other markets have not been free to operate as they should.  Governments, at the behest of special interests (campaign donors and financial supporters), have finally so distorted all markets, the outcome is massive inequality.  The answer is less government intervention, not more.  A separation of economy and state.  To discuss this more fully would require an additional post, but the US and Europe are suffering from inflexible and high costs of education and training, land, property, plant, equipment, government spending, welfare, entitlements, regulations and regulatory compliance requirements.  “Basic Income”, is only going to make all of these problems worse, not better.

To tackle poverty, we must get people into jobs. To lift economic productivity, we must boost skills. To reduce income inequality, we need to narrow the wage gap. And so on. In every case, and whether from the political left or right, the goal is to improve the labor market.

To get more jobs we need more businesses, to get more businesses, we need more capital.  You cannot attract the required capital proposing yet more welfare, more regulations and more privilege and, overall, driving up the cost of doing business.

  • To tackle poverty, we must give people the opportunity to be productive.  This cannot be done through driving businesses out of your town, city, state or country.
  • Yes, to lift productivity, we need to boost skills, not drive up the cost of obtaining those skills to astronomical levels.  We need a flexible workforce, with low-cost training and education, that can respond rapidly to changing markets and technology.  This is completely missing from developed economies and UBI does not correct this problem.
  • To reduce income inequality we need more opportunities, not more welfare, and we certainly do not need government mandating minimum or maximum wage rates to employers.
  • While a goal might be to improve the labor market, there is only one way to do that.  You need to expand the market for labor by attracting more employers, more businesses and more industry.  You do this by implementing policies that lower the cost of education and training, land, property, plant, equipment, government spending, welfare, entitlements, regulations and regulatory compliance.  Not through more welfare.

The labor market continues to work pretty well as an economic institution, matching labor to capital, for production. But it is no longer working so well as a social institution for distribution. Structural changes in the economy, in particular skills-based technological change, mean that the wages of less-productive workers are dropping. At the same time, the share of national income going to labor rather than capital is dropping.

Is Mr. Reeves somehow suggesting that the “labor market” as an “economic institution” is somehow optional?  It’s working ok, but we can throw it away if we need to?  Mr. Reeves is making the same errors in reasoning and conclusion that were made by economists in support of economic policies instituted in the Soviet Union.  The truth; if the government would simply get out of the way, and stop intervening and interfering with all markets, the economy would reward the products and services that the population actually desired, over government mandated products and services, and everyone’s standard of living would go up.  Yes, less government, not more.  Less force, not more force.

This decoupling of the economic and social functions of the labor market poses a stark policy challenge. Well-intentioned attempts to improve the social performance of the labor market – through higher minimum wages, profit-sharing schemes, training and education – may not be enough; a series of sticking leaky band-aids over a growing gaping wound.

The only function of the labor market is to produce the products and services that the citizens of a country desire.  If entrepreneurs, owners of capital and labor were all free to act in their own interest in providing what people desire, the interests of everybody would be served far greater than what is happening now.  The social benefit, function, outcome, is an output of the system, not an input.  When the policies advocated for by Mr. Reeves are implemented, the only logical outcome are the problems he is purportedly trying to solve.  Perhaps with “basic income”, it has never been more true, that the road to hell is paved with good intentions.

This is why the idea of a universal basic income (UBI) is capturing the imagination and attention of policy intellectuals, across the globe and across the political spectrum. If the labor market is no longer going to cut it in terms of distribution, it might be time for more radical solutions. The Swiss are holding a referendum on the idea in June. In the UK, the Royal Society of Arts, Manufactures and Commerce, is leading a major new project on a British UBI.

Socialism captured the imagination of intellectuals in the 19th century and over 100 million innocent people died because of it in the 20th century.  Socialism and welfare have completely destroyed the economies of Europe, and the United States is not far behind.  But, to these “intellectuals”, the facts simply do not matter.  A Universal Basic Income (UBI) is tantamount to state-sanctioned slavery and, through increased disincentives to produce, will drive developed countries and the global economy even further in to the ground.

As Michael Howard, coordinator of the U.S. Basic Income Guarantee Network, told Newsweek magazine: “We may find ourselves going into the future with fewer jobs for everybody. So as a society, we need to think about partially decoupling income from employment.”

For those not familiar with the Basic Income story fable, the UBI crowd blames technology, and “greedy employers”, for a lack of employment, not their previously failed “enlightened” experiments.  The story goes that technology is replacing labor and is leading to poverty.  So, technology = poverty.  I have suggested that we simply eliminate all technological  improvements since the middle of the 19th century so we can all be rich.  Think electricity, running water, central heat and air, the internal combustion engine, farm equipment, industrial and textile machinery, the automobile, computers, the internet, etc., etc., etc.  This would, for sure, provide for full employment.  If all of this technology is leading to poverty, it would only make sense to kill the beast and be rich!  Right?  No takers yet.  We are, however, going to dust off Karl Marx’s, Communist Manifesto and “decouple income from employment”.  If that’s not “enlightened”, I don’t know what is?

The idea is now gaining traction among U.S. libertarians from the Cato Institute, led by Matt Zwolinski, social conservatives like Charles Murray from the American Enterprise Institute, and left-wingers like Matt Bruenig and Elizabeth Stoker. This June, the former President of the SEIU union, Andy Stern, is publishing a book, Raising the Floor, arguing for a UBI. After five years of study and conversations, Stern has decided that “this time is different”. The problems in the labor market are not fleeting symptoms but tectonic shifts. Stern will argue that the answer for American families is “an old idea whose time has come—a universal basic income.”

Today, many conservatives are socialist/welfare advocates, as well as being economic illiterates, so the fact that they would side in favor of UBI, is certainly not surprising.  Like Friedman and Hayek, and to prevent people from starving to death under a socialist regime, welfare in favor of socialist-induced famine might seem temporarily desirable.  However, while being compassionate or expedient is certainly understandable, promoting more welfare only serves to perpetuate poverty and wealth inequality and delays truly beneficial reforms.

In the UK, the Labour Party’s Social Justice Commission (which I served) considered it in 1994. It was rejected then for the usual combination of economic and political reasons: the cost would mean high tax rates on ordinary wages, creating strong disincentives to work; and there was no chance the electorate would buy it anyway.

I couldn’t have said it better myself.

But that was then, and this is now. The rise in income inequality, driven in part by the widening wage gap, means that more of the cost of the UBI could be funded by higher-earners, diluting disincentive effects lower down. In fact, many UBI proponents believe it could actually improve work incentives, by removing the need to remove means-tested payments as wages increase.

The rise in income equality is not driven by the wage gap.  They are both being driven by a complete failure of socialist, welfare, entitlement, protectionist, privilege-based government policy.  To improve the situation, government, and all of its burden to the economy, needs to shrink, not expand.

What the supporters of both Sanders and Trump share is a sense that things are badly broken down. Radical ideas are all the rage.

I could not agree more with this statement.  The problem is that both Trump and Sanders plan on doubling down on the very policies that are responsible for breaking down the system in the first place.  I have addressed this theme over and over again; that UBI, and government intervention are causing the problems, and in no way will ever solve the problems.  Trump and Sanders’ plans, to essentially nationalize the economy through severe trade restrictions, alone, will do untold damage to the economy and opportunities for all Americans.  Their ideas are not new, far from it.  These are old ideas, failed ideas, and will fail again.

A basic income is moving in from the margins. I don’t think we can – or should – rule out the possibility that it will enter the mainstream.

Basic income is a form of welfare, and far from being on the margins, it is a lifestyle for many in the United States and Europe.  A far more progressive approach would be to pursue the idea of more freedom for individuals to pursue business and employment opportunities.  More freedom to spend the income they earn on themselves and their family, not some government agency or contractor.  More freedom to choose the products and services they buy.  More freedom to save the money they earn, not be forced to hand it over to millionaires in the Social Security and Medicare systems.   Without government forcing them to hand over a large chunk to them and their privileged friends and political allies, give large international companies the freedom to move their financial capital back to the United States.  Wouldn’t that make more sense?  Or, will we continue to perpetuate the same worn-out 19th century antiquated ideas that have led to millions of deaths and the most grinding poverty ever known to mankind?  It is up to you.

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