UBI Revisited

Today, we are revisiting the topic of “UBI”, or Universal Basic Income (see my prior post, The Basic Income Guarantee of Failure).  The push behind UBI is nothing short of spectacular in size and scope.  A search of UBI, not a “new” idea, will list enough results to keep you reading for a while, and in places you may not expect to find such a concept advanced and promoted, like a supposed business news website like CNBC; About half of Americans support giving residents up to $2000 a month when robots take their jobs.  Unless otherwise noted, all quotes in this post are from this article.

Fake Headlines

First, let me help you identify what is, at worst, a blatant piece of propaganda, at best, a case of completely irresponsible reporting.  Either way, the result is a completely fake headline.  Let’s compare the title of the article;

“About half of Americans support giving residents up to $2,000 a month when robots take their jobs”

with the reality embedded in the body of the article;

“A survey of 500 individuals in the U.S. released today found that 46 percent of people support…”

Only 46% of the 500 people surveyed, or 230, not “about half of all Americans”, support not, “giving residents up to $2,000”, but instead support;

“…the idea of a universal basic income, through which the government gives a cash handout…”

So, when CNBC states;

“Nearly half of Americans are in favor of giving cash handouts of $500-$2,000 a month to residents when robots take their jobs.”

it is completely misleading and constitutes, as I have stated, a fake headline.

Background

UBI is built on the presumption, a false one, that advancing technology and innovation destroys opportunities for work and, in general, leads to poverty and ultimately starvation.  Technology = Poverty.  The robots, in this case, will eliminate the need for humans and, left with no way to support themselves, the helplessly displaced will succumb to a lack of food, water, clothing and shelter.  If one does believe this, the solution is much more obvious than UBI, it is outlawing technological advancement and any further innovation.  That would not preclude, as well, rolling back certain progress, or were they a regression?, like say, robots that are used to build cars, trucks and other vehicles, to ensure “full employment”.  I mean, if that is the goal, that people are working, and technological advancement is the problem, the solution is to stop innovation in its tracks!  Right?  If that sounds ridiculous, you will understand immediately that the entire foundation of UBI is built on astoundingly faulty logic.  Current UBI proponents, however, are not the first to make this mistake.

Stagnation; deficient growth; over-affluence; over-poverty; the intellectual fashions changed like ladies’ hemlines. Then, in 1964, the happily short-lived Ad Hoc Committee on the Triple Revolution issued its then-famous manifesto, which brought us and the liberal intellectuals full circle. For two or three frenetic years we were regaled with the idea that America’s problem was not stagnation but the exact reverse: in a few short years all of America’s production facilities would be automated and cybernated, incomes and production would be enormous and superabundant, but everyone would be automated out of a job. Once again, free-market capitalism would lead to permanent mass unemployment, which could only be remedied—you guessed it!—by massive State intervention or by outright socialism.  For several years, in the mid-1960s, we thus suffered from what was justly named the “Automation Hysteria.”
Rothbard, Murray N.. For a New Liberty: The Libertarian Manifesto (1973) (p. 302). Ludwig von Mises Institute. Kindle Edition.
It is true that robots will continue to take some people’s jobs, just as they have over the last several decades, just like tractors and combines displaced human and animal labor in the 20th century.  That does not translate to robots will take every job and does not mean that new jobs will not emerge from a society and an economy that continues to advance.  Second, isn’t technology supposed to make our lives better?  Can history provide us with any clue, any context, as to the impact of advancements in technology and innovation?  Yes, any rational interpretation of history would lead one to conclude that advancements in technology, while no doubt disruptive at times, have led to incredible advances in standards of living, especially for those on the bottom wrung of society.  Which makes statements like this difficult to comprehend:
Also, Elon Musk, the founder of SpaceX and Tesla, said recently that he considers UBI to be a nearly foregone conclusion. “There is a pretty good chance we end up with a universal basic income, or something like that, due to automation,” Musk told CNBC. “Yeah, I am not sure what else one would do. I think that is what would happen.”
Not sure what else one would do?  In 1790, farmers made up 90% of the population in the United States.  By 1840;69%, 1870; 53%, 1900; 38%, 2016; less than 2%.  Not only did advancements in technology and innovation in farming techniques and equipment not eliminate jobs, it supported the advancement, and creation, of new industries never contemplated by the inhabitants of early America.  Many millions of new jobs, not to mention living standards well beyond that which was available only to the wealthy in 1790, were created by technology and innovation, not destroyed.

Let’s consider an extreme example:

What if someone created something useful like a machine that, at the push of a button, could produce all of the food one would ever need and want.  Better yet, the new technology was available for a one time investment of only $1.  But wait, there’s more, this same inventor developed an additional technology, for another dollar, that revolutionized home building.  You could order a cube the size of a shoe box, place it on a plot of land, compress the top, and it would unfold into a 2,500 square foot home with 4 bedrooms and 3 1/2 baths, complete with utility hook up and an eternal fuel cell that provided all of the energy resources you or your family would ever require.  There would be no more hunger, no one would go without a roof over their head, and what would be the response from a supporter of UBI?  They would complain that millions of farmers and construction workers would be out of jobs and might lobby to suppress these labor-saving and life enhancing technologies.

Besides the faulty proposition, technology = poverty, there are three additional, somewhat related, problems that confront UBI, and that I will review in some detail here:

  1. It promotes slavery
  2. It perverts incentives
  3. It destroys wealth

Slavery

It is very important to distinguish who, under a UBI regime, will be giving and from whom the funds will be taken and, more importantly, to reveal the true nature of that relationship.

“A survey of 500 individuals in the U.S. released today found that 46 percent of people support the idea of a universal basic income, through which the government gives a cash handout to any resident, irrespective of employment status.”

I am going to ignore the fact that the sample size is too small to generate any statistically significant conclusions but, assuming the survey respondents, or any American, wanted to donate their own money, fine, they can give directly or indirectly, through a charity, to the disenfranchised on a voluntary basis.  But, that is not what this study is proposing.  The study asks, “Are you in favor of the government giving a cash handout?”  So, newsflash, 46% of the survey respondents are in favor of government handouts.  I’m not sure that is surprising but, none the less, UBI, at its core, is not a voluntary, charitable endeavor.

Let’s remember, government produces nothing and, as such, produces no wealth of its own.  Everything must be taken from the producers that pay taxes.  So, those in favor of government handouts are really in favor of handouts from the producers.  Government would not pay for the cost of UBI, and does not, and never will, pay for the cost of anything.  UBI, it turns out, like any form of entitlement, is slavery, entitlement slavery.  The promoters of such programs cloak the true nature of the arrangement behind a veil of money.  In this instance, absent money, producers would be required to provide free goods and services to the UBI recipients.  In as much as proposed UBI programs come with no strings attached, the UBI master would be free to enslave any designated producer/taxpayer up to some designated, or legislated, maximum.  Free food, free healthcare, free housing and, in the society envisioned by UBI promoters, even free use of robots.  In a somewhat ironic twist of fate, theoretically, the inventors and producers of the robots, could be enslaved by the UBI recipients.

“The general concept of a floor on income is generally acceptable to and popular with voters. This is a solid first step,” writes Misha Chellam, the founder of startup-training company Tradecraft and a signatory of the Economic Security Project, a newly founded research organization dedicated to learning more about the implications of universal basic income (UBI).

Note the wording of the quoted text, “This is a solid first step.”  So, enslavement of one American to ensure some minimum standard for another American would be a first step.  It is unclear what level of lifestyle the master would ultimately enjoy, what additional steps would be proposed or would be taken should UBI entitlement slavery become law.  What is clear is that work for the master would not be a requirement.

From basicincome.org

A basic income is an income unconditionally granted to all on an individual basis, without means test or work requirement. It is a form of minimum income guarantee that differs from those that now exist in various European countries in three important ways:

it is being paid to individuals rather than households;

it is paid irrespective of any income from other sources;

it is paid without requiring the performance of any work or the willingness to accept a job if offered.

www.basicincome.org

Not that he, or I, would seriously consider or advocate for a state, or government, intervention, to the current topic at hand, but Henry Hazlitt, nearly 50 years ago, postulated an alternative:

Even if it were true, as the authors of the guaranteed income proposal contend, that the American free enterprise system will soon become so productive that more than anybody really wants can be produced in half the time it takes now, why would that mean the disappearance of jobs? And how could that justify half the population’s, say, being forced to work forty hours a week to support the other half in complete idleness? Why couldn’t everybody work only in the mornings? Or half in the mornings and the other half in the afternoons at the same machines? Or why could not some people come in on Mondays, others on Tuesdays, and so on? It is difficult to understand the logic or the sense of fairness of those who contend that as soon as there is less to be done some people must be supported in idleness by all the rest.

Hazlitt, Henry, Man vs The Welfare State, Arlington House, New Rochelle, NY, 1969 (Page 75).

Clearly there has been no movement on Mr. Hazlitt’s theoretical solution.  The only reason I say theoretical, as it is clearly grounded in logic, fairness and justice, and would aptly solve the purported problem better than enslavement, is that the entire notion of technological innovation leading to poverty and requiring slavery as its remedy is so absurd on it’s face that it seems hardly worthy of a response.  But, as absurdity reigns, we continue onward.

Incentives

As demonstrated above, the idea of a “basic income”, or UBI, has been floated for some time.  Supporters have forwarded two different models; one, a supplemental income to bring an individual or family to a certain level or two, to provide every individual with a certain amount of money every month or year, regardless of income.  So, while the first can be seen as a form of traditional welfare, for example to support those that lose their jobs to robots, the second goes beyond that to propose a form of Social Security for everyone.  Either way, the essence of the program does not change.  It requires that some part of the population produce, and be enslaved, for the benefit of a less productive, and even non-working, portion of the population, which leads us to the incentives this society would breed.

Unfortunately, the recent trend—embraced by a wide spectrum of advocates (with unimportant modifications) from President Nixon to Milton Friedman on the right to a large number on the left—is to abolish the current welfare system not in the direction of freedom but toward its very opposite. This new trend is the “guaranteed annual income” or “negative income tax,” or President Nixon’s “Family Assistance Plan.”
Rothbard, Murray N.. For a New Liberty: The Libertarian Manifesto (1973) (p. 210). Ludwig von Mises Institute. Kindle Edition.
The problem cited?  Not the policies that lead to poverty, joblessness and crime, and thus the proposal that something must be done, the current system of doling out welfare was just to inefficient.
Citing the inefficiencies, inequities, and red tape of the present system, the guaranteed annual income would make the dole easy, “efficient,” and automatic: The income tax authorities will pay money each year to families earning below a certain base income—this automatic dole to be financed, of course, by taxing working families making more than the base amount. Estimated costs of this seemingly neat and simple scheme are supposed to be only a few billion dollars per year.
Rothbard, Murray N.. For a New Liberty: The Libertarian Manifesto (1973) (p. 209). Ludwig von Mises Institute. Kindle Edition.
Like any entitlement program, including any form of welfare, it doesn’t take long for potential beneficiaries to figure it out and start “working the system”.
But there is an extremely important catch: the costs are estimated on the assumption that everyone—the people on the universal dole as well as those financing it—will continue to work to the same extent as before. But this assumption begs the question. For the chief problem is the enormously crippling disincentive effect the guaranteed annual income will have on taxpayer and recipient alike.
Rothbard, Murray N.. For a New Liberty: The Libertarian Manifesto (1973) (p. 209). Ludwig von Mises Institute. Kindle Edition.
No one can help those that are unwilling to help themselves.  But, for those that do want to be productive, the answer to solving the riddle of poverty, crime and general hopelessness, is a vast roll back, read abolish, of all laws and regulations, federal, state and local, that prevent the most disadvantaged from earning their way to gainful employment.  In short, minimum wage laws, licensing restrictions, etc.  For now, however, it would appear that making people “work” for their welfare, is the only interim solution.
The one element that saves the present welfare system from being an utter disaster is precisely the red tape and the stigma involved in going on welfare. The welfare recipient still bears a psychic stigma, even though weakened in recent years, and he still has to face a typically inefficient, impersonal, and tangled bureaucracy.
Rothbard, Murray N.. For a New Liberty: The Libertarian Manifesto (1973) (p. 210). Ludwig von Mises Institute. Kindle Edition.
Rothbard goes on to point out the spiraling, out of control, impact on those earning less than or even more than the now coined, Universal Basic Income.  It should go without saying that if one earns $4,000 for doing nothing, making $4,000, or even slightly more, for having to do something, no longer looks very attractive.
But this is not all; what of the people making either $4,000, or slightly or even moderately above that line? The man making $4,500 a year will soon find that the lazy slob next door who refuses to work will be getting his $4,000 a year from the federal government; his own net income from forty hours a week of hard work will be only $500 a year. So he will quit work and go on the negative-tax dole. The same will undoubtedly hold true for those making $5,000 a year, etc.
Rothbard, Murray N.. For a New Liberty: The Libertarian Manifesto (1973) (pp. 210-211). Ludwig von Mises Institute. Kindle Edition.
It gets worse…
As all the people making below $4,000 and even considerably above $4,000 leave work and go on the dole, the total dole payments will skyrocket enormously, and they can only be financed by taxing more heavily the higher income folk who will continue to work. But then their net, after-tax incomes will fall sharply, until many of them will quit work and go on the dole too. Let us contemplate the man making $6,000 a year. He is, at the outset, faced with a net income from working of only $2,000, and if he has to pay, let us say, $500 a year to finance the dole of the non-workers, his net after-tax income will be only $1,500 a year. If he then has to pay another $1,000 to finance the rapid expansion of others on the dole, his net income will fall to $500 and he will go on the dole.
Rothbard, Murray N.. For a New Liberty: The Libertarian Manifesto (1973) (p. 211). Ludwig von Mises Institute. Kindle Edition.
Rothbard’s conclusion?
Thus, the logical conclusion of the guaranteed annual income will be a vicious spiral into disaster, heading toward the logical and impossible goal of virtually no one working, and everyone on the dole.
Rothbard, Murray N.. For a New Liberty: The Libertarian Manifesto (1973) (p. 211). Ludwig von Mises Institute. Kindle Edition.
 Wealth

But in addition to the erosion of the incentive to work, there would be just as serious an erosion of the incentive to save. The main reason most people save is to meet possible but unforeseeable contingencies, such as illness, accidents, or the loss of a job. If everyone were guaranteed a minimum cash income by the government, this main incentive for saving would disappear. The important habit of saving might disappear with it.

Hazlitt, Henry, Man vs The Welfare State, Arlington House, New Rochelle, NY, 1969 (Page 89).

When confronted with the concepts of entitlement slavery and/or the inevitable and vicious spiral into disaster caused by a perverse system of incentives under a UBI regime, proponents will glibly retort that the money could simply be printed, or created.  Creating money, after all, doesn’t cost anything.  Just press a button on a computer and voila!  Unfortunately, while money can be “created out of thin air”, as some like to point out, wealth cannot.  Wealth can only be generated through savings, or not consuming all of one’s production.  UBI proposals, by disincentivizing production and savings, destroy wealth.

Money is often confused with wealth.  It is not wealth, and can only be but a claim to wealth.  Take an example of three people who are stranded, shipwrecked, on a remote island.  These people are soaked, hungry and exposed to the elements.  If they discovered $1 million in gold or Federal Reserve Notes (US legal tender) on the island, has anything been accomplished?  No, at least not much.  They cannot eat, wear or build an adequate shelter with either.  The best we can say is that they could possibly build a fire with the paper money.  To survive, each will still need to provide for themselves or be dependent on the others for their welfare.  They will need to maintain that fire, build adequate shelter and work immediately at producing fresh water and food.  Food, clothing, shelter, tools and equipment, these are examples of wealth.  Universal Basic Income proponents, by confusing money with wealth, envision a UBI society that is becoming richer when, in fact, it would be descending in to poverty.

The value of money is a function of its purchasing power, which is non-existent in our remote island example.  So, money serves as an instrument of exchange, the wealth of a person exists in their access to the goods and services they desire.  So, a nation, as a whole, cannot increase its wealth by simply increasing its stock of money.  Let’s test this proposition by considering, now, a more developed society with a generally accepted medium of exchange, or money, that can be traded for wealth.  At first, it is hard to imagine that plopping down additional money in the laps of some, or everyone, would not have a positive impact, but it does not.  If we hold the productive output, or wealth, constant, but say, double the supply of money, the average cost of the output or wealth will double.  Again, as a whole, there is no net benefit.  Worse, the impact of the change in ratio of money supply to wealth is disbursed unevenly and results in winners and losers through no action of their own.  Under a UBI money-printing scheme, the wealth of the producers would silently and covertly be expropriated by the ever-increasing number of newly-created-money recipients, a back-door method of enslavement.  Of course, it is a new supply of produced wealth, not money, that would be a positive outcome.  That, however, is not what we are talking about with UBI.  With UBI, people are increasingly paid not to produce additional wealth.

Final Thoughts

The true cause of unemployment is not technology and innovation, it is government, government at all levels.  Federal, state and local laws restrict trade and limit competition through tariffs, quotas, wage and labor laws and state or local franchising and licensing requirements while unaccountable and under-performing government schools fail to properly prepare students for the job market.  Regulations, compliance thereof, and high levels of government spending, act as a wet blanket cast over the entire economy by weighing down American industry with high costs of doing business and unproductive activities.  Younger Americans and certain minorities, disproportionately burdened by government, are left seeking solutions to a problem they do not understand.

“Younger, less wealthy and people of color who responded to the survey were more likely to be in favor of the idea of a UBI, which is typically floated as a solution to the mass unemployment that rapidly accelerating automation trends might bring.”

Propaganda designed to lay the burden of government at the feet of technology and innovation only compounds their problem.

…those survey respondents who already knew the most about universal basic income prior to the survey were more likely to support the idea, according to Chellam.”

So, I guess it’s just a matter of educating the public, eh?  If we can just get 51% of the population to agree to this everyone will have to conform, right?  Slavery, and complete destruction of the incentive to be productive, will destroy one individual at a time, and ultimately collapse all of any society signing on for UBI.

“The public at large has not been discussing the concept. It is necessary to raise awareness among the general public for UBI to be politically viable in the coming decades,” says Chellam.

Educating the public is certainly what we need, educating them on the horrors of state-sanctioned mass enslavement, and ensuring that nothing like UBI becomes politically possible now, or ever.  There is hope.

When the notion was explained, survey respondents typically had one of two negative reactions: They believed that cash handouts would promote laziness and that paying for the program would going to break the bank.

“Voters surveyed did not like the idea that income is not tied to work,” says Chellam. “The laziness argument is one that has hamstrung welfare and safety net efforts for decades.”

Though the enemy moves forward undaunted.

Likewise, framing mattered. “Social security for all” was more palatable to survey respondents than “universal basic income,” Chellam says.

Additional Reading

For a brilliant theoretical critique of the guaranteed annual income, negative income tax, and Nixon schemes see Hazlitt, Man vs. Welfare State, pp. 62–100. For a definitive and up-to-date empirical critique of all guaranteed annual income plans and experiments, including President Carter’s welfare reform scheme, see Martin Anderson, Welfare: the Political Economy of Welfare Reform in the United States (Stanford, Calif.: Hoover Institution, 1978).
Rothbard, Murray N.. For a New Liberty: The Libertarian Manifesto (1973) . Ludwig von Mises Institute. Kindle Edition.

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