Thinking Out Loud About UBI: Credit vs Freedom Dividend
It has been some time since my last installment of this ad hoc series, wherein I intend to jot down a few ideas here and there on the general topic of a Universal Basic Income. This topic has become even more interesting now that 2020 presidential hopeful Andrew Yang has entered the race for the nomination as the Democrat candidate. At the same time I left things hanging while I pondered the possibility of a UBI implemented as an expanded form of credit market, where credit was generally more easily accessible for more people.
Credit Availability
As I was pondering this as an avenue to relieve the stress on the economy of massive job loss to automation (something everyone is afraid of in one way or another, valid or not), I was going to look for ways to analyze an economy where credit was easy and difficult to make use of, from a modeling standpoint, and try to come up with a comparison of an American economy where credit, rather than capital, was made generally available. Perhaps this would be a Universal Basic Credit Line.
My reasoning, as I recall it now, was that providing capital across the board is akin to guaranteed employment, which tends to be inflationary, so that a guaranteed basic income regardless of employment is almost exactly the same as guaranteed employment, and so over some time interval the economy would settle on a baseline cost of living where the basic income either just barely covers it, or just barely does not. Either way, we end up with a similar scenario for some segment of the population that finds itself living at or below the poverty line today, except at that point there will have been a shift toward reliance on this basic income by a large swath of the population. Would the size of the population living at the lower end of the economic spectrum increase as a result?
The switch from capital to credit seemed interesting, then, because rather than simply dumping capital into the market each month and having it distribute itself along inflationary lines toward the upper end of the power distribution, perhaps the ability to take on credit as needed, according to need and outlook and risk assessment, would throttle the flow of capital from the borrower to the market. Perhaps this would stave off inflationary pressures while connecting line of credit exercise with some sort of plan, some sort of responsibility.
However, in the interim I came cross the odd article here and there about the spiraling college tuition problem that has only been exacerbated by… student loans! Couple this with the subprime mortgage lending crisis, and the global economic impact that had over time with the creative re-packaging of bad debt, and today as I write the discussions of forgiving student loan debt as we still remember the bail-out of the big banks that were too big to fail. Credit availability without adequate restraint is just as much a problem as guaranteed income, if not worse, and when the time comes for a bailout it is done in crisis, rather than with any real consideration about which debt is beneficial and which is the result of incompetence or outright criminality.
Credit availability, or a loosening of monetary policy in general to make credit available to more people in different circumstances to enable access to economic prosperity or at least mobility, is almost certainly a challenge beyond the capabilities of a government that hands itself over to Goldman Sachs, The Federal Reserve, et al. The cataclysmic shift needed to make this a fair and sane system is on the same order as that required to build an economic system that doesn’t require people to have artificial access to buying power for participation in the economy anyway…
The Freedom Dividend
There is a lot of hand-waving in the general presentation that candidate Andrew Yang makes about his Freedom Dividend proposal, so to begin I will point to his campaign website on the matter:
That site may go away depending on the outcome of the primary elections, but no doubt his plan will be find-able in various places for some time to come. As well, there are several places to find a deeper numerical analysis of his proposal that goes a big deeper than his hand-wave. One example of many can be found here
I begin to have some doubts when the numbers start flying with a lot of hand-waving, and then the answers to questions remain vague. Will this VAT that he would depend on to make his numbers almost work actually be enacted? There’s nothing like a new tax to make people excited, and a tax is easily spun against a candidate, so I don’t actually believe that adding on 10% VAT (his number, higher might be needed) to “every Amazon purchase, every Facebook ad” etc etc etc, is going to come to pass with a simple election victory.
My main issue, though, is still with the inflationary effects of a basic income. If Yang’s numbers did work out, why would cost of living not rise to consume most or all of that $1,000 base income, leaving a chunk of the population in the bottom of the economy? If everything Yang proposes comes to pass, we still have more and more people losing employment opportunities to automation, and as cost of living rises to meet the basic income level, how will anyone be able to retain any mobility at all in this new economic picture he’s drawing?
Outside The Box
My general problem with UBI is, it’s a band-aid to keep a system that requires workers to turn the wheels of production and then spend their pay on consumption running. If people can’t make money to spend, they can’t spend money, and there won’t be so much reason to make things to spend money on. The solution here is to give people money to spend to keep the machine running. Is automating the worker out of the machine going to make it too easy to make things and too difficult to buy them?
One idea I tossed around for a minute was the idea that the casual individual should be able to invest in production automation, whether in a physical robot, a robot-related industry (spare parts, repair services, upgrades, etc), similar to the way a family might have multiple children to work the family farm or to be “sent off to college.” Is it right to completely privatize the means of production such that consumers are left out completely to fend for themselves, requiring government intervention to keep the economy afloat?
The more basic form of this thinking is, how can people replaced by automation continue to participate in the economy so that it operates more or less in its current form. This is the goal with UBI anyway, to continue the flow of capital from the consumer side of the machine flowing, to keep the machine turning. UBI enables continued participation in the consumption, but would enabling, encouraging, or even requiring individual participation on the production side through some form of ownership or dividend from production itself make more sense?
Does automation ultimately drive deflation to counter the inflationary forces of a UBI? If elimination of large chunks of the workforce isn’t driving production costs down substantially, why do it? Of course there is a massive savings awarded to corporate interests for reducing the number of employees they pay, which eventually reduces the size of their consumer base directly or indirectly, which further reduces their price potential. As the saying goes, “Most Walmart employees can’t even afford to shop there,” and it’s entirely possible that that would apply across the board.
On the other side of the room where this debate is happening is the observation that revolutions in productivity, economy, and so on, have always resulted in net job gains and a sorts of other good things. Why will this not be true here? There was a non-trivial impact on the grain market when horses were replaced with cars and other vehicles, and then assembly lines and reduced the number of people it takes to build cars, and so on. There are countless examples of this, and in some cases the disappearance of jobs and types of employment does indeed impact parts of the population in ways that are difficult to recover from.
If there is an assumption that replacement of jobs through automation will only happen at an accelerating rate, and that everything from farm work to truck driving to service industry to white-collar jobs to, well, everything, will be done by computers and robots and other automata, then why are we trying to keep our old economy in service with the use of money? Automation will, over time, be developed and managed by automation, and we could assume that the automatons will not require a paycheck. If raw materials can be found, collected, and delivered by machines as well, then the Petroleum Dividend in Alaska becomes somewhat interesting, if the natural resources (and those available for recycling) become national treasure owned by the populous, which could then fuel this UBI that would vary based on resource availability per region (per city? per state? per country? Surely no tension would arise from this, and we can be even more certain that international trade would be as smooth as ever).
Is UBI a short-term answer to a long-term question? I think it is. There is a hand-wave going on when it comes to where the money goes when jobs are automated away, with the distraction pointing our attention to free money each month taken from “the rich, not-paying-taxes people and companies that aren’t you!” instead of considering how our economy actually works and how critically important the working consumer is to its continued function.
This is going to take more thinking, but I know I’m not thrilled with the Yang proposal…
