Thinking Out Loud About UBI: Jobs Guarantee vs Income Guarantee

Why would someone finish a four-year engineering degree when they can go up the street to a resort on The Strip and make six figures as a valet?

— Dean of Engineering College, UNLV, Las Vegas, Nevada

It has been some time since I added to my thoughts on the sticky subject of UBI, partially because we’re all challenged by our own day-to-day fun in the times of the great pandemic, but as well it had been interesting to watch the pitch for UBI and more consistently and perhaps alarmingly, the result of government inaction as businesses and whole cities shutting down and drastic reductions in demand have left people unemployed and less than confident.

Always begging the question…

At the same time, I’ve been jumping back in to the case for Modern Monetary Theory, which has always made sense to me in the abstract, but now more than ever we can see how various viewpoints concerning tariffs, bailout subjects (eg airline companies vs airline workers), scientific research vs personal protective equipment funding allocations, and the seemingly-endless list of not-quite-connected dots goes on. For anyone paying attention, we are seeing the tried-and-true party line towed at every turn: “How are we going to pay for it?” for some things, and, well, bailouts and capital injection at the top without a second thought. This is not an article about MMT, though discussion of that should be forthcoming either in writing or in some other form.

For the moment, let us re-examine the premise I took from Professor Mark Blyth, that guaranteed employment is inflationary, and my leap to the assertion that universal basic income is similar and would thus also be inflationary. This needs some layers peeled away.

Jobs Guarantee

As part of my reading of The Deficit Myth by Dr. Stephanie Kelton, I’ve been reminded several times per chapter that a Jobs Guarantee is an essential part of a stable economy that conforms to modern monetary theory. Kelton makes more than one reference to someone in the MMT community who has been highlighting the need for jobs guarantees and the implementation of such programs in an MMT-conforming economic strategy, Pavlina R. Tcherneva, and her book, The Case for a Job Guarantee. A book I have added to my reading list, but for the moment I’ll pull out some summary:

• There are job guarantee programs and strategies that drive private sector employment through subsidies and other capital stimulus, which can be inflationary if the labor pool can leverage the demand and availability of payroll funds. As Professor Blyth had stated it (I wish I could track down the clip from the talk where I heard him say this), if someone can leave one job and walk over to the next one for more money, guaranteed, then wages will go up with demand for the labor, which in a guarantee scenario would be compulsory. I believe he had referred to Germany in his examples, and possibly the UK, and I believe I have read about some worker protections in France that sound similar. (This is very vague, but I’m only thinking out loud at the moment… spoiler alert, there’s a project that falls out of this later).
• In another scheme, the government becomes the “employer of last resort,” ideally at local levels (subsidized by the federal government, fully or partially), so that local needs for public-good projects can be matched with available individuals otherwise-unemployed. Rather than paying unemployment benefits for some period of time, an individual would be matched with an available position fulfilling some need close to home (figuratively, at least), which is more sane than having the federal government attempt to fill job roles at a distance. The upside, from one perspective, is the ability in this scenario to have the government set minimum wage limits according to the market, so that as jobs paying higher wages become available to draw away the workers fulfilling these public sector positions, they would enjoy the higher wages, without private sector employers having to work within a statutory wage guarantee structure.

The reading list continues to grow… I intend to read that book (The Case for a Job Guarantee) but from these two paraphrased pulls (from other comments on the book that I’ve come across), I believe Professor Blyth was referring specifically to private sector job guarantees driving inflation due to the impact on labor supply with the increase in worker mobility in the marketplace, while the public sector jobs guarantee creates an additional avenue for employment, ideally productive, and at some market rate wage that would set a minimum for the locality. This probably makes more sense than a national minimum wage increase, but that is absolute conjecture at the moment.

As with most cases described by economists, these jobs in the public sector, which would be matched with available talent in the labor pool to drive a full employment agenda, would simply happen, very much like magic. The reality of placing any individual into any role, even if the two appear to match, is substantially more complicated than merely assuming that there could be job guarantee zipper that joins the person and the job with substantial ease. In my own experience, this is absolutely not trivial an undertaking, and if the public sector roles are not intended to be competitive, then turn-over would make value extraction from any given job role a severe challenge thanks to training and re-training costs (measured in time, money, quality of effort, etc.); if these roles are competitive, there may then be similar inflationary pressures as workers from the private sector take advantage of more lucrative wage opportunities across the public-private boundary.

In keeping with the theme, to think out loud about these facets: the job guarantee implemented in a public sector employer-of-last-resort scheme seems like a fantastic idea, in every sense of that word. It could happen, and it makes sense to expand the job market rather than attempt to artificially elevate it, but I don’t think it’s nearly so easy as it’s been made out to be.

Income Guarantee

There have been several experimental income guarantee programs in different parts of the world, which I have always found to be slightly misleading. As long as the test population is paid in the prevailing currency, they are free to co-mingle their guarantee income with “normal” income and conduct business like anyone else, which means the impact of this income guarantee on the locality is difficult to measure.

There is one example frequently presented of larger-scale deployment of what could be called a UBI, found in the Permanent Fund sharing an annual stipend with every person in the state of Alaska basked on natural resource market returns. This amounted to something int he range of $1000-$2500 per year per person. This is nowhere near the $1000 per month per person proposed by Andrew Yang in the 2020 race for the presidential nomination in the Democratic Party. Even if the difficult-to-deliver 2018 gubernatorial campaign promise of $6000+ per person per year from the Permanent Fund can be delivered, it is half of the Yang proposal, and the total population of the state is less than 750,000, easily eclipsed by many metropolitan areas much less states.

My concern here is that UBI experiments that are applied to population subsets are not actually Universal. If they are applied below some value threshold they can barely be called Income. If we look at any experiments within the United States, we can assume that none were functioning in an MMT-conforming scheme (a deeper dive as part of the larger project I referred to above would be forthcoming, remember we’re merely thinking out loud here) and where thus limited by budgetary and other constraints placed on the experiment. What does Basic mean in that context?

For the sake of this exercise, though, I will revisit the $1000 per person per month plan that is the Yang Freedom Dividend proposal. Recall that this would be paid for (a requirement to keep classic economical thinkers happy) with what amounts to a VAT on commerce from the vilified big companies we all know and… love? Well wait a minute, let’s think out louder about this for a moment:

• The Freedom Dividend would fill in wage gaps or other shortfalls that would arise from the loss of jobs to automation, to enable retraining, to help out in homes where working parent(s) need to cover a few extra bills for the kid(s) here and there… it’s a shock absorber, intended to replace other forms of assistance for some and provide a fair and consistent amount to all.
• The FD UBI would be funded by that VAT applied to some part of domestic commerce, which sounds nice since those big companies are made to give back to the marketplace as they draw in more and more of the shopping money pool (I am writing this just prior to Cyber Monday 2020…). Except, like tariffs, it is the buyer paying that tax. Unless there is some regulation on price adjustments to compensate for the seller paying into the FB UBI fund, ultimately it’s the buyer paying in (prove me wrong?).
• My take on the Yang plan, since he first began talking about it at every turn, was that it’s an admission that keeping the commerce engine running by handing money back to its spenders so they can spend it again regardless of the job market is the goal. It may be wrapped in good intentions, but the pitch is “we’re going to extract the funds from the money you’re getting from purchases made by members of the population, employed or not, so that they can give it to you again,” and this is an economic hack.
• The inflationary effects are similar, in my view, to the impact of private sector employment guarantees (except the money is coming from VAT-like extraction rather than state subsidies), especially since once everyone has an extra UBI amount coming in every month, there is little to prevent prices creeping up to draw in any of the monies that are not recycled in that VAT scheme.

As I type this, there was a single $1200 per person stimulus payment made to adults in the US, employed or not, assuming those adults had filed a tax return recently so they were “in the system.” Add the supplementary unemployment insurance payouts for some, and we have a mish-mash of state-funded, sort-term basic income. Not universal, and barely income for those only receiving that single stimulus payment, but the take-home message about this version of a Universal-ish experiment makes another factor painfully clear: if an income guarantee (which would be labeled an entitlement for a negative connotation) is subject to political negotiation and potential suspension or cancellation, whether it is “paid for” with public or private monies, it is almost certainly doomed.

Where to Next?

Two mentions here and at least one mention on the topic of expanded availability of credit as an alternative to UBI, of a working model of some kind to compare and contrast these different approaches to smoothing out the consumer view of The Economy. The lingering question, in the absence of a generally convincing macroeconomic MMT or even UBI model implementations that satisfy the naysayers, is How would UBI plans really impact the people they are intended to help? Just to address the cloud of cynicism hanging over that question, the people are individual consumers trying to get by, though it could be argued that UBI plans could be crafted to benefit business more than individual. Macro models coupled with Micro models, please.

This UBI-oriented series will give way to more general Monetary Theory pursuit, as articles perhaps, but likely also more toward a mathematical, numerical discussion. Anecdotes and abstractions purporting to describe how deficits are bad, or good, eventually become footnotes to something provable, or at least testable, and this is the logical next step after thinking out loud. Will there be one or two more out-loud steps before moving on to this next phase, which will surely be a tremendous and perhaps impossible step toward a testable model (MMT or otherwise)?

Seems likely.