Making Universal Basic Income Real

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Making Universal Basic Income Real

For the past couple years, I’ve been loosely tracking the idea of Universal Basic Income (UBI). My interest grew from a growing concern about people’s ability to keep up with the blistering pace with which automation and machine learning are tackling what had previously been human work.

Over the holidays, I read Peter Barnes’ book, With Liberty and Dividends for All (https://goo.gl/OdU9YN). It’s a quick read and it makes a compelling case for UBI.

Then, today, I watched Kartik Gada outline his thinking on how to make UBI a reality, while simultaneously solving some other gnarly economic and societal problems. Here is a quick summary of his main points:

* We are entering a phase in our economic growth where deflation poses a more serious threat than inflation. The cause of this deflation is the growing percentage of total economic output that is subject to technological deflation.

* To deal with deflationary pressure, central banks are creating more money through a process of quantitative easing. We are now in the third wave of this easing, and it’s not enough. Deflationary pressures will accelerate as a growing portion of the economy becomes subject to technological deflation.

* The banks rely on treasuries and mortgage-backed securities to do their quantitative easing, but those channels for money creation are losing their effectiveness. We need a broader set of channels.

* One way of broadening the channels through which new money is infused into the economy is to simply distribute it directly to citizens in the form of a UBI.

* In Kartik’s proposal, the UBI would be universal rather than means-tested. I’ve come around to this view thanks to arguments by Peter Barnes. It would also gradually replace other forms of government assistance and insurance, and in so doing, eliminate income taxes and streamline/eliminate government agencies tasked with taxes and redistribution.

* Here’s the key insight: as technology accelerates, so does its deflationary pressure, and the need for ever increasing amounts of quantitative easing. As a result, UBI payments would naturally grow as the economy becomes increasingly technological in nature.

So, why am I illustrating this post with a picture of the “Go” space from a Monopoly board? This is an analogy from Peter Barnes. The UBI acts as a kind of $200 cash infusion into the board. Without that infusion, the game can’t move: there’s not enough money to buy properties, houses, hotels, etc. Think of the UBI as a new way of injecting liquidity into the economy: one that doesn’t rely on our banking system’s ability to create money by issuing debt.

This is a really interesting proposal. You can find Kartik’s Google Talk here:

https://goo.gl/Kqw87v

And here is his website with a more detailed summary (which I haven’t yet read):

https://goo.gl/AWiyn3

A heartfelt thanks to Mark Bruce, without whom I would not have come across this work. If you’re not following Mark already, I highly recommend him. Lots of interesting stuff in his stream here on G+.

#UBI #BasicIncome 

26 comments

  1. Peter Hatherley and Mark Bruce, that original post was acting extremely buggy. I’ve never seen anything like it here on G+. It didn’t display Mark’s name and when I tried to edit it, there was just nothing to edit and the post itself froze my browser. Weird…

    And so, I lost your note, Mark and your great joke, Peter. Sorry.

  2. Here’s a really great study done in India that emphasizes the importance of non-means testing (the 11 takeaway points, which I will copy here, are very counter-intuitive to the typical conservative response to an UBI):

    isa-global-dialogue.net – India’s Experiment in Basic Income Grants

    1. Many used money to improve their housing, latrines, walls and roofs, and to take precautions against malaria.

    2. Nutrition was improved, particularly in scheduled caste (SC) and scheduled tribe (ST) households. Perhaps the most important finding was the significant improvement in the average weight-for-age of young children (World Health Organization z-score), and more so among girls.

    3. There was a shift from ration shops to markets, made possible by increased financial liquidity. This improved diets, with more fresh vegetables and fruit, rather than the narrow staple of stale subsidized grains, often mixed with stones in the bags acquired through the shops of the Public Distribution System (PDS), the government-regulated food security system. Better diets helped to account for improved health and energy of children, linked to a reduced incidence of seasonal illness and more regular taking of medicines, as well as greater use of private healthcare. Public services must improve!

    4. Better health helped to explain the improved school attendance and performance (figure 1), which was also the result of families being able to buy things like shoes and pay for transport to school. It is important that families were taking action themselves. There was no need for expensive conditionality. People treated as adults learn to be adults; people treated as children remain childlike. No conditionality is morally acceptable unless you would willingly have it applied to yourself.

    5. The scheme had positive equity outcomes. In most respects, there was a bigger positive effect for disadvantaged groups – lower-caste families, women, and those with disabilities. Suddenly, they had their own money, which gave them a stronger bargaining position in the household. Empowering the disabled is a sadly neglected aspect of social policy.

    6. The basic income grants led to small-scale investments – more and better seeds, sewing machines, establishment of little shops, repairs to equipment, and so on. This was associated with more production, and thus higher incomes. The positive effect on production and growth means that the elasticity of supply would offset inflationary pressure due to any increased demand for basic food and goods. It was encouraging to see the revival of local strains of grain that had been wiped out by the PDS.

    7. Contrary to the skeptics, the grants led to more labor and work (figure 2). But the story is nuanced. There was a shift from casual wage labor to more own-account (self-employed) farming and business activity, with less distress-driven out-migration. Women gained more than men.

    8. There was an unanticipated reduction in bonded labor (naukar, gwala). This has huge positive implications for local development and equity.

    9. Those with basic income were more likely to reduce debt and less likely to go into greater debt. One reason was that they had less need to borrow for short-term purposes, at exorbitant interest rates of 5% a month. Indeed, the only locals to complain about the pilots were moneylenders.

    10. One cannot overestimate the importance of financial liquidity in low-income communities. Money is a scarce and monopolized commodity, giving moneylenders and officials enormous power. Bypassing them can help combat corruption. Even though families were desperately poor, many managed to put money aside, and thus avoid going into deeper debt when financial crises hit due to illness or bereavements.

    11. The policy has transformative potential for both families and village communities. The whole is greater than the sum of the parts. Unlike food subsidy schemes that lock economic and power structures in place, entrenching corrupt dispensers of BPL (Below Poverty Line) cards, rations, and the numerous government schemes that supposedly exist, basic income grants gave villagers more control of their lives, and had beneficial equity and growth effects.

  3. It’s happened to me once or twice too Gideon Rosenblatt as for passing Go, the point that the Google AI has already surpassed “Go” is unmistakeable!

  4. Very interesting subject.

    I read The Rise of Robots by Martin Ford.

    https://oneworld-publications.com/the-rise-of-the-robots.html

    which touches on the fact that robots don’t buy things and the need to have some kind of income besides earning wages.

  5. Oml omg oml omlllllllllllllll

  6. I like the UBI as long as it is replaces other forms of welfare, not added to. Welfare including “public” services, such as schools and roads.

    Also, technological innovation creates more jobs than it displaces. The same argument goes back im guessing to the invention of the plow. We need to get government out of education that was developed for a 19th century economy. Allow the free markets adaptive power work.

    Once people are weened off the power of government UBI could slowly be reduced to zero and we could live in a free society.

  7. Gideon Rosenblatt : “And here is his website with a more detailed summary (which I haven’t yet read): “

    Yes, the website is the most detailed case with all the data. Plus, an author is not always the best presenter/orator, so the written publication is the best thing I have, with all the data.

  8. nustada This program specifically replaces all other government entitlement programs. Note that in the US, about 75% of all government spending comprises of transfers between individuals. 25-40% of all tax money is wasted just in the bureaucracy of it all. Combine them all into one UBI, and save 25-40% right there. Fund the UBI with QE (which has to be permanent anyway), and replace tax dollars 1:1, gradually phasing out income tax.

    The US could have a UBI of ~$25K/yr and 0% income tax by 2025, under the economics of it all. The political inertia and resistance are another matter….

    Darius Gabriel Black Yes. All true. Which is why a similar concept can be applied to advanced economies like the US. I claim my UBI plan will reduce petty crime and suicides by half almost immediately. Plus, working-class people will have a second stream of income, and may have a longer leash through which they can migrate out of the most expensive cities and into lower-cost rural areas, if they so desire.

  9. It’s a really good talk, Kartik Gada and it’s clear that you’ve been thinking about this for a long time. To be honest, I’ve been looking at alternative proposals (like Peter Barnes’) and just could see how the numbers would add up to something that would make a real difference. I kept falling back on the idea of technology dramatically lowering the cost of living as the answer. What you’ve done is turbocharge that deflationary effect by proactively addressing a monetary intervention that, in itself, could be the source of funding.

    I’m looking forward to digging in more deeply.

    By the way, had you heard Barnes’ reference to the Monopoly passing go metaphor? I think it’s a useful way of explaining this to mere mortals. 🙂

  10. Gideon Rosenblatt Yes, the Monopoly $200 Go square is a very good analogy.

    One of the main obstacles I face is that people still think QE causes inflation, and while that may have been true in the past, when techno-deflating products are now 2% of World GDP, that consumes the QE up to a certain ceiling. The ceiling keeps rising as a greater share of GDP becomes ‘ATOM’. so when 2% becomes 4% and then 8%, the level of QE (and hence the UBI) rises proportionally.

    The notion that technology consumes liquidity to produce more technology (which then demands more liquidity) goes against orthodox economic thought.

  11. I’d not made that connection yet, Kartik Gada. The notion of technology consuming liquidity is interesting. I’ll tell you what comes to mind, but this purely intuitive and not based on any supporting data. It’s as if the capitalization required for technology investments locks up the cash in the machines, where as payments to people for labor ends up getting circulated around in a much more liquid way through consumer spending. It’s related in a way to the reason trickle down doesn’t work: investors don’t tend to spend as much when they earn relative to workers who are more likely to transform their additional income into consumption.

  12. I think you might want to consider the Austrian school of economics and their take on the UBI.

  13. Michael Alford

    please elaborate.

  14. Thanks for the post. It’s a topic that deserves time and attention as a civilization.

  15. MicheleElys Mer https://mises.org/blog/switzerland-votes-free-lunch 

    As a quick example. I also know Tom Woods has spoken on this, and I think Bob Murphy has as well.

  16. I have to wonder how culture and stage of economic development might affect the results described by Darius Gabriel Black for India. I have trouble seeing that happen in the U.S. in particular, where most of our poverty is first-world poverty, qualitatively different from the poverty seen in lower stages of socio-economic ‘development’. We do not have systematic famine, starvation or malnutrition, for example, but we have ‘food insecurity’.

    I would argue that our economic culture is driven by consumerism in which economic values and expectations are crafted by advertising to maximize profit through maximizing margins on goods and services (minimizing value/cost for consumers). To the extent that is true, basic income may not have the same effects as in other countries.

    I’m not arguing against the idea of UBI, and this discussion has swayed me more towards UBI and away from the idea of making more basic goods and services such as basic nutrition and healthcare ‘public goods’ in the microeconomic sense as the best approach.

  17. i am interested,how can i join?

  18. Just found this… Sorry I’m late to the conversation.

    Two points:

    First, I don’t see why we need a quantitative easing in the first place, let alone have it become the source of a basic income. Let the deflation happen because it’s end game is that money becomes so valuable that people quit valuing it (they’ll perceive it as abundant). Wages don’t change as fast as inflation/deflation so those still working or saving will see a pay raise from their increasing purchasing power. This will further support all the principles that a BI is intended for.

    The source for BI should be a transaction tax. That will catch all economic activity but more importantly, it will hit the bad actions proportionally harder than the good. A productive worker or company will get taxed once (half on earn, half on spend). A leveraging financial gamer will get hit once on EACH transaction made to facilitate his/her gaming activities. Even money lenders will make at minimum 2-3 transactions for a given dollar of throughput. And then there’s HFT which will simply cease to exist since even a 1% transaction tax is massive compared to it’s high speed, minuscule profits.

    Second, this discussion is easiest (for me) to view in terms of monetary power. What I mean by that is that all our power in the 3 main areas (social, market and political) is directly proportional to our discretionary income after what I call survival. I define survival as covering the living expenses for our expected standard of living. If one feels they only deserve or can manage a meager living, they’ll compromise anything to reach it but then not try as much to gain above that level. This applies to even the highest standards of wealthy individuals and it’s why rich people losing it all will often return to being rich at some later time. The point is that most people live below that arbitrary ‘survival’ level and as such, have zero ability to spend discretionary money on power.

    They cannot buy what they want as much as just what they can afford. They cannot spend money on social circles or in political ones. Basically, they’re a passive citizen and labeled apathetic.

    Basic income, in it’s simplest explanation, increases people’s discretionary income. For all but those with high living standard desires, it returns them to a point where they now have a level of power over their world. They can choose to use that to gain in employment (type of job, wage negotiation, hours) or in the market, the society, their finances (going red vs gaining in the black), in politics or anywhere the desire. The choice taken may vary from group to group but the basics are about returning that power which has been systematically stolen from them in increasing amounts by the last few centuries’ legal manipulations of the market.

  19. Gideon Rosenblatt

    I thought this was my failing computer, dang I can’t blame everything on my computer. hehe

    You and others are my reading this time. Thank you for the erudite conversation, such a wonderful breathe of knowledge! Cheers

  20. Robert Mayfield

    Jump in anytime Mark!

  21. Robert Mayfield

    start typing! ;D

  22. yea

    but please enlighten me more about this business,am interested

  23. Keep in mind the monthly ‘ATOM Award of the Month’ on The Futurist : singularity2050.com – ATOM Award of the Month, January 2017

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