Against the Universal Basic Income

The Universal Basic Income (UBI) has been getting buzz. So much so in fact, that even Bruce Sterling mentioned it in his rambly SXSW keynote.

In short, UBI recommends that the Govt gives every citizen an unconditional cash payment. This has a number of benefits. First, it's simple and transparent, and if it replaces the tangled mess of transfer payments most Governments have today, the better. Second, it has no negative incentive effects, as the recipient does not face the brutal marginal tax rates an individual faces as he starts to earn more money and so ceases to qualify for various means-tested programs. Morever, it's very freedom enhancing. As Albert Wenger put it, in a post-capital world, humans needs freedom, and UBI is a key mechanism to deliver economic freedom so individuals can pursue their true calling.

Let me make a counterclaim on both humanistic (small h) and Economic (large E) grounds.

On humanistic grounds, the ability to consume is necessary but insufficient. People also need a feeling of being needed and useful, and working a job is a mechanism for that. Working for a wage is just a scalable formalization of working in the family business, the underlying mechanism is the same, and work, work as part of a group, is a central element of what makes people happy.

I recently heard a story that, in Japan, a normal thing to do in retirement is open a small mom-and-pop shop. I have no idea that this is true, but I can understand why puttering in a small, marginally profitable business, might be a better retirement than moving to Florida and doing nothing.

A Universal Basic Income does not generate a useful mechanism by which an individual can contribute, so while it is being pushed on Humanitarian grounds, it is, in fact, anti-humanitarian in its impact. While a select few may flourish with the boundless creative freedom of a trust fund, others will simply feel adrift.

I leave the anecdote of teaspoons, bulldozers, and the great Depression as an exercise for the reader to contemplate -- see if you can spot Hayek's error.

Shifting to economic concerns, UBI is usually funded by taxes (often corporate taxes as those are the villains of choice). However, any sort of neutral tax and fund mechanism would stifle aggregate demand. Indeed, the only reason why there is unemployment, or underemployment, in the first place is because the economy has too little aggregate demand as a consequence of the household sector being undercapitalized.

UBI is popular in the US because the US continues to struggle under the balance sheet recession which came after the 2008 crash, sort of a light version of what Japan's been struggling with since the 80s. And like Japan, economists continue to warn against inflation and the unsustainability of public debt, while prices continue to stagnate and fall, and people remain unemployed, underemployed, or precariously employed. And we wonder why folks aren't spending.

Tackling a basic issue of lack of AD with a new tax is crazy counterproductive. Instead, we should simple boost demand with tax cuts/spending and then see, once employment is back where it should be, how good a UBI seems.

Finally, it's interesting to draw a connection between UBI and the Job Guarantee recommended by post-Keynesians. I'm not an advocate of Job Guarantees either, but I do think they are preferable to UBI because they maintain more of a link between income and contributing through useful work.