Answering UBI Questions and Concerns (Universal Basic Income Part 3)

Last week we started our deep dive into Universal Basic Income.

First we learned what UBI actually is and what the different visions for it entail. Then we dove into the research to learn that giving people money works.

Today we’re going to tackle a whole range of other questions and concerns that people have about UBI.

(Today’s post is going to reference information we learned in the last two posts, so if you feel like you’re missing something, feel free to double back and catch up!)

Won’t Everyone Quit?

One common concern is that everyone would stop working if we started giving them a Universal Basic Income.

This is a common complaint, but one that is rarely backed up by any evidence. Instead, it is presented as a sort of “no duh” argument.

The evidence is a bit mixed on this front, but none of it shows major impacts on work one way or the other.

Studies from GiveDirectly have found no effect at all on the number of hours worked. Other studies have found minimal reductions in work, mainly from parents taking more leave to spend time with their kids, kids staying in school longer, or older folks retiring.

Still others have found slight increases in hours worked, as increased income allowed people to move to places with better job opportunities. An analysis of the effects of Alaska’s UBI-esque program found that the extra income increased consumption which increased demand which increased employment.

This suggests that a UBI’s effect on employment could be anywhere from a slight decrease in the workforce to an increase in hours worked.

Even if the decreased employment outcome is likely, though, I don’t think we should fear it. Allowing kids to focus on their education is a good thing. Allowing seniors the option to retire rather than work jobs they don’t want is a good thing. Allowing kids to focus on their education is a good thing. Employment hours dropping is not always a bad thing.

Would You Quit?

It’s also important to remember that we’re talking about income at the poverty level, here.

The vast majority of people are not going to have any interest in quitting their $60,000 a year job to raise their family of four on $24,000.

For those of us steeped in the personal finance blogosphere, it is important to get out of the Financial Independence mindset for discussions like this. People pursuing FI are a tiny minority in this country. The FI mindset of spending as little as possible to be able to quit work as soon as possible is extremely rare.

Even with that, most people working on FI would still not retire based on UBI. In general we’re a conservative bunch when it comes to numbers and I can’t imagine many of the FI folks that I read jumping ship based on a law that could change. Most FI writers don’t even consider Social Security in their calculations!

So maybe some folks pursuing FI would retire earlier than they otherwise would. Maybe some students would stay in school rather than joining the workforce. Maybe some parents would spend fewer hours at work and more with their kids. But I don’t see a mass exodus from the workforce being a serious problem stemming from a poverty-level UBI.

What About Bad Jobs?

But what about the shitty jobs that nobody really wants?

This is a sort of spin-off of the previous argument. The concern is basically that there are jobs that nobody really wants to do, but that still need to get done. Without needing the money to get by, why would anyone do these jobs?

This, to me, seems like a situation where the free market would adjust.

If you hate your job, then you need more incentive to do it. One incentive is needing the paycheck to survive. If this gets taken off of the table, then employers will need to use other incentives.

They could improve pay to make the job more worthwhile. They could improve working conditions to make the job less bad. If a job needs to get done, then there is a price at which someone will do it.

Marx’s Concern

Marx actually had the opposite fear.

A Universal Basic Income would create an income floor below which nobody can fall. Marx’s concern was that if this floor was high enough then there would be no pressure on companies to raise wages.

The last argument was concerned that if people didn’t need the money to live, they wouldn’t work for extra money. Marx’s concern is that if all of the income from their work is extra, then they have no real incentive to demand higher wages.

Here’s the thing: companies today aren’t really concerned with paying us enough to live. The minimum wage is not enough to live on, yet lots of companies pay it. The gig economy is even worse. Companies in the United States are pretty awful to low wage workers right now and there is no major pressure to reform that approach.

The idea that a UBI would make it easier to push down wages doesn’t seem likely in our current economic climate. Instead, maybe a UBI would give low wage workers more leverage to demand increased wages and improved working conditions.

Most likely any employment changes that we see as a result of a UBI would be minimal one way or the other.

The Big Picture Economy

After looking at the effects on employment numbers, the next obvious question is what the effect on the economy as a whole would be.

This analysis will come with a giant caveat. The economy is a large, complicated, nuanced organism in which lots of different things are interrelated. Anyone who tells you they can accurately predict exactly what will happen is lying to you.

With that said, let’s make a best guess.

The majority of the arguments that a UBI would destroy the economy start with the assumption that a UBI would kill employment. Because we’ve already debunked that, we can set these aside.

There is a separate group that argues that a Universal Basic Income would actually grow the economy rapidly. This is based on Thomas Piketty’s findings on how inequality impacts the economy.

Here’s the short version of this theory: A dollar in the pocket of a poor person gets spent quicker than a dollar in the pocket of a rich person because the poor person has more unmet needs. When the rich have a higher proportion of income, that means that less money is being spent which means there is less demand which means there is less labor mobility and less entrepreneurship which means lower wages.

A UBI would provide the same amount of money to the rich and the poor. Even though $12,000 is $12,000, however, it is proportionally far more important to the poor than to the rich. Because the rich are a small portion of the country, most of the money would be pumped right back into the economy.

I think the mechanisms behind this are right. Whether we hit that outcome or not depends, though.

We can’t really know what the overall effects on the economy would be without knowing where the money is coming from.

Decreasing inequality by getting more money into the hands of the poor would be a big boost to the economy, all else being equal. The problem is that to make that happen we need to pull a lot of other levers.

If we pay for the program by slashing programs for the poor (or the elderly, as part of the Libertarian plan we explored did) then you are just shifting money around without really impacting inequality. If we pay for it with a 95% top marginal tax bracket or an 80% tax on dividends, then we will be hurting the economy in other places that could offset the gains from giving money to the poor.

The takeaway, then, is that the impact on the larger economy largely depends on the specifics of how a program is designed. It could be a powerful force for growth, a maintenance of the status quo, or a weight pulling the economy down. This is something that needs to be top of mind when designing the specifics of a plan.

Runaway Inflation

The next concern we’re going to tackle is runaway inflation.

Here’s a paraphrase of this argument as it appeared on a Stacking Benjamins panel when the topic came up: If you give everyone money then prices will rise to incorporate that extra money and nobody will actually benefit.

GiveDirectly has conducted rigorous studies on the issue of inflation and has found that cash distributions have had no effect at all. To be fair, GiveDirectly is dealing with a different situation than a UBI in the United States, but if anything, the GiveDirectly projects should have a higher risk of inflation being a problem.

GiveDirectly is injecting outside money into poor countries. This involves money that otherwise would not have been in that country and is massive in proportion to the money that is already there. In the United States we would be dealing with more of a shuffling around of money within the same country. (The exception here would be if the UBI is paid for by the Federal Reserve creating new money.)

I don’t think we can brush off the idea that there would be some inflation. A UBI would be a large change to the economy and would likely lead to significantly more spending. As discussed above, it could cause wages to increase, as well. There will be lots of changes, some predictable and some unpredictable, so inflation is certainly possible.

At the same time, we are coming off a stretch of record-low inflation and any inflation that is caused by a UBI here seems unlikely to be extensive. We’re not going to be taking wheelbarrows of cash to the grocery store any time soon.

Meaning

It’s also worth looking at the question of meaning.

People become depressed if they don’t have a sense of meaning in their lives. Most Americans derive meaning from their work. This is why we see study after study linking retirement with depression. When people stop working, they lose a sense of meaning.

This concern is more applicable for the AI vision of Universal Basic Income than the poverty-elimination vision, but it is still an interesting question that we should consider.

I brushed the question of meaning off when I first got into UBI, but I’ve grown to take it more seriously. My initial reaction was that it was a ridiculous concern – I would write and play music and learn new things and be active in causes that I believe in. There would be so many ways to find meaning without paid work!

But I gradually recognized that I’m an outlier and it isn’t useful to assume that everyone is like ourselves.

This is an issue that is worth comparing to the FIRE movement. So many people respond to the idea of early retirement by saying that they have no interest in it because they don’t know what they’d do with their time. These are the people in whom job loss would lead to depression.

This is the reason that so many early retirement blogs remind us that we need to retire to something rather than retiring from something. You need to have something to do with your time that brings meaning to your life if you want to stay happy and healthy.

The difference is that FIRE is voluntary and automation-related job loss may be involuntary.

The Need for a Culture Shift

This is something that I’ve thought a lot about and don’t know how to address without a culture shift. And I don’t know how to implement a culture shift that would help people in time.

On a recent Mad FIentist podcast, Travis Shakespeare, the director of the new Playing with FIRE documentary, said that he hoped it would reach 10% of the country. Even if this stretch goal were met, only some of those people would start to incorporate FIRE principles into their lives. Even if that entire 10% did, we would still be far short of the changes needed for dealing with 50% unemployment.

Maybe the culture would shift on its own by necessity as people and expectations adjust to the new economy. That seems like a legitimate possibility. But it would be a very rough transition for a huge number of people.

Gamifying Community

Of all of the UBI-related material that I’ve read, the only person to really take a stab at addressing the question of meaning was Andrew Yang in his book The War on Normal People.

Yang formerly ran a company that got people to start tech companies in depressed cities. The idea was to spread the Silicon Valley money and jobs around the country to start rebuilding communities in a more balanced fashion.

He soon determined that this was not thinking big enough and became a UBI advocate (and recently launched a campaign for President in 2020 on a platform of Universal Basic Income). His book is about UBI as a solution for mass unemployment.

Yang addresses the issue of meaning by basically gamifying relationships with a social credit system.

You get points for helping a neighbor fix their sink or move furniture. You could spend them to request a favor of someone else. You can earn points by doing community service or coaching little league. You can donate your points to help people that could use them more than you.

It is basically a system that encourages community and relationships.

I am skeptical that something like this could catch on to the extent needed to make a difference, but it is the best idea that I have heard as of yet to address this concern outside of a Federal Jobs Guarantee. We need more people coming up with outside the box ideas like this.

Federal Jobs Guarantee

Speaking of a Federal Jobs Guarantee, it is worth briefly touching on that idea here, as well.

Because of the meaning problem with a Universal Basic Income, some on the left have recently started pushing for the federal government to create jobs for anyone that wants one. The idea is that we would end poverty and also get a benefit to the taxpayer, the community, and the individual.

In addition, the vision for a Federal Jobs Guarantee includes those jobs paying a living wage. This would force other companies to lift their wages and improve their working conditions in order to avoid all of their minimum wage workers quitting to get a federal job. This would drastically improve wages and working conditions without having to raise the minimum wage or implement new work condition regulations.

A Federal Jobs Guarantee may be even more powerful than UBI in addressing poverty. It is better targeted to the poor in addition to helping millions of workers that don’t take a federal job through increased wages and improved working conditions in the private sector. It also provides work, which is better than just a paycheck for the health and happiness of the average American.

The problem is that it would be far more expensive to implement and could get very out of hand if we do end up with mass unemployment caused by artificial intelligence. Imagine the costs involved with having half of all Americans working for the government.

I will admit that I have not spent the time to dive into the policy details on this at any length. Perhaps that is a project for next year if people are interested. But the concept certainly seems prohibitively expensive at first glance.

What Would It Cost?

A Universal Basic Income would likely be significantly less expensive than a Federal Jobs Guarantee.

That doesn’t mean it will be cheap by any stretch of the imagination.

The cost is the issue that most people brought up when I asked about people’s concerns with UBI. And rightfully so. Depending on the proposal you look at, UBI could cost anywhere from $1 trillion to $4 trillion every year. As a point of comparison, the federal government as a whole spends about $3.85 trillion a year right now. This would be a massive increase.

This doesn’t mean that we should necessarily write off UBI as an impossibility. It does mean that we need to spend a lot more time with this issue.

So with that in mind, the entire next article will be dedicated to how funding a UBI would work. See you then!

Join the Conversation!

Do you agree with my answers to these questions and concerns? Do you have others? Do you have thoughts on where funding should come from? Let us know in the comments!

3 thoughts on “Answering UBI Questions and Concerns (Universal Basic Income Part 3)”

  1. Here is what I do not understand. The guy that sells hamburgers is in business to make money, he sells a hamburger at a price where he makes money, but people will still pay. If you flood the masses with expendable cash, HOW does that not lead to the hamburger guy raising his prices. Inflation just seems natural in a proposal like this. I would have a hard time believing the data that says otherwise.

    1. I get that. That was my instinct as well until I started reading the studies. I’ve learned to trust data over my gut, especially when multiple studies are in agreement.

      I think the answer to your example, though, is in free market competition. If McDonald’s raises their hamburger prices, but Burger King doesn’t, then Burger King will steal away McDonald’s customers. The competition incentivizes McDonald’s to keep their prices low. To me it seems like your example would require either a monopoly or collusion between competitors. Not out of the question and we already see that kind of behavior in telecoms, but it seems unlikely that we’d see it universally across fields enough to cause inflationary problems.

      There could also be the inflation that comes along with a growing economy. If you put more money in the hands of the poor, then they’ll spend more money. That would increase demand which would increase employment which could increase wages which could increase prices. But I don’t think that’s inflation that we should be afraid of and avoiding.
      Matt recently posted…Just Give Everyone MoneyMy Profile

    2. I think the answer here is that there is always another guy selling hamburgers, and if he can do so profitably at the original price he will step in. Inflation comes about when the costs of inputs to the hamburgers increases, not the amount people are willing to pay.
      It’s fair to say that may be this hamburger guy will be less motivated to work as long if he is also collecting a UBI, leading to an overall reduction in competition in the hamburger market, and therefore increased prices. However, as mentioned, this would only happen to a very large extent if a) the UBI amount was high enough to have a large impact on this guy’s desire to work for money and b) if money was his only motivation for his work. If he enjoy’s his work or derives meaning for it, or starts working shorter hours only to find his days difficult to fulfil, the amount the guy works will probably stay very similar to before. If this is true on aggregate, then inflation won’t be massively impacted.

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