The Flaws in Basic Income for Everyone

Finland made the news recently by proposing a pilot program of guaranteed income for all, also known as Universal Basic Income: Desperate Finland Set To Unleash Helicopter Money Drop To All Citizens.

The goal is two-fold: by providing every household with a minimum income, regardless of what other income the individuals might earn, the program does two things: it provides everyone enough money to get by and it removes the disincentive to work inherent in the conventional welfare model: in the current model, recipients who earn money lose their benefits, leaving them no better off if their earnings are modest.

The Finnish proposal offers a basic income of around $850 to $900 per month, roughly $10,000 per year.

Proponents of Universal Basic Income (UBI) see it as the only solution to automation’s replacement of human labor, a topic I discuss in depth in my new book A Radically Beneficial World: Automation, Technology and Creating Jobs for All.

Advocates of guaranteed income for all claim the program can be paid for by two mechanisms: taxing the owners of robots and software who are presumed to be banking enormous profits off automation and by cutting existing social welfare programs that Universal Basic Income replaces.

As podcast host KMO and I discuss in The Search for Scarcity, this proposed funding doesn’t stand up to the most rudimentary analysis. Here’s why:

1. Profits and payrolls both fall as automation replaces human labor. It’s easy to understand why if we consider what happens to Company A’s profits and payrolls when it replaces huge swaths of its labor force with robotics and software/AI.

Its head-count and payroll expenses immediately decline, of course, but so do its profits: as robots and software become cheaper, what’s to stop Company A’s global competitors from buying the same robots and software?

The reality is the tools of automation are commodities, rapidly falling in cost and available everywhere. The scarcity value of these tools is effectively near-zero, and as economist Michael Spence pointed out, profits and value only flow to what’s scarce.

As Erik Brynjolfsson, Andrew McAfee, and Michael Spence explain in their 2014 article New World Order: Labor, Capital, and Ideas in the Power Law Economy, capital and labor have very little scarcity value: both are in over-supply. This is why capital earns effectively near-zero return, and why the value of conventional labor is declining.

Automation, capital, labor and everything that can be commoditized globally has near-zero scarcity value, and hence near-zero profitability. As automation eliminates jobs, it also slashes profits. rather than boost profits as Basic Income proponents anticipate, automation reduces profits along with payrolls.

Thus the more realistic projection is for record corporate profits to return to their historical average of around 5%-6% of GDP, which would mean profits falling from $1.9 trillion to $1 trillion.

So let’s run some numbers. The federal government currently spends about $3.8 trillion and collects about $3.3 trillion in tax revenues; it borrows the difference ($500 billion) by selling Treasury bonds–in effect, borrowing from our grandchildren to fund our benefits today.

This is politically expedient, but morally and fiscally bankrupt.

State and local governments spend another $3.2 trillion source: U.S. Census Bureau. State and local governments collect tax revenues of $3 trillion and borrow the balance.

So government consumes about $7 trillion of the $17 trillion U.S. GDP, and already borrows at least $700 billion to fund these expenditures. (In recession, the deficit spending and borrowing quickly soars well above $1 trillion.)

Paying all 322 million Americans $10,000 a year would cost $3.22 trillion.Proponents claim this can be paid by redirecting existing welfare programs, but a quick review reveals this as nonsense.

All state and local government social welfare programs are around $500 billion, and programs such as food stamps (SNAP) that would presumably be replaced with Basic Income are relatively small budget items: SNAP is around $75 billion.

As for Social Security: those receiving around $850 per month in Social Security benefits won’t mind their SSA benefit being replaced by Basic Income–they will receive the same amount. But those earning $1,500 in Social Security benefits will expect to receive $1,500, not $850.

The net result is the savings from swapping Social Security payments for Basic Income are also modest. The SSA distributes around $950 billion annually to about 69 million recipients. As a rough estimate, perhaps $500 billion could be swapped from SSA to Basic Income.

As for Medicaid and and Medicare, Basic Income does not include medical care.These programs will be untouched by Basic Income.

Bottom line, Universal Basic Income will add roughly $2.2 trillion to government spending, while profits and payrolls–the sources of tax revenues–will both decline. The only way to pay for another $2+ trillion in spending is to raise taxes or borrow it from our grandchildren–a proposal that is morally and fiscally bankrupt.

Raising $2 trillion more in addition to the current federal tax revenues of $3.3 trillion and state/local taxes of $3+ trillion is a tall order. If the economy enters a profit and payroll recession (from any of several potential causes, including automation, rampant financialization, global recession, financial crisis, etc.), tax revenues will crater. Who will pay all this additional tax?

Yes, those earning $150,000 or more will end up paying their Basic Income payment as additional taxes, but the number of high-earners (who already pay roughly 85% of all federal taxes) simply isn’t large enough to skim another $2 trillion.

Even if every dollar of corporate profit was taken (not likely, given the lobbying power of corporations), that would still leave the Basic Income program $1 trillion short.

Who will pay all this additional tax? If we say the remaining employed, that leads to this question: if much of your wage is being levied to support people who don’t work, what’s the motivation for working at all? Why not join the work-free crowd?

And what happens when the most productive members of the workforce quit or decline to be productive? Robots can’t do everything, despite lavish techno-claims to the contrary.

In sum, the psychology of punishing the productive and rewarding non-contributors is destructive to everyone. Have proponents forgotten that humans are prone to emotions such as resentment? Resentment goes both ways; the recipients of Basic Income will be getting by, but they won’t be able to build capital or better their financial stake. They are in effect Basic Income Serfs.

Proponents also believe that the loss of work will free everyone getting a basic income to become an artist, composer, musician, etc. As I noted in “Super-Welfare” Guaranteed Income For All Isn’t a Solution–It’s Just the New Serfdom, Since meaningful work is the source of positive social roles, Hell is a lack of meaningful work.

In the myopic view of the Basic Income proponents, humans are nothing but consumer-bots who chew through the Earth’s resources in their limitless quest for more of everything– what the Keynesian Cargo Cult worships as “demand.”

Tragically, this blindness to humanity’s need for meaning and the elevation of spiritually empty consumerism to a Secular Religion leaves the basic Income crowd incapable of understanding this timeless truth: the only possible result of robbing people of their livelihood is despair.

Once meaningful work vanishes, so do positive social roles.

This is why guaranteed income for all is just a new version of Socioeconomic Hell. Being paid to do nothing does not provide meaningful work or positive social roles, which are the sources of positive identity, pride, purpose, community and meaning.

The petit-bourgeois fantasy of every individual flowering as an artist, musician and creator once freed of work is an abstraction, one born of the expansion of academic enclaves and private wealth-funded dilettantes fluttering from one salon to the next. (Ever notice how many trust-funders have therapists? Would they all need therapists if being freed from work automatically generated happiness and fulfillment?)

These are precisely what basic income for all doesn’t provide. To the degree that serfdom is political powerlessness and near-zero access to the processes of accumulating productive capital, guaranteed income for all is simply serfdom institutionalized into a Hell devoid of purpose, pride, meaning, community and positive social roles.

This is why I say The Future Belongs to Work That Is Meaningful.

KMO and I discuss these topics and more in The Search for Scarcity. Come on, people–we can do better than the bankrupt serfdom of Basic Income.

My new book is in the top 10 of Amazon’s category of international economics: A Radically Beneficial World: Automation, Technology and Creating Jobs for All. The Kindle edition is $8.45, a 15% discount from its list price of $9.95.

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  • December 11, 2015 Chart Of The Day: Business Inventory To Sales Ratio At Cycle Highs, Deep In Recession Territory by David Stockman

    http://davidstockmanscontracorner.com/chart-of-the-day-business-inventory-to-sales-ratio-at-cycle-highs-deep-in-recession-territory/

  • Raoul

    “Advocates of guaranteed income for all claim the program can be paid for by two mechanisms: taxing the owners of robots and software”

    That’s not actually the case at all. I mean maybe you can find someone who is not interested in growing the discussion on the topic to make such a statement, but anyone who’s intellectually involved in the process will tell you that that is nonsense.

    Also the assumption that basic income has to be seen in context with automation is a fallacy.

  • “Hell is a lack of meaningful work.”

    Well, I’ll tell you what, son. If you really believe that, then feel free to go ahead and rescue yourself from that Hell by doing whatever meaningful, yet unnecessary, busy work that you want to do – even as that work is already being done a lot better by robots and computers than you ever could do it. Me, personally, I’ll take my guaranteed income while the robots and computers are doing all of the work, so that I can pursue whatever entertainment endeavors that I want. Trying to force me, and others, to do what you consider to be “meaningful work” while the robots could do it better is, in my opinion, repugnant. So, I’ll do what I want, and walk right into the gates of what you consider to be “Hell,” and you can do what you want, and rescue yourself by forcing yourself to do busy work. If it turns out that you are wrong, and my “Hell” really is an awesome place, and you are in a much worse situation, then you have no one to blame but yourself. If it turns out that I am wrong, and I put myself into some kind of “Hell,” then I have no one to blame but myself. What do you say? Deal?

    • JerseyCynic

      http://www.theguardian.com/books/2015/jul/17/postcapitalism-end-of-capitalism-begun

      “…………….The scene is Kentish Town, London, February 1858, sometime around 4am. Marx is a wanted man in Germany and is hard at work scribbling thought-experiments and notes-to-self. When they finally get to see what Marx is writing on this night, the left intellectuals of the 1960s will admit that it “challenges every serious interpretation of Marx yet conceived”. It is called “The Fragment on Machines”.

      In the “Fragment” Marx imagines an economy in which the main role of machines is to produce, and the main role of people is to supervise them. He was clear that, in such an economy, the main productive force would be information. The productive power of such machines as the automated cotton-spinning machine, the telegraph and the steam locomotive did not depend on the amount of labour it took to produce them but on the state of social knowledge. Organisation and knowledge, in other words, made a bigger contribution to productive power than the work of making and running the machines.

      Given what Marxism was to become – a theory of exploitation based on the theft of labour time – this is a revolutionary statement. It suggests that, once knowledge becomes a productive force in its own right, outweighing the actual labour spent creating a machine, the big question becomes not one of “wages versus profits” but who controls what Marx called the “power of knowledge”.

      In an economy where machines do most of the work, the nature of the knowledge locked inside the machines must, he writes, be “social”. In a final late-night thought experiment Marx imagined the end point of this trajectory: the creation of an “ideal machine”, which lasts forever and costs nothing. A machine that could be built for nothing would, he said, add no value at all to the production process and rapidly, over several accounting periods, reduce the price, profit and labour costs of everything else it touched.

      Once you understand that information is physical, and that software is a machine, and that storage, bandwidth and processing power are collapsing in price at exponential rates, the value of Marx’s thinking becomes clear. We are surrounded by machines that cost nothing and could, if we wanted them to, last forever.

      In these musings, not published until the mid-20th century, Marx imagined information coming to be stored and shared in something called a “general intellect” – which was the mind of everybody on Earth connected by social knowledge, in which every upgrade benefits everybody. In short, he had imagined something close to the information economy in which we live. And, he wrote, its existence would “blow capitalism sky high”.

      • jadan

        Thanks for this informative post.

  • Rasmus

    Multiplying $10000 by 322 million, seriously? The only people who will net $10000 from the state is those who don’t work at all. You don’t think the US will have other problems than taxes if everybody suddenly stopped working?

    BI should be seen as a replacement to SSA, which (by your own numbers) currently has cost per recipient at about $14000/year.

  • Tyler

    You clearly do not understand monetary sovereignty. Please visit mythfighter.com.

  • jadan

    This is just what one would expect from Bootstrap Smith. What group in society currently receives a GAI? The rich. The spawn of Sam Walton. Is this group productive? Depends on what you mean by that, Smith. Take more drugs, build more art museums? You’re trying to save Americans from “spiritually empty consumerism”. Start with the rich. They are very much in need of saving. We all pay for their upkeep, all the drones in fast-food joints. Our grandchildren will be indebted to them, not to you or me, but to the rich and the military parasites and all others who live high off the hog without contributing anything of value.

    The idea that some one gets something for nothing really sticks in your craw, you old curmudgeon Calvinist motherf***er. OK for the rich, though.

    There are many different ways to approach this issues, all of which require an open mind, which Smith does not have. You could say we are all issued certain shares of stock, just as the rich are, and we received dividends from this tiny ownership.that add up to a guaranteed annual income. Everyone then becomes a stakeholder.

    But before any scheme to guarantee the general welfare can work, the first move we must make is to eliminate private control over our financial system. Get rid of the Fed. Go from there…..

    • artguerrilla

      @ jadan
      agreeing with a lot of what you say, as well as other posters with valid critiques…
      and while i can’t fault the author for limiting his discussion as he does, he ends with an empty boast about *his* plan to have full(filling) employment…
      the particulars aren’t given, but i’m guessing it involves ‘giving’ people trillions of dollars (for said ‘full(filling) work’); where is *his* money coming from ? ? ?
      from what i see, the nub is too many people for too little work…

  • 12/07/15 Inequality in America, the Fish that Rots from the Head

    Inequality of wealth is inequality of power. A study just released finds that “America’s 20 wealthiest people — a group that could fit comfortably in one single Gulfstream G650 luxury jet — now own more wealth than the bottom half of the American population combined, a total of 152 million people in 57 million households.” How much political power do the people who would be inside that jet — and their friends — actually have?

    http://www.thepeoplesvoice.org/TPV3/Voices.php/2015/12/07/inequality-in-america-the-fish-that-rots#more41183

  • Many silly arguments here. One is arguing that companies won’t automate because doing so (and having competitors do the same) will cut margins. Companies will always automate, because it cuts labor costs. Two is arguing that for most people, meaningful work exists. I challenge the author to spend a year working for Target or Burger King or any of the other McJob-ers providing most of the jobs available today, and then tell me about “meaningful” work. Three is arguing that meaning comes from work. It certainly can, but much more often it comes from art, from culture, or from family and friends. Work is a means to an end, not an end in itself. Four is arguing that Keynesians worship consumerism. Either the author has no understanding of Keynes, or more likely, he hopes his readers are so ignorant they’ll let such a lie pass.

    • jadan

      Well said. Smith is especially proud of his concept of the “Keynesian Cargo Cult”. Under a Smith regime, life would certainly become more “solitary, poor, nasty, brutish and short” than it already is.

      • It would, but I think that would be more because of the pro-market nature of a Smith regime than the anti-government part of the program.

  • pohzzer

    From the point of view of the wealthy elites running the joint the solution is obvious, 90% of the scurrying masses underfoot need to be terminated. The problem for them is how to safely avoid the blowback as this is done with the world awash in highly lethal weaponry. Part of that blowback is a chain of Fukushima’s going off as societies break down and dozens of already overextended and poorly maintained reactors go China Syndrome. Bit of a conundrum. Then there’s abrupt climate change. With the Arctic Ocean looking to be end of melt season ice free by the end of this decade and the ice free condition expanding to weeks and then months by 2030, positive feedback methane and carbon dioxide releases will accelerate at a mad rate as will the meltdown of Greenland’s ice cap.

    Bottom line, for what it’s worth, is the sociopathic uber-rich are going down with the rest of us, just take a little longer.