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Thoughts on Universal Basic Income (UBI)

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Universal Basic Income is popular with some tech-titans and many others. Robert Reich (a major proponent of Bernie on Social Media) has come out in favor of it. I think it falls into the realm of proposing a simple solution to a complex problem. e.g. at 15% of per capita GDP, a family of 4 just makes it to the middle class (Pew center numbers) but a single person is well below 1/2 of the poverty level.

Another serious problem is that people with good incomes would just save the money, which is what all my friends with 1% incomes in tech companies do with bonuses now. Since money is fungible, even making the UBI distributions expire in a year (e.g. debit card with expiration) doesn’t help (I’ll pay for this meal out with the debit card and save the same amount from my regular income).

To me, this seems like Bernie’s “break up the banks” solution. It sounds good until you spend an hour thinking about it.

What do you think?

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Posted by John Daschbach
Posted on 05/11/2016 10:03 PM
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Hi John,

I don’t really love the UBI concept, but it feels like we’re veering in that direction. I suspect that the reason tech people love this is because they realize that technology is killing more jobs than it’s creating so they’re thinking of solutions that offset the inevitable inequality that don’t involve much higher taxes for them. The UBI is an obvious choice because it could leverage the entire tax base and not necessarily target the wealthy.

If we’re looking for a solution to inequality then the solutions to me seem obvious:

1) Tax investments at ordinary income rates.
2) Raise the minimum wage.

UBI seems like an unnecessary policy response to a problem that has other solutions….

What do you think there?

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Cullen Roche Posted by Cullen Roche
Answered on 05/12/2016 2:23 AM
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    Problem with #1 is you snag the job creators along with the unearned income rich people. For some dumb reason politics just cannot distinguish between the two and have separate tax schedules.

    #2 would just accelerate the drive to post-capitalism even more. In fact, it is already. $15 an hour is completely unsustainable for fast food and other low skilled positions. Maybe it will force those 28-year workers to take education and retraining seriously.

    The allure of the Citizen’s Dividend is that it is essentially a massive decentralization of the welfare state and gets the government of the social engineering business. It’s failed at that just like it has most everything else, so why not try it. Inflation is the end result either way.

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    Posted by MachineGhost
    Answered on 05/12/2016 8:56 PM
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      Also, Finland will introduce it next year. It’ll be pretty low (about US$800/month off the top of my head), but they have an extensive welfare state that subsidizes just about everything, so its not as bad as it seems. It’s more of a problem for the USA since all welfare benefits are worth about $33K a year all inclusive. That’s a huge disincentive to work.

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      Posted by MachineGhost
      Answered on 05/12/2016 9:00 PM
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        P.S. In a post-capitalist age of robots and automation, demand for money has to decline as well. It’ll be the only way to keep inflation in check.

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        Posted by MachineGhost
        Answered on 05/12/2016 9:02 PM
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          Cullen,

          On #1 I am absolutely in agreement. And this from someone who retired at 50 as a single father with two young children after my wife died and calculated he could live on savings (I’ll get a moderate non-COLA pension at 65 + SS). Every year in December I calculate an estimate of how much capital gains I can take and still have a zero Federal tax liability. (you are aware that C.G. taxes are much lower than at low incomes) I bought my current house with cash, and so my burn rate of ca. $55K corresponds to the upper end of middle class with tax liabilities and mortgage payments.

          As my father (an incredibly smart, but conservative, pediatrician) taught me: “It’s good to fight against policies you don’t agree with, but your a fool if you don’t take advantage of them while they exist” (e.g. my college [in the early 1980’s] was paid for by borrowing from his maxed out partnership (3 doctors) corporation retirement at interest rates of 20% or more, deducting [allowed at the time] the interest from his income, and paying it to himself as corporate retirement savings.

          Essentially, although I’m well to the left of center politically, I learned a lot from him, and the basic core of Jesuit education.

          But there is no reason to tax C.G. at a lower rate than earned income. However I can argue both sides in taxing C.G. at high levels at a greater rate than income at similar high level (The Bernie proposal). This gets into things too complicated for the tax system. (Is your C.G. from putting your money up for a single proprietor business, or small business, or…., vs. is it allocating savings via the stock market)

          #2) On a recent kids car transport (picking up one from sports, dropping another off at sports) we got food at McD’s as they wanted. Before stopping the Bernie minimum wage had come up (they love it!) They thought the new robotic drink dispensing system was incredibly cool. I tried to explain that the $15 minimum wage made the robotic drink dispensing system more economically viable for the business owner.

          So my view is related to your “elastic deficit” idea. If, at the margins, the government provides living wages for broadly shared public benefits (e.g. roads, parks, schools, day care, elderly care) the minimum wage will rise naturally. The targets of public spending should be broad so as not to distort the economy.

          #2

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          Posted by John Daschbach
          Answered on 05/12/2016 10:18 PM
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            I gave this question to a techie, and this was his response:

            “It’s a leading question based on a version of UBI nobody actually advocates. I dunno why they use 15% of GDP formulation and then complain that it doesn’t meet poverty level. The explicit goal of UBI is that nobody falls below the poverty level. Any kind of UBI scheme that doesn’t serve that goal isn’t worth discussing.

            The anti-tax bias is a crazy unexamined assumption. The high-income proponents of UBI expect to get taxed more to pay for it, with the median income breaking even. I’m not taxed enough personally, and pretty much been imposing a self-tax in order to personally gain the security a UBI policy would satisfy. It’s pretty much a “6 of one half a dozen of another” type situation.

            The reason Silicon Valley tech people like it so much is less because of technical obsolescence and more because of startup culture. SV startups are super boom-or-bust, but humans generally hate that kind of massive variance. Most startup guys can only manage it because they have *something* to fall back on to mitigate the bust outcome.

            It’s also weird the bring up the fungibility of money, as it’s a core reason for UBI compared with current products-based welfare programs. UBI assumes that it’s the individual is best equipped to know what they really need, and you need fungible money to enable that choice. Like, we always kind of hated christmas gifts and such because we’d end up with inefficient “stuff” rather than just getting cash and letting us buy what we really needed.

            Minimum wage is a terrible patch-job for the real problem in the labor market – the power differential between employer and employee. The labor market isn’t free, because employees can’t walk away from a negotiation. Part of many UBI schemes is to repeal minimum wage laws because it directly solves what minimum wage merely patches over.

            “Inequality” isn’t the problem, it’s the symptom. The problem is “poverty”. UBI directly solves the problem.”

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            Posted by Lucas
            Answered on 05/14/2016 7:02 AM
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              BTW, Robert Reich is directly responsible for the financial and offshore jobs sucking deregulation that resulted in the mess we’re still dealing with today, so I don’t think he’s credible on anything to be worth listening to. He’s just a stooge for Goldman Sachs. Even a broken clock is right twice a day.

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              Posted by MachineGhost
              Answered on 05/14/2016 2:08 PM
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                Well, at least the massive tech-geek guilt of their unearned buyout largesse wealth is driving them to rectify “fairness” for the “less rich” even if they’re completely idiotic about the fact that they “don’t pay enough taxes”. Only an naive idiot under 30 living in a bubble could say something incredibly stupid like that. That’s what a lot of money gives you… a magnification of your already pre-existing idiocy. But like I said, a broken clock is right twice a day, so ignore the idiocy and pay attention to the common sense.

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                Posted by MachineGhost
                Answered on 05/14/2016 2:17 PM
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                  Hi Cullen,

                  You mentioned this:

                  “2) Raise the minimum wage.”

                  The minimum wage is no silver bullet, and I don’t think it is totally correct to place more emphasis on reducing inequality rather than poverty. The minimum wage is a political instrument with economic ramifications, albeit with little ill effects on the latter – decreasing payroll sizes (Neumark & Wascher 1995) but having MW earners work longer hours (Card & Krueger 1994). The consequences are minimal either way, and the redistributive process does little else but renumerate some more and others nothing at all. The multiplier effect of greater income through a greater MW is close enough to the current state of affairs not to act as stimulus and the only true danger is a nationwide hike that would endanger commerce in places with a lower cost of living.

                  In truth, the minimum wage is not a perfect policy instrument; it is the epitome of politicking, accomplishing more in words than it does in actions. The UBI has some laudable goals but it can be expensive and, depending on the type, inefficient (not every citizen needs a dividend, for example). In the effort to eliminate poverty there is greater need for a more resilient welfare system, especially in the United States, and I believe this can be accomplished through Friedman’s Negative Income Tax system. This way we can guarantee a life free from abject poverty but still incentivise work. Coupled with a low minimum wage (so the government does not end up subsidising low-pay work), this would more dramatically (and positively) impact poverty, inequality, as well as corporate profits and investment – the scale of the multiplier in this case would be nothing short of interesting. For a very simple model, we can imagine the following formula to calculate taxes due by an individual under NIT:

                  t = r (N – T)

                  Where r is the ‘rebate rate’ (also the asymptotic tax rate that can be imposed on the wealthiest), N the pre-tax income and T the threshold income at which one starts being taxed on one’s income.

                  Redistributive social transfers accomplish more in this regard than the minimum wage ever could, and the NIT system is (in my opinion) far superior to the Universal Basic Income/Citizens’ Dividend discussed in this thread, as it has the potential to streamline the income tax process, replace the bulk of many other social transfers, and is comparatively inexpensive for what it accomplishes. I hope you take a moment of your time to think about the NIT as an alternative to the aforementioned UBI, and if the NIT is new to you (I can’t find any mention of it on pragcap) a moment of your time to think about the policy as a whole.

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                  Posted by senyek
                  Answered on 05/18/2016 10:51 AM
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                    Senyek,

                    Thanks for the thoughtful comment. Isn’t the criticism of the NIT that it disincentivizes work? I’m not super familiar with the research, but I always thought that was the common criticism….

                    I am not saying that the min wage is even an economic stimulus. I mainly think it’s a morally well reasoned policy. The min wage can hurt or help the economy depending on specifics. On avg, I’d say it marginally helps since massive inequality can be problematic over the long-term. But that assumes that consumers save more of their income which isn’t necessarily true….

                    Cullen

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                    Cullen Roche Posted by Cullen Roche
                    Answered on 05/18/2016 12:21 PM
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                      Posted by MachineGhost
                      Answered on 05/18/2016 3:28 PM
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                        According to your own blockquotes, what you mean is NIT was never given a chance.

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                        Posted by Lucas
                        Answered on 05/18/2016 6:55 PM
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                          Cullen,

                          I can say with some certainty that a Negative Income Tax would not disincentivise work, at least not in any way different from the current welfare system of unemployment benefits and tax credits, and even then the disincentives are lesser than other forms of welfare. This is because of the nature of the negative income tax – it acts as an effective wage ‘floor’ for low-income earners and will always make earning a dollar more more interesting than staying at the same wage. Whether it replaces unemployment benefits or not (therefore applying to those who earn nil) is a specific question that depends on how the program is implemented, but ideally the NIT and its rebate and threshold rates would be organised in such a way as to render being out of work significantly less comfortable than in-work.

                          Effectively, the NIT system is just a social transfer tied to income, bringing up lower incomes by giving money rather than taking it. It acts as a redistributive, scaled minimum wage (ish), raising incomes but not labour costs. A lot of governments, the US included, already have many programs like this in place (EITC, to name one) but the NIT takes it one step further, enlarging it, writing it into the tax code and more efficiently replacing the bulk of other social transfers. It accomplishes what the UBI intends without disincentivising work, what a minimum wage increase intends without placing an immediate cost burden on the employer, and what governments hope to accomplish through their welfare systems. Whether a MW increase is marginally positive or negative is irrelevant when faced with the multiplier prospects of handing out money to consumers with a considerable marginal propensity to consume.

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                          Posted by senyek
                          Answered on 05/18/2016 7:44 PM
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                            NIT has been politically dead in the water for almost 50 years, much like Communism is now which was “never really tried”. The UBI doesn’t necessarily disincentivize work; it can promote entrepreneurship because risk-takers have a “safety harness” like the rich already do that start all those new fangled companies like Microsoft and Google. I have no stake in this game, but UBI seems like it would be a fresh new approach whereas NIT is just lipstick on a festering pig.

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                            Posted by MachineGhost
                            Answered on 05/18/2016 8:12 PM
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                              It makes no sense to identify NIT with Communism. Doing so is a smokescreen, red herring, hot button intended to misdirect.

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                              Posted by Lucas
                              Answered on 05/19/2016 7:27 AM
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                                I’m just pointing out the reality. You’re welcome to go politically advocate for the NIT. I wish you luck.

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                                Posted by MachineGhost
                                Answered on 05/19/2016 1:27 PM
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                                  The purpose of my response is not to advocate for NIT. I am just pointing out that rhetorically, you have actually made no viable arguments against it. You could have just as “factually” said we have not tried sending a man to Alpha Centauri. Comparing NIT to Communism on the basis of lack of trial is just as irrelevant.

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                                  Posted by Lucas
                                  Answered on 05/19/2016 6:41 PM