Free Money: The Surprising Effects of a Basic Income Supplied by Government
Comment of the Day

November 14 2017

Commentary by Eoin Treacy

Free Money: The Surprising Effects of a Basic Income Supplied by Government

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Hughes is no basic income purist. He believes, for instance, that for this economic moonshot to be politically palatable, it would have to be tied to work. “Not just because it seems more intuitive for people,” he says, “but because work is a key source of purpose in our lives.” But the changing nature of work, particularly among top tech employers, is still a critical problem for the American workforce. One illuminating New York Times article illustrated how the men and women who scrub toilets and do other low-skilled work for companies like Apple are hired from contracting companies which set the terms of their employment. Those workers are cut off from the benefits and upward mobility that the company’s engineers and marketers enjoy. Because the workers are contractors, the big tech companies feel no pressure to raise their wages, and aren’t responsible for offering health-care coverage. In 2015, Facebook’s bus drivers voted to unionize in order to secure themselves the kind of worker protections that the social networking giant refused to provide.

Looked at in this light, the tech-led efforts to push a basic income can appear hypocritical. In a new economy that mints billionaires overnight, giving millions of dollars away for experimentation is the easy part. It’s taxpayers, after all, not individual tech companies, who would have to pay for a basic income should one ever come to pass.

Eoin Treacy's view

I think I need to do some self-reflection because of the sense of anger I feel bubbling up whenever I hear the idea of Universal Basic Income being lionized in the media. It’s not healthy to have such a visceral reaction to the idea of giving everyone a stipend, especially when it is being proposed with increasing frequency. I read the opening of this article and almost stopped but it proved to be quite measured in its conclusions and time well spent. Let’s attempt to unpack the idea and what it represents. 

There are a number of problems with comparing the distribution of profits from a parasitic activity like gambling to the idea of Universal Basic Income (UBI). The same problem would arise if one were to think of Abu Dhabi’s social programs in the same light. In both cases excess profits are being used to fund them. For countries with massive deficits and unfunded liabilities which represent increasing headwinds, where is the money supposed to come from to pay for these programs? 

I am reminded of Winston Churchill’s quip that “the problem with socialism is you eventually run out of other people’s money”. When Elon Musk and Mark Zuckerberg speak about the merits of UBI they are usually not talking about spending their own money; on which they pay next to nothing in taxes, but that of the middle classes which already foot the majority of the tax burden. 

There is a value to work. It gives us a purpose and sense of self-worth that are important to our personal wellbeing. However, we also have to realise that we work because of an incentive. Without the promise of payment there is little reason to participate when there are many other diversions which could occupy our time. 

When I was a child I remember fair days in my home town. Local farmers would sell sugàn chairs, sweaters and other crafts. Living standards were low and people needed to earn additional revenue. The introduction of the farmer’s dole (social welfare) killed homespun crafts. Without the necessity to be productive people just stopped.  Why would UBI be any different? UBI is not being proposed as a substitute for work but if all it is supposed to do is boost outcomes for young people and improve the lives of people on the poverty line then there are existing programs which deal with these subjects. 

Just because it is wrong-headed, does not mean the idea will be abandoned. History is littered with political movements promising free money. The most famous of all is communism which fails because of its inability to comprehend the incentive system and its role in private capital formation. I believe communism is the closest parallel to what UBI represents. The fact it is gaining such widespread attention is a testament to the identity crisis observable in many countries. 

The hard fact is that many countries have income disparities which are at historically wide levels and a lot of money has been concentrated in the hands of the .01%. On a micro scale wealth has also been concentrated in the hands of older people who benefitted most from inflation and economic growth from the 1970s and who are now collecting pensions. For younger people the burdens of education debt, low wages, high cost of living as well as the increasing burden of funding other people’s pensions means UBI must sound like a panacea.  

Meanwhile the hope globalization would promote economic growth for all and deliver millions of people out of political repression has been a mixed success. Democracy has had some wonderful successes and offshoring has lifted hundreds of millions out of poverty and into the middle classes. However, democracy has not been adopted as hoped in many countries with China and Russia still under authoritarian regimes and showing little sign of evolving democratically. 

Globalisation was also designed to reduce the risk of world war. However, when large numbers of people do not feel it is working in their favour it’s easy to forget that fact. The political polarization evident in many countries which is taking the form of nationalism, populism and xenophobia is a reaction against the status quo. Until disaffected voters get more money they are likely to continue to vote for candidates offering extreme policy initiatives. UBI is within the realm of the possible, so are higher minimum wages. 

Right now, the USA is trying to cut taxes on individuals and companies and will run larger deficits to achieve that feat, which should allay demands for UBI in the near term if adopted. That at least creates the incentive for work and is the only route to gainful use of our time particularly as the pace of technological innovation persists and puts more jobs at risk. There is the real possibility that all of the solutions to the inequality promoted by the status quo will result in inflation.  


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