Why UBI can’t work

UBI, short for Universal Basic Income is a proposal made to give every American 18 years or older a check in regular intervals regardless of status or income. The most recent popular proposal is one made by Democratic candidate, Andrew Yang, to give all American adults a check of $1,000 dollars per month. Due to the simplicity of the idea, and its promises to replace government welfare with one program, the idea has gained a lot of steam.

I want an extra $1,000 dollars per month- of course I do, but why then stop at $1,000. The idea of everyone getting money on a monthly basis, just for being an adult has an appeal, but will it ever work? I don’t believe it could because of it’s propensity to disincentivize work, take help from those who really need it, and it’s high cost, which would ultimately be borne by the taxpayer.

The first question that needs to be asked is, “Why are people proposing universal basic income?” Of course, there are some who simply want more money in their pockets, and they have not thought the idea through, but many believe UBI is necessary in order to account for an impending loss of jobs due to automation. Andrew Yang claims that this round of layoffs due to artificial intelligence will not create new jobs, at least not as fast as he wants…

However, the evidence, both historical and current does not seem to be with him on this one. Throughout the centuries there have always been people raising fear about the loss of jobs with an increase in production. This idea is where protectionism comes from, along with agricultural subsidies and a number of other dangerous economic policies. Yet, automation has always created more jobs than it has killed, and more wealth for everyone, not just the wealthiest members of society. Automation has certainly increased over the last ten years, yet unemployment in the U.S. is currently sitting at 3.6%, down from 9.4% in May of 2009. A number of other factors have affected this, including a financial recession, but the point still stands that automation has raised and not lowered the standard of living, and the need for labor. A study by by the American economic association has found that automation is actually more likely to increase the demand for labor. Unless there is a sudden change in the direction of history, there is no reason to believe that demand for labor will decrease due to automation.

Candidate Andrew Yang argues that UBI would actually create more work, because it would create more purchasing power. Rather, UBI would actually just redirect purchasing power, cause prices to raise, and probably lower productivity. One similar experiment with the “negative income tax” took place in the U.S. between 1968-1980. The negative income tax provided minimum income, but phased out as wages increased. Recipients of the negative income tax all reduced their work hours, with single males having reduced their hours 43 percent. Additionally, when unemployed, recipients experienced longer periods of unemployment than non-recipients. The UBI has major potential to make people more dependent, rather than less dependent on government.

Even for those who are not a proponent of any sort of welfare state, there is concern that UBI would take away help from those who really need it. One of the ways proposed to pay for UBI is to redirect funds from social security and Medicare. However, this takes away help from those who legitimately need it- the elderly, the disabled, etc. Instead it evenly distributes one check- for what purpose?

According to the International Labor Office, the average cost of UBI for a country would be 20 to 30 percent of GDP. A universal basic income of $1,000 per month would cost about $3,924,000,000,000 – which amounts to almost the whole federal budget from 2018. How would we pay for this? Presidential candidate, Andrew Yang’s website says, “Andrew proposes funding UBI by consolidating some welfare programs and implementing a Value-Added Tax (VAT) of 10%.” Yet Andrew says on his own website that he expects a VAT to bring in 800 to 900 billion a year- not actually near enough to fund his proposal. Additionally, a Value-Added Tax is regressive, so it would end up harming the same displaced workers he intends to help. A VAT would also bear a huge burden on businesses attempting to calculate the tax at every step of the process.

When there are proposals to make money without any work, it sounds like a breeze, but we should be careful to evaluate the immense level of harm that such ideas bring.

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