The New New Deal, Part 3: Free Money for Everyone!

Parts 1 and 2 dealt with Free Health Care and Free Higher Education, respectively. Now, for the hardest one of all. Someday, computers and robots will do most of the hard work for us. But that day has not come yet, so don’t get your hopes up just yet. In between now and the future Socialist paradise, when humans will rule over slave armies of robots that will produce everything we need, will come a time of turbulence as jobs start to disappear. How will we get through this transitional period without allowing all the jobless people to starve or go on welfare? Maybe this is a start. Just don’t ask me what we do when the robots achieve self awareness and revolt. Someone else will have to cross that bridge when we get a bit closer.

Universal Basic Income – Deal or No Deal?

The last resort in a free-market economy is for the government to provide a universal basic income (UBI) sufficient for one to live above the poverty line. One impetus for this has been the steady decline in the percentage of the population that is working. Even though the unemployment rate had been decreasing to record lows before the COVID-19 shutdowns, the number of Americans no longer seeking work has remained very high. 

Universal Basic Income vs. Working

However, the most important factor going forward is likely to be the steady growth of automation, which portends a future where computers and robots continue to take jobs away from people. leaving a large number of people with no prospects. The growth of automation will theoretically lead to a higher standard of living for all, but only if its benefits are distributed to those who no longer have a source of income.

By definition, universal basic income is an unconditional periodic cash payment to everyone without any means testing. So, even the rich would receive the payment, meaning that the overall cost of the program would be huge. If these payments were not paid for by higher taxes, the most immediate effect would certainly be an increase in the money supply. Nearly everyone would have more money, but would be competing for the same set of goods and services–or maybe even fewer, if employment levels decrease and automation cannot keep pace. This would lead to inflation and a decrease in the purchasing power of the basic income, requiring a continued increase in payments or higher taxes, until we reach an equilibrium. So, it isn’t as simple as paying everyone while trying to find more tax revenue to offset it. Many things could go wrong, but few want to discuss the challenges of making it work as intended.

Here are a few things we need to avoid with a program of this magnitude:

  • Perfectly healthy people who don’t want to work and will just take the free money.
  • People who take the money while engaging in criminal behavior.
  • People who defraud the system by falsifying identities.People who steal or extort the money from legal recipients, including a relative.
  • People who take the money but fail to take care of their children.
  • People who waste the money on gambling, alcohol and drugs, and remain in poverty.
  • Employers who pay less because they know their employees are also getting a basic income.
  • Employers who can’t find employees due to a shortage of labor.
  • Inflation caused by higher average incomes with no decrease in the cost of goods and services.
  • Growth in government due to high administrative costs.Spiraling taxes with an increase in tax fraud.
  • Loss of liberty as more people become dependent upon government support.
  • An increase in corruption among government gatekeepers who control benefits for the poor.
  • An increase in income inequality as higher-income people also get the same basic income.

Some say that universal payments would permit lower administrative costs, since means testing would not be required. But fraud is likely to be so prevalent that administrative costs will still be high. How do you identify and stop fraudulent claims? During the 2020 COVID-19 pandemic, unemployment insurance fraud spiked. How do you deal with people who misuse their payments and remain in poverty or homelessness? For example, people might still spend their basic income on gambling, alcohol and drugs instead of on their kids or their own basic needs, leaving them unable to afford housing, food or other essentials. Lack of controls could undermine the entire purpose of a basic income for the poor. Government can’t fix everything, but if taxpayers are paying for a basic income, we have to be sure it is not wasted or misused.

Working is what old people used to do.

If we establish a universal basic income too soon, before we realize the benefits of automation or know the true effects on a changing job market, we may undermine the economy by placing too much burden on those who continue to work and could discourage others from working. Paying for a UBI will require higher taxes on those who can afford it. So, while we may not have “means testing” for UBI, we will still have its equivalent in the form of higher progressive income tax rates. If we pay too much, many will be unwilling to work and the labor pool will shrink further, leading to a rise in the cost of labor. Why would someone work if they only get a little more than someone who isn’t working? The incentives to outsource to foreign labor should also increase as the labor market shrinks. In other words, we risk huge distortions in our economy, which depends on sufficient affordable labor.

Here is the deal. To limit the costs and negative effects on the job market, we should start out with a basic income that is not universal. In other words, we require means testing instead of adding on to the tax code to try and take it back from high-income earners. The tax code is already a terrible and complicated mess that needs to be simplified, not made even more complex. The amount of the basic income payment should cover housing, utilities, food, clothing, and other essential needs, but not enough to discourage employment that would provide additional income. This would prevent most from suffering from poverty, but most people would still want to work to add disposable income. 

Since the cost of living varies by location, the value of a fixed basic income would also vary. The same basic income would be worth 82% more in Austin, TX than in Brooklyn, New York. If the cost of living is higher where they currently live, but there is a less-expensive area with a surplus of jobs, housing and/or public services, they could be offered free relocation services. People who would normally be unable to afford to move could now move to a place to enjoy a better standard of living and better employment opportunities instead of being locked into a high-cost area with mostly low-wage jobs. As people move out of high-cost areas, labor shortages should cause low-wage salaries to rise.

Cost of Living in the USA by State

What about people with a high net worth but low income? Can we deny a basic income to people who have lived a frugal life and have money in savings without forcing them to hide their assets or destroying the incentive to save? The last thing we want is to incentivize people to consume all their income until they become dependent on government payments. What about people who have a modest income? We don’t want to incentivize them to quit working and take the free money and would prefer that they be able to keep most of their other income. 

Those who are unable to work due to permanent medical reasons will be the easiest to qualify for the basic income. We already handle some of these cases through social security or other disability programs, so it would not be new other than to impose better anti-fraud measures. Those who are temporarily unable to work will be monitored through the free health insurance health-improvement program until they are able to work or are expelled from the program for non-compliance.  

For those who cannot find a job, no matter where they look, they will be assigned a public-service job. There are plenty of jobs that never get done due to a shortage of labor, or wages that are too low, or people without sufficient disposable income, and these are the jobs that will be created and filled. Free money isn’t free, so there has got to be a social benefit for those who are paying the bill that does not destroy the incentive for everyone else to work. The idea is to discourage unemployment and provide low-cost opportunities to improve public services and infrastructure. Ideally, the trick would be to make sure these new jobs do not displace existing jobs, but this will be difficult. Examples might be jobs to improve the cleanliness and maintenance of public streets, parks, and facilities, more tutors and teaching assistants for low-income kids, extra security for schools and at-risk neighborhoods, and more social workers.

The military has a good alternate model for delivery of a basic income. All new recruits are initially provided with shelter, food, clothing, and medical care, or a monetary allowance for all of them. Why couldn’t the same be done for some of those who need a basic income? This isn’t to say they have to be put in housing slums, but they could get vouchers for services instead of cash that could be mis-spent. This option might have to be mandatory for criminals on parole and people who abuse their basic income. A new private industry could arise to provide basic services. Instead of slums, there would be decent housing choices. If done well, it could be similar to how college students apply for housing and sign up for meal plans. There could be options for purchasing a home for a price that is within the basic income level.

Those who exceed a very high threshold of income or assets will not qualify since their lifestyle and incentive to work will probably not be greatly affected. For those with a middle-class income, their basic income benefit could be set aside in a savings program so that they cannot access it immediately. This will help to prevent employers from paying workers less by using the basic income to help subsidize their labor costs. It will also help people to save for their retirement and discourage excessive consumption.

For those who have little to no income, they will receive all benefits even if they take another job. In a study of UBI in Finland, people on the program showed a slight increase in employment. Since the basic income was a very modest amount, they still had an incentive to find work, even if the job paid less than they normally would have considered. The basic income dramatically increased well-being (e.g. less stress, depression and sadness), cognitive skills, life satisfaction, and trust in public institutions. These could theoretically translate into lower levels of mental or physical health issues, including substance abuse and suicide, and also less crime.

Children should also receive a basic income, but if the parents use it irresponsibly, they can be reported to social workers who could be assigned control of their funds to provide their basic needs. There will probably be many more jobs for social workers to ensure the viability of this program. 

Some of these measures would serve to increase government control over the lives of the poor, which is not a good outcome. But absent a clear ability to pay for a universal basic income without risk to the rest of the population and the economy, it seems unlikely that this can be avoided. Of course, without an enforceable immigration policy, any basic income benefit would also be at risk of compromise by a flood of illegal immigrants who may try and use fraudulent documents to claim an instant taxpayer-funded source of income.

Problem solved? Not by a long shot. Any new government benefit will certainly come with unexpected challenges and unintended consequences. For that reason, we cannot consider universal basic income a right. It is merely a benefit that might be worth trying as long as we are wise enough to manage it in an affordable way without destroying our economy and society in the process.

2 thoughts on “The New New Deal, Part 3: Free Money for Everyone!

  1. Pingback: The New New Deal, Part 1: Free Health Care | Earth People are Crazy

  2. Pingback: The New New Deal, Part 2: Free Higher Education | Earth People are Crazy

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