Universal Basic Income
Labor productivity has increased dramatically over the past several decades. In the most developed countries, only a fraction of the population now need be involved in the development and manufacture of goods; instead, people are employed performing services — managing financial assets, cutting hair, selling software, teaching schoolchildren, etc.
Everything points to the 21st century obviating the need for even more human labor by automating millions more jobs, such as those of drivers, doctors, lawyers, accountants, buyers, clerks, etc. Computers can simply do most routine tasks better; that trend is what is referred to as software eating the world.
Automation of labor is fundamentally good. People will need to do less work to create the same basket of goods, thereby improving society’s wellbeing. Any net growth in [productivity * labor] leads to increased welfare. When humans can do more with tools, humans become more valuable.
As millions of jobs are being automated, however, it is uncertain whether the need for labor will continue to grow in tandem with the number of people who want to work. A net decrease in jobs could mean that some people are not able to find work and therefore earn money to meet their basic needs, despite our society having sufficient resources. Such a situation would require us to rethink the way resources are allocated.
One possible way to ensure that no one is left behind in the new economy is to create a baseline income — on which one could live decently — that every individual receives from the government, regardless of whether they work or not. That concept is called Universal Basic Income (UBI). Finland recently became the first nation in the world to offer UBI to all of its citizens.
Many Americans will have a near-pathological response to the idea that the government hand out freebies. And, there are legitimate questions about UBI (more on this later). However, from an economics standpoint, the idea is more reasonable than meets the eye, if your eye finds it unreasonable. When Finland rolled out UBI, it cut all other government-aid programs, including unemployment benefits and all welfare programs — collectively the societal safety net — and lumped them in one.
The solution is extremely elegant. It drastically reduces the complexity of the societal safety net and eliminates bureaucracy. Contrast this with something like the USA’s unemployment system or worse Medicare and Medicaid. Instead of explicitly taking from the haves and giving to have-nots through redistribution, every have gets the same amount of UBI as every have-not. Supporting such a system is a statement: every single person in our society should have enough to live, but not at the expense of others. A progressive tax might function in the same way. Except, the whole universal basic income thing where people with no income get something, too.
The Finnish policymakers must have considered that those living off UBI will spend the money quickly, creating income for others. Strong demand and velocity is great news for the economy — also important to the economy of the future will be maintaining demand despite market saturation.
Even more interesting than the systemic and implementation details, though, are the sociological questions that UBI presents. Will people given UBI maintain an incentive to work? In either case, would they feel happy and fulfilled? What sorts of people might have their life outcomes adversely affected? Could an otherwise ambitious person be stifled by the fact that she can have a decent living without work?
Hopefully the aftermath of the new Finnish policy yields answers to some of those questions. Domestically, YCombinator announced that it is searching for a researcher to conduct a multi-year study on the effects of UBI. The United States is much different from Finland, after all, and the concept of UBI is important for one of the most progressive, pro-automatization organizations in the country.
In an ideal world, people given UBI — and therefore not having to worry about necessities like food and shelter — would not only be happier and more fulfilled but perhaps even create more value than they would otherwise through greater attainment in education (or art, sport); more people would be able to reach their full-potential.
The dark scenario might be one where many people choose not to work, economic conditions worsen, and people invest the newfound time not in activities that enrich their lives and society but are useless or destructive to society’s well-being like watching television or drinking.
Figuring out what empirical results point to will be interesting and important to charting the course of our evolving economy.
The positive path reminds me of an old but oft cited quote:
“I must study politics and war that my sons may have liberty to study mathematics and philosophy. My sons ought to study mathematics and philosophy, geography, natural history, naval architecture, navigation, commerce, and agriculture, in order to give their children a right to study painting, poetry, music, architecture, statuary, tapestry, and porcelain.”
Perhaps in the developed world, the period where our children will be free to pursue what they want without having to worry about starvation should their choice not be practical is nearly upon us.
In any case, I am eager to find out what happens.