UNIVERSAL BASIC INCOME: A CRITIQUE.
Universal Basic Income Will Only Make Our Problems Worse
Thanks to presidential candidate, Andrew Yang, UBI (Universal Basic Income) is becoming increasingly popular to both sides of the political spectrum. From the egalitarians of the left to the self-proclaimed freedom fighters of the right; even some libertarians find themselves in agreement with this basic income initiative. (1) It almost seems that this is one of the rare policies to which virtually everyone, from all reaches of the political spectrum can agree. Mr. Yang mentions that this not a new idea and that even major influential economists such as Milton Friedman--a--lukewarm advocate of free markets (2) - supported it (3)
In section II we disparage UBI on the ground that it gives more power to the government which they use to rule over the people. The burden of section III is to demonstrate that this initiative is not a solution to the challenge of poverty. We demonstrate in section IV that UBI will create an artificial demand in goods and services but will not truly aid in the creation of wealth. Nor will the wealth gap be appreciably closed as a result of this policy, as shown in section V. We conclude in section VI.
II. More Power to Government Over The People
There is a serious danger that many of the proponents of UBI are missing and it is the further empowerment of our already disturbingly powerful government. A universal basic income will create a behavioral dependence strikingly similar to that of public welfare. Many of the recipients of public welfare begin to depend heavily on those government handouts and then begin to make decisions based on that dependency. (4) This can be seen in the film "Work & Happiness: The Human Cost of Welfare" (5). The fact that this policy inherently creates more dependent than self-reliant behavior should be an immediate red flag to all of us.
After enough time, society will adapt and simply expect that X amount of dollars like they do the mail. People will begin to model their behavior around that money and make decisions they normally would not make had they not been given this "free" check/cash. While Yang promises this compensation to be given with no questions asked or any requirements, it does not guarantee that this will be the case. In an article posted on Mises.org the weaponizing of UBI is described,
"Once this relationship between individual and state has been established it will be hard to go back. We will enter into a frightening era where the UBI can be weaponized by the government to threaten people with benefits sanctions for not behaving as our rulers see fit. Criminals first. Then unpopular groups. Then political dissidents with opinions like our own. We will be threatened into silence with the threat of the removal of our UBI." (6)
It is inevitable that over time, if not at the very outset, the government will begin to place certain rules on who gets that income and begin to use such determination to its advantage in forcing demographics into making certain decisions or voting a certain way. If we simply look back at the history of governments (ours especially) failing to keep its promises or lying to the people about certain policies or actions it took, we can find a great many reasons to be skeptical about the promise of UBI.
According to that old aphorism, "He who pays the piper, calls the tune." There is more than a modicum of good sense in this saying. Who will be paying the piper in this case? The government of course. Thus, they will inevitably call the tune in terms of increasing their power to control the population.
III. It Does Not Solve Poverty
Some advocates argue that this policy will aid us in the struggle against poverty. But does simply handing out "free" money really aid in the production of wealth? Of course not. We tend to believe that those who are impoverished simply don't have enough money for what they need. If this were so then why doesn't Washington just print more dollars and hand them out? (7) Poor countries could just print more money to reduce the populations living in poverty. Clearly, there is more to poverty than just a lack of cash. Zimbabwe, a very poor country, for example, is in the habit of printing trillion-dollar bills. What is the key in ending poverty is increasing the amount of wealth a country has, not merely the amount of its fiat currency.
It is important to understand what causes poverty in the first place. This, of course, consists of a lack of goods and services. But what leads to their creation? Capital goods and a skilled population. And what, in turn, generates that state of affairs? Why are some countries rich, and others not? It is not natural resources; Hong Kong, Japan, do not have any natural resources to speak of; Brazil is greatly blessed in this regard. Skilled workers may be necessary, but they are not sufficient. When Israel was a socialist country, it was very poor. Smith (1776) pretty much said it all: the free enterprise system, including a strict respect for private property rights, is by far the best means toward that end. (8)
Ironically, some commentators claim that we need a basic income because of automation. Robots and technology will more and more replace human labor in producing goods and providing services. This will cause people to lose their jobs and increase unemployment. This is fallacious. Yes, certain jobs will end but new ones will become available. Consider the fall of the horse and buggy industry and the rise of automobiles; not only were new jobs created but now we have a more reliable and efficient form of transportation.
But what about "super" robots? Stuff and nonsense. There will always be employment as long as there is scarcity. People will want more than they have forever. We will continue to desire a cure for all diseases, infinite life expectancy, instantaneous travel to other solar systems, etc. Given this, there will continue to be a need to produce the additional goods and services. And if, somehow, we achieve a post scarcity society, accomplishing all these tasks, why, then, we will all be fabulously rich, and there will be no need for any more wishes to be fulfilled. Poverty will have long since disappeared, and there will certainly be no need for UBI. (9)
Handing out "free" money will also reduce the incentive for people to work which leads to a decrease in the production of wealth. It's not that people working fewer hours is a bad thing, it's why they would be working less that should concern us. Why should we bribe people into doing any such thing?
Imagine a shoe factory that loses some of its employees and sees a decrease in working hours from the remaining employees all because with that X amount of dollars they no longer need to work as extensively, or, even, intensively. The shoe factory begins to sell less output not as a result of decreased sales, but because of reduced production. When supply falls but demand stays the same or even increases (10), prices are going to go up and not as many people will be able to buy shoes.
Now apply this same scenario to all the shoe factories and all of the other industries (car, clothes, food, healthcare, etc.). UBI will decrease production while increasing desired consumption. This type of pressure leads to poverty. When automation occurs it allows for more production with fewer hours required from human labor which reduces the overall cost. This naturally leads to lower prices, higher quality products, and higher wages. (11) This allows people to work less and increase the wealth created. The fear behind job loss has no ground to stand on either. Let us re-imagine the former example:
A shoe factory invests in machines that are able to produce more quality shoes at a lower cost. This then reduces the need for labor from factory workers. Factory workers are let go and the factory does one of two things (or even both if they are creating enough profit):
Option a): They lower the price of shoes allowing customers to save more money. With this additional money leftover in the customers' pockets, they are then able to spend more on other products or services. Increased consumption in these other areas will create a natural increase in demand from still more businesses. These firms will then have a higher demand for labor which will create a shift in the job sector. Old jobs lost, new jobs made.
Option b): the shoe factory invests in more capital (machines, physical buildings, research & development, etc.) which then creates more demand for human labor in other these other areas of production. New jobs are still created. Thus, increased wages for the employees who still have their jobs as well as new wages that come with the new jobs that become available in different areas. (12)
IV. Artificial Demand
UBI can only be funded through taxes, which constitute theft. Because this is a government program it will be funded the only way that any government program can be: taxes. Whether they are taxing businesses or individuals is irrelevant. Taxation is compulsory. It requires that the government threatens the life of people themselves guilty of no crime. (13) They do so, of course, presumably, in order to take a portion of their income and give it to somebody else or some other cause. Let us stipulate that this is true. But that cannot gainsay the fact that this is still robbery.
Mr. Yang tries to hide this form of corruption behind the guise of a Value Added Tax. Simply put, he wishes to raise the cost of producing goods and services which will lead businesses to charge more for their products/services, provide less of them and decrease wages or lay off employees. This will ultimately boomerang to haunt us, the consumers because we will be spending more on the things we need while obtaining less of them. Yang claims this to be a "fair tax" making sure that companies pay their "fair share". But what constitutes as the "fair share" of someone else's income? There is no such thing. Also, in what way is it fair to forcibly take money from one group, against their will, and give it to somebody else? Are we really going to acquiesce in the notion that it is suddenly okay to steal just because a greater portion of society voted on it or because politicians want to legislate it? Hardly.
Moreover, the process is null, at least for the rich. Mulcting tax proceeds from a millionaire like Bernie Sanders, and then giving it back to him in the form of a UBI, is nugatory. Filthy rich men like him will pay the same amount in taxes as they will receive in the form of this grant; so, they neither gain nor lose any money from UBI, when both sides of the transfer are taken into account. We are left with the fact that some of his hard-earned funds will be given to others, who pay less tax than him. That is, his taxes will have to be raised, if poor people are now given money not presently available to them. UBI seemingly papers over this fact, but the point is, money will still be transferred from the rich to the poor as in the case of all other welfare schemes.
Some supporters advocate that UBI replace the present welfare programs. It is far more likely, in the event, that, instead, this new initiative will be added to the plethora of welfare programs already in place. There are too many powerful vested interests for any such total replacement to occur. But suppose, arguendo, that a total replacement did indeed occur. No more welfare programs, no more socialized medicine, no more food stamps, no more anything else of that nature. Would this be an improvement? It is difficult to say. On the one hand, such as system would certainly be more efficient. Many fewer people would be needed to administer it. They could shift themselves to doing honest work. On the other hand, recipients might reduce their supply of labor hours, decreasing wealth. It is difficult to say, since this is an empirical question. But there is one thing for sure on the debit side: forcibly taking money from some people in order to give it to others is theft, and it is difficult to make the case for more efficient robbery.
V. The Wealth Gap
The wealth gap between groups will not be magically decreased through UBI. If everybody receives $12,000 a year then that means the super wealthy will also get this "free" income, not just the single parent working two jobs or the recently laid off college student. The gap between them and the billionaires will not be reduced to any appreciable degree more than any other income transfer from rich to poor.
But this leaves open a question: why should it be a desideratum in the first place to decrease any income or wealth gap? If it emanates from government transfers from the impoverished to the wealthy, then well and good. This is indeed a problem, but can only be solved by taking money from the specific people who have stolen it, and giving it back to their victims. (14) On the other hand, if the diversity in well-being arises from market forces, any reassignment would be unjust, since laissez-faire capitalism makes awards in proportion to contribution to prosperity. Any attempt to do so would arise from envy, or an unwarranted fetish for egalitarianism. (15) Those that so strongly desire to help others they find worthy of such aid are welcome to do so from the generosity of their own private efforts.
Last but not least, if UBI is implemented, there will soon arise a movement promoting "UBI rights," along the lines of present support for "welfare rights." But it is a contradiction to say there is a "right" to take innocent people's money, even for good causes. It is also difficult to see UBI as a good cause.
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Walker, Jesse. 2017. "The Indestructible Idea of the Basic Income; Is this the only policy proposal Tom Paine, Huey Long, Milton Friedman, Timothy Leary, and Sam Altman can agree on?" https://reason.com/2017/06/03/the-indestructible-idea-of-the
Wapshott, Nicholas. 2012. "A Lovefest Between Milton Friedman and J.M. Keynes." July 30; http://www.thedailybeast.com/articles/2012/07/30/nicholas-wapshott-a-lovefest-between-milton-friedman-and-j-m-keynes.html
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Walter E. Block (*)
(*) David Iglesias is independent scholar. E-mail: email@example.com Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics, Loyola University New Orleans, 6363 St. Charles Avenue, Box 15, Miller Hall 318, New Orleans LA 70118. E-mail: firstname.lastname@example.org
(1) "Libertarians" who support UBI include Murray, 2006, 2016; undated; Tanner, 2017; Varney, 2018; Walker, 2017; Zwolinski, 2013; libertarians, God bless them, who oppose UBI: Caplan, 2019; Dowell, 2019; Ezrati, 2019; Hunter, 2017A, 2017B; Mitchell, 2018, 2019; Smith, 2017, 2018; Vance, 2014, 2017. Acemoglu, 2019 is a mainstream economist who criticizes this policy. Varney (2018) mischaracterized Murray as a "conservative." But no one who wrote Murray (1997) can properly be characterized in that manner.
(2) For the case undermining his free enterprise credentials, see Block, 1999, 2003, 2010, 2011, 2013; Block and Barnett, 2012-2013; McChesney, 1991; Rothbard, 2002; Friedman and Block, 2006; Kinsella, 2009; Lind, 2012; Machan, 2010; North, 2012; Vance, 2005; Wapshott, 2012; Wenzel, 2012; Wilcke, 1999
(3) Contrary to Orfalea, 2015, Milton Friedman (1962) did not support UBI but instead proposed his own Negative Income Tax which focused on only giving money to those who fell below zero on the income tax bracket. In sharp contrast, Andrew Yang proposes giving everybody $1000 a month, no questions asked.
(4) For the case against this program, see Anderson, G., 1987; Anderson M., 1978; Block, 2001A; Block and Fryzek, 2017; Brown, 1987; Delery and Block, 2006; Engelhardt, Lingenfelter Block, 2016; Fast, O'Brien, and Block, 2017; Higgs, 1995; LaBletta and Block, 1999; Murray, 1984; Olasky, 1992; Piven and Cloward, 1993; Rothbard, 1996, 1998; Sowell, undated A, B; Tucker, 1984; Sowell, 2016A, 2016B, undated A, B; Thorner, 2014; Williams, 2014, 2019.
(5) https://www.google.com/search?rlz=1C2CHBF_enUS724US724&source=hp&ei=oRgsXbD8Nqbm0gK2jrG4DQ&q=Work+%26+Happiness%3A+The+Human+Cost+of+Welfare&oq=Work+%26+Happiness%3A+The+Human+Cost+of+Welfare&gs_l=psy-ab.3..0.2676.2676..4967...0.0..0.73.73.1...... 0....2j1..gws-wiz.....0.uobDuVQBcwc
(7) Not that the Fed is not already doing this, albeit not for the purpose of promoting UBI, which does not yet exist.
(8) For empirical evidence supporting this claim, see Gwartney, 1996.
(9) Of course, this is an utter impossibility, however nice it is to contemplate such a situation. There will always, necessarily, be opportunity costs. No matter how rich we are, there will always be a limit on just how many things we can do at any given time. Perhaps super dolls will be able to replicate Marilyn Monroe, Albert Einstein, Wolfgang Amadeus Mozart, but we will all want, well at least some of us, to be friends with the real ones. Thus, scarcity will still exist.
(10) as it would when more people have "free" money to spend
(11) This is because wages tend to equal marginal revenue product, the value of what a worker produces. With additional cooperating capital, this amount rises. When we dig holes in the ground for the foundations of buildings with picks and shovels, each worker can account for a certain value-added. When we do so with steam shovels, this amount radically increases.
(12) One of the best explications of this phenomenon is provided by Hazlitt, 1946
(13) Rothbard (1998, p. 162) writes: "Taxation is theft, purely and simply, even though it is theft on a grand and colossal scale which no acknowledged criminals could hope to match." For a further elaboration of this insight, see Chodorov, 1962, 2017; Hoppe, 2008, 2011; Rothbard, 1978, 1998; Vance, 2006, 2007
(14) For reparations for past injustices that makes this case, see Alston and Block, 2007; Arceneaux, 2005; Block, 1993, 2001B, 2002; Block and Yeatts, 1999-2000; Ward, 2014
(15) On this see Block, 1990, 2000, 2014A, 2014B, 2019; Heller, 2019; Howden, 2013; Mack, 2002; Nozick, 1974; Rockwell, 2015; Rothbard, 1971, 1974, 1997, 2005; Salerno, 2013; Schoeck, 1966; Sowell, 2012; Williams, 2019
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|Author:||Iglesias, David; Block, Walter E.|
|Publication:||Romanian Economic and Business Review|
|Date:||Sep 22, 2019|
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