Photo by patricio davalos on Unsplash

If executed perfectly Universal Basic Income has the potential to thread the needle between embracing free trade and automation while preventing inequality from getting out of control.

What is Universal Basic Income?

Universal Basic Income (UBI) is a social policy in which all citizens of a country or community receive a fixed amount of money each month. UBI payments are funded by taxpayer dollars and provided unconditionally and in addition to any income, a person receives from work or investments.

This varies greatly from many social security nets around the world that are typically means-tested. They require your income to fall below a certain threshold to receive payments.

Unemployment benefits stand in stark contrast to UBI. With Unemployment benefits, you only receive payment if you lose your job (under certain conditions). With UBI you receive a fixed monthly payment whether you have lost your job or not.

The idea is to raise the “floor” on the quality of every citizen in a country or community.

The Argument for Universal Basic Income

Advocates for UBI typically have two arguments; a moral argument and a policy argument.

The moral argument for UBI is rather straight forward; ensuring that every citizen in your country has enough money to pay the rent and put food on the table is the humane thing to do. UBI has the potential to reduce poverty and inequality.

The Policy Arguments for UBI vary but tend to focus on two common themes:

Government Efficiencies Meeting the Challenges Caused by Automation and Trade.

Government efficiencies: If set up correctly, UBI allows the government to eliminate all of its other social safety net programs. This would simplify life for citizens and reduce the significant administrative costs to the government — which would no longer need to administer their patchwork of social programs.

Citizens know exactly what to expect, and the government simply needs to cut the checks every month.

The answer to automation & global trade: Both automation and global free trade present a paradoxical issue. They are both necessary to increase economic efficiencies and keep the global economy growing.

At the same time, the benefits of that economic growth are concentrated in a small group of people, namely those who own capital. This leads to rising inequality in developed economies and the potential for political turmoil.

Millions of jobs in developed economies are lost either to outsourcing to a country with cheap labor or automation. The robots are coming for our jobs.

UBI has the potential to address those problems. Losing your job to a robot isn't quite as terrifying if you are guaranteed to have enough money to pay the bills.

If executed perfectly, Universal Basic Income has the potential to thread the needle between embracing free trade and automation, while preventing inequality from getting out of control.

The Argument Against Universal Basic Income

Those who oppose UBI typically have two arguments a moral argument and a policy argument.

The moral argument for UBI is rather straight forward: providing handouts paid for by the taxpayer is unfair to business owners and those working and paying taxes. The argument has also been made that UBI would reduce the entrepreneurial spirit and that people would be less willing to work and attempt to start businesses.

There are several policy arguments against UBI, but I personally have two major concerns:

How much Would it Cost? How would it account for regional differences in cost of living?

Let’s take the U.S for example. It is a country with over 330 million people. How much would it cost to provide a living wage to every citizen? How much would taxes need to increase by to fund it?

Even more difficult would be dealing with the differences in the regional cost of living.

The cost of living is much higher in New York City than Montana. If the UBI payment was $2,000 a month for every citizen, that would go a lot further in Montana than New York.

The obvious solution would be to provide larger payments to those living in areas with a higher cost of living. However, this may create its own problems of equality and politics.

Is it fair to give someone who lives in New York $3,000 and someone who lives in Montana $1,000? In theory, we are all paying into the pot, why should one be penalized for living in an area with affordable housing?

The political challenges to address such questions may keep UBI a pipedream in developed economies.

Other Questions with Universal Basic Income

Equality Versus Equity: The issue of regional cost of living raises the broader question of whether UBI works better if every person gets the exact same check every month (equality) or if those who need it most get bigger checks (equity)?

Impacts on Incentives to work and start businesses. If you had guaranteed income coming in every month, would you be less likely to get up and go to work every day? I could imagine people with less fulfilling jobs quitting at a higher rate under UBI, but I think we need more case studies to determine the impact on labor force participation.

I could see an argument that UBI would encourage more people to start their own business. How many of us have had business ideas we never acted on because we were afraid the business would fail, and we couldn’t pay the bills?

A guaranteed check every month might give people the courage to start the business they always dreamed of.

Potential Economic Benefits: If all the issues with UBI could be addressed the potential economic benefits are enormous. Imagine how much consumer spending might increase if the poorest people in society can drastically raise their standard of living.

Bottom Line

Universal Basic Income is an interesting policy that warrants further study. Whether we like it or not automation and globalization are here to stay and with the right policy choices, it can be something worth celebrating. I’m not sure Universal Basic Income is the right policy choice to address the impacts of automation but it’s an important discussion to have.