Andrew Yang Has No Clue

Democratic candidate’s dishonest approach to Universal Basic Income threatens future viability of critical policy

The verdict is in on Yang’s 2020 campaign: thumbs down.

I have been a single-issue voter on taxation since 2010. The reason is simple: The purpose of government is to wield political power to redistribute wealth through taxation. In short, our tax laws determine who is born and who dies in poverty.

I have also been an advocate of a universal basic income (UBI) funded by a full land value tax (LVT) since 2010. The conjoining of UBI and LVT into a complimentary whole is a policy known as the Citizen’s Dividend (CD).

It is with some regret, then, that I write an article attacking another proponent of UBI, but, as will become apparent, it must be done. This article explores the economic illiteracy and highly suspect messaging of Yang’s pseudo-UBI proposals. The article further demonstrates that, contrary to Yang’s proposals, CD is the only politically and economically viable means of implementing UBI.

Issue: Will Yang’s ‘freedom dividend’ actually give everyone $1,000 per month? (No.)

Yang’s campaign has repeatedly messaged that his signature policy will be to give $1,000 per month to each adult American. Yang’s freedom dividend, unlike a CD, would be funded by introducing a value-added tax (VAT) instead of a LVT. Although the difference may seem like little more than economic jargon to some or splitting hairs on the minutiae of policy to others, it is not hyperbole to say the ultimate fate of the humanity depends on the one-letter difference between those two acronyms.

Yang’s signature policy is to give $1,000 per month to “every American adult.”

Yang proposes to pay for UBI in part by using existing welfare benefits as a draft against the freedom dividend. In other words, a person’s welfare benefits will be discounted from the amount they receive in their dividend. People who are already receiving $1,000 per month in benefits will receive zero additional benefit under Yang’s policy.

Source: Yang 2020 campaign platform.

Yang’s campaign quip is that he is the opposite of Trump because he is an “Asian who likes math.” The line has won great applause despite research showing positive stereotypes have insidious effects, threaten intellectual performance in testing environments, and generally are not taken as compliments and fail to flatter. But if Yang is going to insist on messaging his campaign around a tired racial stereotype, he (or, more realistically, his team) should have at least made sure the numbers on his platform are accurate.

Yang claims the US is currently spending $500–600b on [1] welfare, [2] food stamps, [3] disability, and [4] “the like.” Not only does Yang’s claim massively understate total spending on welfare, his platform describes his position so vaguely that it is not possible to determine precisely which programs Yang is referring to when he says “disability” and “the like.” Nor is there any clarity on whether state benefits will be included along with federal benefits in the draft against each individual’s freedom dividend. However, in his February 21, 2019, interview on Joe Rogan’s podcast, Yang gave further color on drafting welfare receipts against the dividend.

The first thing is, [the cost of UBI over one year] is not actually $3t. And the reason why it’s not $3t is that, if you look at what we’re currently doing, we’re spending about $1.5t right now on 126 welfare programs and social security. And so if you show up at someone’s door and say, hey, here’s a dividend of a thousand dollars per month. But if you’re already getting more than a thousand dollars in stuff, we’re not going to just stack it on top. We’re going say you’re guaranteed a thousand and if you’re already getting more, then this doesn’t touch you, you can keep your current stuff. If you’re getting $700 in food stamps and what not, then you can just get $300 on top. So the $3t actually shrinks a lot very fast because of the fact that about half of Americans are getting various income support from the government. So the real price tag is around $1.8t [per year].

Setting aside for the moment the nauseatingly-detached tone used to discuss issues of poverty, which one has come to expect from alien Silicon Valley businessmen, it is evident what Yang really means when he says “the like,” is that all federal welfare and social security programs will be drafted against the dividend.

In truth, the cost of all federal welfare programs is closer to $900b than the $500–600b range in Yang’s platform.

Source: Lexington Law.

Accurate data on how much the average welfare recipient receives each year is scarce due to the highly politicized nature of the issue. An AlterNet article attacking higher estimates from conservative think-tanks reached an estimate of $9,000 per year per lower-income person. Lower-income is defined as the bottom third of earners. In effect, the average welfare recipient would receive $3,000 per year or $250 per month ($12,000 less $9,000) under Yang’s freedom dividend, not the full $12,000 per year or $1,000 per month as is repeatedly advertised by Yang’s campaign. I wonder how many of the youthful #YangGang are in the bottom third of income earners…

A key underlying rationale behind UBI, as Yang has explained, is that it strengthens the economy by improving consumer spending. If you give people money, they usually spend at least some of it, which stimulates growth. But by denying UBI to the poorest in society, who have the highest marginal propensity to consume, Yang effectively erases a primary benefit of UBI. Ask yourself, does denying UBI to the poorest Americans align with Yang’s “trickle up” characterization of his policy?

Source: Lexington Law.

More importantly, how exactly will Yang’s form of UBI help truckers when they lose their jobs? When people are unemployed and have no future career opportunities, they go on benefits. The vast majority of people who will be displaced by automation, whom Yang purports to help with UBI, are precisely those who will be deprived of their freedom dividend commensurate with their reliance on benefits.

In its worst light, Yang’s proposal can be seen as a clear step towards a system of universal credit. Universal credit was a major reform undertaken by the socially and economically conservative Tory party in the UK as part of austerity. Universal credit’s Wikipedia page is mostly criticism of the policy.

Issue: Is VAT the right way to fund UBI? (No.)

[Note: This section contains conclusions, not arguments, because fully explaining these conclusions, their supporting premises and principles, and refuting their objections, would take more time than we have for the purposes of this article.]

VAT leads to inefficiency through dead-weight losses. LVT, on the other hand, is the only tax that is perfectly efficient and does not cause any negative effect on output or productivity. The difference in efficiency between LVT and VAT is due to the fact that land is of fixed supply, and so is perfectly inelastic, whereas aggregate supply of goods and services is variable and elastic.

The poor, for their part, care a lot more about how many eggs they can get for their dollar at the store than how efficiently the economy is producing wealth for others. VAT is a regressive tax that falls disproportionately on the poor. Critically, Yang’s argument that higher costs will be offset by the dividend rings hollow once it is understood the poorest in society will not directly benefit from the freedom dividend at all.

Moreover, landowners will respond to increasing prices by increasing rents. Familiarity with the Henry George Theorem leads to the swift and certain conclusion that VAT results in a windfall gain for rich landowners at the expense of all others.

Issue: Are taxes on capital and sales sufficient to sustain and grow UBI into the future? (No.)

Yang has repeatedly called for taxes on capital to fund UBI, especially on technology corporations.

The total market capitalization of FANGs+ is now around $4t. Funding a UBI with a tax on FANGs+ would deplete the capital reserves of all of the world’s largest corporations within 10 years. There is simply not enough capital in the world to sustain UBI at the levels that will be necessary in the face of automation.

We must be aiming to achieve a $100,000 (2015 real dollar terms) per year, per person (including children), dividend by the year 2100. The truly revolutionary effects of scaled UBI can only be achieved by taxing land values, which are by far the largest asset class in the world.

Sources: BIS, Savillis, World Bank.

Since LVT is the only efficient tax, by switching to a single tax system based exclusively on land values, and by eliminating all other unnecessary taxes on labor and capital, we can sustain all government spending and a large UBI in perpetuity. This is because the single tax creates a series of virtuous cycles in the economy that increases the productive capacity of land, and thus the land’s ability to bear taxes. Put simply, the more you tax land instead of labor and capital, the more land will give you in taxes. LVT is the free lunch that your neoliberal education taught you does not exist.

Yang’s criticism of Amazon in particular is misguided. It is true that Amazon should be paying their fair share in taxes. But does ‘fair’ share mean a canon of taxation based on ability-to-pay or on benefit-received-from-society? Yang’s criticism suggests the former; because Amazon earns a lot of money, they should pay a lot of taxes. The proposition, although progressive on its face, on closer examination is offensive to individual creativity and industry, and runs counter to the interests of the working class.

Amazon, like all others, should be taxed on the benefit they receive from society, namely their use of land and natural resources. By using land, Amazon excludes other Americans and businesses from using that land for their own purposes. In this way, Amazon’s ownership of land comes at a cost to wider society. But when Amazon sells its products over the internet—an infinite, renewable resource—it does not come at a cost to anyone. This is precisely why we want to tax land to promote its efficient use, but not capital or labor, which only suppresses productivity. Because a CD redistributes increases in land values to everyone equally, and land values rise proportionally with the economic productivity and output of an economy, the poor will finally benefit — and significantly — from growing the pie in a single tax system.

Lastly, you cannot hide land in an off-shore bank account. LVT is the most direct way of ensuring an inescapable tax on corporations.

Yang or yin?

Yang may have good intentions (probably not) but you cannot trust his economics. He simply does not have the theory to back up his policies.

Moreover, a UBI implemented by VAT instead of LVT is doomed to fail, especially if drawn against benefits. Failure to properly implement UBI with LVT at the first attempt would in all likelihood make UBI politically unpopular and could set-back progressivism by decades.

We do not have decades to spare for these kinds of school-boy errors.

Read next: Twitter Suspended My Account for Criticizing Andrew Yang.