If you were to quit your job right now, could you afford to take care of your needs? And if you are retired, what would happen if you suddenly stopped receiving your pension? If you are supported by a spouse or partner, could you still afford food, shelter and clothing without them? If you could no longer meet your needs in any of these situations, you are not economically free. Your decisions on how much of your labor to sell and whom to sell it to, whether to stay with your partner and where to live are not free decisions.

Many people in the US are not free in this sense. A recent survey asked respondents if they had enough money to pay for a $1,000 emergency, and over two-thirds said they did not [55]. Other studies have found that about 75 per cent of Americans over the age of forty are behind on saving for retirement and 31 per cent of all non-retired adults have no savings at all [56] [57].

If you are not economically free, you are not able to participate freely in the knowledge loop, which is why economic freedom is a cornerstone of the Knowledge Age. We must make people economically free in order that they have the time to learn new knowledge, from practical skills to the latest theoretical physics. We need them to create new knowledge using what they have learned. And finally, we need them to share this knowledge with others.

We have massive problems to overcome, including the current COVID-19 pandemic and most of all the climate crisis, and participation in the knowledge loop has never been more important. To enable us to do so, we must be able to embrace automation rather feel threatened by it.

Universal Basic Income

Economic freedom is a reality for the wealthy, for tenured professors and retirees with pensions and savings, but how can we make it a reality for everyone? The answer is to provide everyone with a guaranteed income to cover their needs, including housing, clothing and food. This income would not depend on whether someone is married or single, employed or unemployed, rich or poor – it would be unconditional (also referred to as ‘universal’).

At first glance, this idea of a ‘universal basic income’ (UBI) may seem outrageous. Getting paid simply for being alive – isn’t that akin to socialism? Where would this money come from? And won’t people simply descend into laziness and drug addiction? We will examine each of these objections to UBI in turn, but let’s first consider the arguments for UBI as a way of achieving economic freedom.

Concerns about economic freedom are by no means new. When the American republic was in its infancy, economic freedom was within everyone’s reach. There was plenty of land available, and any family could hypothetically make ends meet through small-scale farming (also known as subsistence farming). Thomas Jefferson considered formalizing the idea of land grants as a way of ensuring a free citizenry. It is important to point out that this land was being taken away from Native Americans who were losing their freedom (something that was conveniently left out of the calculation). Even back then, observers such as the philosopher and political activist Thomas Paine understood that land would run out at some point – they raised the specter of a time when citizens might have to trade labor in order to provide for their needs [58], before concluding that an alternative to land would be to give everyone money to live. The idea of increased freedom through direct payments thus goes back to the earliest days of the American nation.

If you don’t find this argument for UBI compelling, consider the case of air. We can all afford to breathe air because it is free and distributed around the globe (regulation is required to keep it clean – there were many problems with air pollution during industrialization, and it is estimated that more than one million people still die in China every year from air pollution [59]). Our freedom is not restricted by having to find air, and the power of UBI would be to make us equally free when it comes to the solutions for our other needs, by making food, housing and clothing affordable for everyone.

As I argued earlier, our technologies are sufficiently developed that we are capable of meeting everyone’s needs. Farming can generate enough food for everyone. We can easily make enough clothing and provide everyone with shelter. It is the knowledge and capital that humanity has created that has made this possible. And our technological progress is accelerating while global population growth is slowing, so it will get easier – that is, as long as we generate enough new knowledge to overcome the problems we are facing, starting with the climate crisis.

The question is not whether we have the ability to meet everyone’s needs but whether our economy and society distribute the resources fairly, and that is where UBI comes in. UBI enables markets to function without forcing people into the job loop. UBI lets everyone freely participate in these markets, freeing up attention and enabling people to live where and with whom they want.

Industrial society presents us with two fundamentally different ways of distributing resources. In one, individuals participate in a market economy; in the other, governments provide for people’s needs. Those options form the extremes of a spectrum that has a variety of ‘hybrid’ arrangements in the middle, such as government-subsidized housing, for which people pay reduced rent. UBI solves the allocation issue while avoiding reliance on an ever-expanding government sector. It is the opposite of communism and socialism in that regard, because it is all about reducing the extent of government activity.

After the Second World War, only about 5 per cent of people in the US were employed by government, which comprised about 42 per cent of the economy [60] [61] [62]. In the Soviet Union, by contrast, most of the working population was employed by the state, which owned close to 100 per cent of the economy, but that system was less effective at allocating resources. Nevertheless, the size and scope of government has gradually expanded in the US and in Europe; in many European economies it accounts for more than half of the economy.

Food, clothing and shelter are obvious solutions to human needs, but UBI could also cover the cost of education and healthcare. That might seem ambitious, given how quickly education and healthcare costs have risen over the past decades, but technology can make both of these far more affordable in the near future.

Technological Deflation

If you are struggling to take care of your basic needs, the world will seem an expensive place. Yet the data shows that a lot of things have been getting cheaper for some time. In the US, as the below chart shows, the price of consumer durables has been falling since the mid-1990s. The decline in the price of consumer durables has been caused by technological progress. We are getting better at making stuff, and the automation of production and distribution is a big part of that. While this will hurt you if you lose your job as a result, if you have money to buy things it will help you. And with universal basic income everyone will have the money, which as prices fall over time will buy you more and more.

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The decline in the price of consumer durables has made clothing easily affordable. Technology is also driving down the cost of smartphones, which will themselves be essential in making education and healthcare more affordable. And the price decline will only accelerate as we begin to use technology such as additive manufacturing (also known as ‘3D printing’), manufacturing products only when they are needed and close to where they are required [63].

As for housing, here too technology is making it much cheaper to put up a building. In early 2017, the first house to be constructed using mobile 3D printing technology was built in Russia in just 24 hours. [65] Another factor making housing more affordable is the sharing of existing housing, through services offered by companies such as Airbnb and Couchsurfing. Despite such progress, it still costs a fortune to live in places where the demand for housing exceeds the available supply, such as Manhattan and San Francisco; with UBI, people can live where housing is more affordable.

The city of Detroit has in recent years been giving away houses as an alternative to demolishing them [66], and in some rural areas of the US you can rent a home for as little as a couple of hundred dollars per month [67]. Many people can’t currently take advantage of these opportunities, since they can’t find a job in these locations. By contrast, UBI provides geographic freedom. People would no longer be trapped in expensive locations just so they can meet their basic needs.

One large group of people is already free of the constraints of work: retirees. And sure enough, many people move away from expensive cities when they retire, to places where real estate is more affordable [68]. When considering the cost of shelter, rather than analyzing how much people need to pay to live where they may be trapped today, we should look at what the cost would be in a world that has UBI.

Food is another area where technology stands to offer massive gains. While some argue that genetically modified foods hold the key to feeding the planet affordably, other near-term breakthroughs don’t carry the potential issues that they pose. Indoor vertical farming, for instance, allows for a precise delivery of nutrients and light to plants, as well as huge increases in productivity. It also allows food to be grown much nearer to where it is consumed, reducing the costs associated with transportation, all of which adds up to a dramatic cost reduction.

Technology also promises a dramatic decline in the cost of education. Over the last decade, the availability of online learning resources has grown rapidly, including many free ones, such as the language learning app Duolingo. In addition to online courses such as edX or Khan Academy, there are millions of blog posts that explain specific topics. And of course, YouTube is bursting with educational videos on a near-infinite range of subjects, from sailing to quantum computing.

There is evidence that the exorbitant rise in the cost of college tuition in the US is beginning to slow. When analyzing this data, we must remember that there is a huge amount of inertia in our educational system and job market. Many employers continue to believe they must hire graduates from the best universities, which drives up prices for higher education, with a ripple effect that extends all the way down to private nursery schools. It will be some time before most students turn to free or affordable online resources for all their learning needs, but at least the possibility now exists. The COVID-19 crisis has shown the potential of online education, with schools all around the world switching from in-person instruction to prevent the pandemic from spreading faster.

Healthcare is a similar story. Per capita spending in the United States far exceeds that of other countries, having risen much more quickly than the rate of inflation for many years, but that hasn’t translated into better care. For instance, Cuba has for many years had an almost identical life expectancy to the US, despite spending less than a tenth on healthcare per capita [69]. Debates have raged as to whether the Affordable Care Act or other legislative interventions will decrease healthcare costs or increase insurance premiums. Regardless of what happens, there are a number of reasons why progress with digital technology will bring down healthcare costs.

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First, technology makes prices on medical procedures more transparent, enabling more competition that can push prices down. Second, as a result of people using technology to track their own health data, we will live healthier lives and require less care, especially over the long term. And third, technology will lead to faster and better diagnosis and treatment. The online medical crowdsourcing platform CrowdMed has helped many people whose conditions previously went undiagnosed or misdiagnosed. The Human Diagnosis Project (Human Dx) is also working on a system to help improve the accuracy of diagnoses.

Figure 1 is a platform that lets doctors exchange images and other observations relating to medical cases, and Flatiron Health pools data on oncology patients, to enable targeted treatment. In addition, a number of companies are bringing telemedicine into the app era; HealthTap, Doctor On Demand, Teladoc Health and Nurx all promise to dramatically reduce the cost of delivering care.

We might think that a large proportion of healthcare cost results from pharmaceuticals rather than doctors’ visits, but in fact they account for only about 10 per cent of total spending [70]. However, technology will likely drive costs down here, too. One pharma entrepreneur told me about the potential for personalized treatment that could dramatically improve the effectiveness for a wide range of conditions, including many cancers, motor neuron disease and Alzheimer’s. And in the longer term, technologies such as CRISPR gene editing will give us unprecedented abilities to fix genetic defects [71] that currently result in large and ongoing expenses.

But Isn't Deflation a Bad Thing?

You might be confused by my presentation of deflation as a positive thing; economists, after all, tend to portray it as an evil that should be avoided at all costs. They are primarily concerned about growth as measured by GDP, which they argue makes us all better off. They assert that if people anticipate that prices will drop, they will be less likely to spend money, which will decrease output and lead owners of capital to make fewer investments, resulting in less innovation and lower employment. That, in turn, makes people spend even less, causing the economy to contract further. Economists point to Japan as a country that has been experiencing deflation and contracting output. To avoid this scenario, they argue for policies designed to achieve some amount of inflation, including the Federal Reserve’s so-called ‘quantitative easing’, which is intended to expand the supply of money.

However, in a world where digital technology drives technological deflation, this reasoning is flawed. GDP is an increasingly flawed measure of progress because it ignores positive and negative externalities. For instance, making education and healthcare radically cheaper could lower GDP, while clearly making people much better off. A second flaw in economists’ reasoning is that it assumes technological progress is tied to growth in production; it is, in fact, possible to achieve technological progress even when economic activity as measured by GDP appears stagnant. Increases in economic, informational and psychological freedom allow us to accelerate the knowledge loop, which is the foundation of all progress. A great example of this is open-source software, which has driven a lot of technological progress outside of the traditional economic model.

Technological deflation is what puts society in a position where UBI becomes both possible and increasingly helpful. The payment required to take care of each person’s needs is lower today than it would have been a decade ago, and it will be lower still in the future. Technological deflation is what allows people to break out of the job loop.

UBI is Affordable

With all this background information, you might wonder how much a universal basic income should be. My working proposal for the United States is $1,000 per month for everyone over the age of 18, $400 per month for everyone over the age of 12 and $200 per month for every child. These numbers might seem low, but bear in mind that the goal of UBI isn’t to make people well-off; it’s simply to allow them to take care of their needs. We have mistakenly come to embrace unlimited wants, which is why it was important that we re-established a clear distinction between wants and needs. We should also remember both that fulfillment of our basic needs will get cheaper due to technological deflation, and also that UBI won’t be introduced overnight. My numbers are intended to work over time, as other government programs are phased out and a UBI is phased in.

Let’s consider these numbers further. While everyone will spend their UBI in different ways, a possible allocation for a typical adult would roughly break down as follows, on a monthly basis: $300 for housing, $300 for food, $100 for transportation, $50 for clothing, and $50 for Internet access and associated equipment, with the balance spent differently each month (for example, on healthcare as required).

You might wonder why I am proposing a lower payment for children and teenagers. First, we can meet many of their basic needs more cheaply than we can for adults. Second, there is historic evidence that the number of children people have is partially determined by economics; UBI should not incentivize adults to have more children, so as to ‘skim’ their income. That’s especially important because – as discussed earlier – we want the birth rate to decline globally so we eventually reach peak population.

When you calculate how much money would be required to provide a UBI in the United States, based on the 2015 population, you wind up with an annual figure of about $3 trillion [72] [73]. While that is a huge sum, it represents just 17 per cent of the size of the economy as measured by GDP in 2015, and around 10 per cent considered as a percentage of 2015 gross output, which measures not just final output but also intermediate steps [74] [75] [76]. Where will this money come from? There are two sources: government budgets and money creation.

In the US in 2015, total government revenues from taxation and fees were about $6 trillion [77], so the money for a UBI could, in theory, come from redirecting existing budgets. There would then be another $3 trillion of money for critical government activities, such as law enforcement and national defense (the budget for the latter was $0.6 trillion in 2015 [78]). Regardless of the political process by which such a reallocation might be accomplished, there is no fundamental impossibility that would prevent it.

Having a UBI can also substantially increase government revenues. At the moment, nearly half of all earners’ salaries don’t require them to pay federal income tax. Once people have a UBI, every additional dollar earned could be taxed. For instance, if you are currently single and earn a salary of $10,000, you do not need to file a federal income tax return. With a UBI, that could be taxed at a rate of 25 per cent, generating $2,500 in tax revenue. This could provide as much as $0.3 trillion, a 5 per cent increase in total government revenues. Of course, people who already pay taxes would effectively be paying back some of their UBI in the form of higher taxes. Applying a 25 per cent tax rate for that group, which would receive roughly half of all UBI payments, would result in an additional $0.4 trillion. In other words, the net amount required for a UBI with a 25 per cent federal tax rate applied starting with the first dollar earned is about $2.3 trillion.

Government revenues can also be expanded in ways that accomplish other goals. For instance, we should increase taxation on pollution, and in particular the emission of greenhouse gases. Taxes are a well-established way of dealing with negative externalities and we have made good use of this effect – for instance, aggressively taxing cigarettes has resulted in dramatically diminished consumption. Estimates of the potential revenue for a carbon tax are around $0.3 trillion per year, and might be even higher. So, between offsets from income tax (which would occur automatically) and a greenhouse gas tax (which we need anyway), the funds needed for UBI could be reduced to about $2 trillion. Though that’s a massive number, social security and Medicare/Medicaid each cost about $1 trillion. So in the extreme, UBI could be financed through a massive reallocation of existing programs.

There is, however, another way to provide much or all of the money needed for UBI that involves moving away from today’s banking system and issuing money directly to people instead. In today’s fractional reserve banking system, commercial banks extend more credit than they have deposits, with the Federal Reserve Bank acting as the so-called ‘lender of last resort’. For instance, in the 2008 financial crisis, the Fed bought up potentially bad assets to give banks liquidity. Europe has had a policy of ‘quantitative easing’ (often abbreviated as QE), where a central bank makes it progressively easier for commercial banks to extend loans beyond their existing deposits.

The idea is that by extending loans to businesses that need to finance the purchase of equipment or require more working capital (to hire more sales people, for example), banks will help the economy grow. While banks have done that to some degree, they have increasingly focused on large corporations and have been lending to people who are already wealthy, for acquiring second homes or even for financial speculation. Conversely, poor people have virtually no access to affordable credit and lending to small businesses has been decreasing. The net result has been a rise in wealth and income inequality. Interestingly, this lopsided effect of bank-based money creation was understood as early as the 18th century in the writings of the economist Richard Cantillon and has become known as the ‘Cantillon Effect’.

An alternative system would be to remove banks from money creation by forcing them to hold their deposits at the Fed. Known as ‘full-reserve banking’, this would eliminate all risk from the commercial banks. Credit extension could happen via marketplace lending, as enabled by companies such as LendingClub, for individuals, and Funding Circle, for businesses. Money creation could happen simply by giving the new money directly to people as part of their UBI payments, a system sometimes referred to as ‘QE for the people’.

What orders of magnitude are we talking about? The terms M0, M1, M2 and M3 are measures of how much money has been created in the economy. In the US, we no longer track the larger monetary aggregates, such as M3, and only use narrower measures, such as M2, and even that has been growing by about $1 trillion each year over the last decade. The amount of money created by quantitative easing is likely to be much bigger. We can consider the development of debt more directly. US households have about $8 trillion in mortgage debt [79], over $1 trillion in auto loans [80], over $1 trillion in student loans [81] and nearly $1 trillion in credit card debt [82]. Total household debt can increase by as much as $1 trillion in a single year. US business debt stands at $25 trillion, of which about $15 trillion is in the financial sector.

The amount of money created annually is thus in the same ballpark as UBI. Historically, the idea of the government ‘printing’ money is associated with fears of runaway inflation of the sort that occurred in Germany’s Weimar Republic. There are several reasons why this would not be the case with a proper UBI scheme. First, the amount of new money created would be fixed and known in advance. Second, as we saw earlier, technology is a strong deflationary force. Third, the net amount of money created can be reduced over time by removing money from the economy, which could be accomplished through negative interest rates on bank deposits above a certain amount, with payment collected by the central bank. Alternatively, a system of ‘demurrage’ could be implemented, in which a fee is levied on all currency holdings or the holdings are automatically shrunk (with digital currencies, the latter is now possible).

I expect the path to UBI to involve changes to government budgets, taxation and the monetary system; however we decide to get there, my back-of-the-envelope calculations above show that UBI is affordable in the United States today. Economic freedom for all is within our reach today.

Impact of UBI on the Labor Market

One of the many attractive features of UBI is that it doesn’t remove people’s ability to sell their labor. Suppose someone offers you $5 per hour to look after their dog. Under UBI you are completely free to accept or reject that proposal, without distortion from a minimum wage. The reason we need a minimum wage in the current system is to guard against exploitation, but this problem exists only because people do not have the option to walk away from potential employment. If a UBI was in place, they would.

The dog-sitting example shows why a minimum wage is a crude instrument that results in distortion. If you liked dogs, you might happily take the work for $5 per hour. You might be able to watch several dogs at once, or to do it while writing a blog post or watching videos on YouTube. Clearly government should not interfere with such a transaction. The same is true of working in a fast food restaurant. If employees have the option to walk away from a job, the labor market will naturally find how much it takes to get someone to work in, say, McDonalds. That might turn out to be $5 per hour or it might turn out to be $30 per hour.

One frequently expressed concern about UBI is that people would stop working altogether and cause the labor market to collapse. Experiments with UBI, such as the Manitoba Basic Annual Income Experiment in Canada in the 1970s, showed that while people somewhat reduced their working hours when they were paid such income, there was no dramatic labor shortage. People will generally want to earn more than their basic income provides, and the price adjustment of labor will make working more attractive. Furthermore, in conjunction with the income tax change discussed in the previous section, UBI removes a problem with many existing welfare programs in which people lose their entire benefit when they start to work, resulting in tax rates that are effectively above 100 per cent. With UBI, whatever you earn is in addition to your basic income and you pay the normal marginal tax rate on that.

But what about dirty or dangerous jobs? Will there be a price of labor high enough to motivate anyone to do them, and will the companies that need this labor be able to stay in business? Businesses will have a choice between paying people more to do such work or investing in automation. In all likelihood, the answer will be a combination of both, but because of the pressures created by technological deflation, we will not return to labor-price-induced inflation.

UBI would have two other important impacts on the labor market. The first has to do with volunteering. There are not currently enough people looking after the environment or taking care of the sick and elderly. Labor is frequently under-supplied in these sectors because there is insufficient money behind the demand and a reliance on donations. As for the elderly, many of them do not have sufficient savings to afford personal care. When people have to work pretty much every free hour to meet their needs, you they have time to volunteer; providing them with UBI has the potential to vastly increase the number of volunteers (we observe increased volunteering among pensioners, who are effectively already on a UBI).

The second big effect UBI would have on the labor market is a dramatic expansion of the scope for entrepreneurial activity. A lot of people who would like to start a local business, such as a nail salon or a restaurant, have no financial cushion and can never quit their jobs to give it a try. I sometimes refer to UBI as ‘seed money for everyone’; more businesses getting started in a community would mean more opportunities for fulfilling local employment.

Once they get going, some of these new ventures would receive traditional financing, including bank loans and venture capital, but UBI also has the potential to significantly expand the reach and importance of crowdfunding. If you feel confident that your needs are taken care of, you will be more likely to start an activity that has the potential to attract support via crowdfunding, such as recording music videos and putting them up on YouTube. Also, if your needs are taken care of, you will be more likely to use a fraction of any income you receive on top of UBI to support crowdfunded projects.

Other Objections to UBI

I have addressed the three biggest objections to UBI by showing that it is affordable, that it will not result in inflation and that it will have a positive impact on the labor market. There are some other common objections that are worth addressing, including a moral objection that people have done nothing to deserve receiving such an income, which is answered in its own section below.

Another objection to UBI is that it diminishes the value of work in society, but in fact the opposite is true: UBI recognizes how much unpaid work exists in the world, including child-rearing. We have created a situation where the word ‘work’ has become synonymous with getting paid; we conclude that if you do not get paid for an activity, it cannot be work. As an illustration of another approach, Montessori Schools, which base their teaching on creativity and problem-solving, use ‘work’ to refer to any ‘purposeful activity’.

A further objection is that UBI robs people of the purpose that work provides. However, work as the sole source of human purpose is a relatively new idea that is largely attributable to the Protestant work ethic. Human purpose tended previously to be much more based in following the precepts of religion, which might include work as one of many commandments. Put differently, the source of human purpose is subject to redefinition over time; contribution to the knowledge loop is a more suitable focus for the future than work.

One other frequent objection is that people will spend their basic income on alcohol and drugs, an assertion often accompanied by claims that the casino money received by Native Americans has caused drug problems among that population. There is no evidence to support this objection – no UBI pilots have found a significant increase in drug or alcohol abuse, and the opioid crisis has in the meantime been the largest drug epidemic in US history. Research shows that, contrary to widely held belief, casino money has contributed to declines in obesity, smoking and heavy drinking.

Some people object to UBI not because they don’t think it will work, but because they claim it is a cynical ploy by the rich to silence the poor and keep them from rebelling. Some who voice this criticism genuinely believe it, but others use it as a tool of political division. Whatever the case, the impact of UBI is likely to be the opposite, as Thomas Paine recognized. In many parts of the world, including the United States, the poor are effectively alienated from the political process. They are too busy holding down one or more jobs to be able to run for office, or sometimes even to vote – American elections are held on a weekday and employers are not required to give employees time off work to vote.

UBI as a Moral Imperative

Before we examine informational freedom, we should remind ourselves why individuals deserve to have enough to take care of their needs. Why should they have this right by virtue of being born, just as they have the right to breathe air?

None of us did anything to make the air – we inherited it from the planet. Similarly, no one who is alive today did anything to invent electricity – it had already been invented, and we have inherited its benefits. You might point out that electricity costs money and people have to pay for it, but they pay for the cost of producing it rather than for the cost of its invention. And we might substitute many other amazing examples of our collectively inherited human knowledge for electricity, such as antibiotics.

We are incredibly fortunate to have been born into a world where capital is no longer scarce, and using our knowledge to take care of everyone’s basic needs is therefore a moral imperative. UBI accomplishes that by giving people economic freedom, allowing them to escape the job loop and accelerating the knowledge loop that gave us this incredible knowledge in the first place.