Here is the text of a speech I gave at the 72nd Annual NYU Labor Conference, which this year was on AI and Automation. Unfortunately there is no recording – I stuck relatively closely to this, but didn’t read it.

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Universal Basic Income: An Introduction

Thank you for the opportunity to speak to this audience about Universal Basic Income. I am approaching this topic from the perspective of a venture investor who backs companies that automate tasks ranging from image recognition to medical diagnosis, as well as someone who has thought and written about automation for nearly three decades going back to my undergraduate thesis on automated trading in 1990.

For anyone unfamiliar with the term Universal Basic Income or UBI, it refers to a payment to every citizen that is unconditional, i.e. paid independent of employment status or income. A commonly used number is a payment of $1,000 per adult and less per child. The idea for such a scheme in the United States is quite old and an early mention can be traced all the way back to Thomas Paine’s 1795 pamphlet on “Agrarian Justice.” Proponents over the years have come from all over the political and ideological spectrum, ranging from Milton Friedman to Martin Luther King Jr.

If I have done my math correctly, the first Annual NYU Labor Conference took place in 1947 at what we can now recognize as the beginning of the golden era of the Industrial Age. A period that lasted for 40 some years during which market based economies produced exceptional growth with the benefits shared between capital and labor. For the last twenty plus years, however, the benefits of growth have accrued primarily to the owners of capital in what has become known as the great decoupling, which is attributable to the twin effects of automation and globalization.

Given this impact of automation on labor it is not surprising that this section of the conference has the word “Mitigation” in its title. UBI is often positioned defensively: “Automation will take away your job, but here is some money.” This framing is deeply problematic. At best it makes UBI appear like another welfare policy and at worst it carries a ring of “opium for the people” – a way of keeping the working population docile while capitalists get richer.

How then should people think about UBI? In my book World After Capital, I refer to it as “Economic Freedom.” Why? Because UBI massively increases individual freedom. It provides a walk away option from a bad job, a bad spouse or relationship, even from a bad city. As such it also provides new found bargaining power in the labor market for the roughly 40% of Americans who are part of the precariat. At its most fundamental, UBI makes people free in how they allocate their time. They can choose to work and make more money or they can choose not to and instead spend their time on friends and family, or art, or science, or politics, or the environment, or any of the millions of things humans do outside of the labor market.

There is another crucial distinction between the defensive, mitigation framing and the offensive, freedom framing of UBI. The former implies that we are stuck in the Industrial Age, whereas the latter carries the possibility of a new age, which I call the “Knowledge Age” in my book. The defining characteristic of the Industrial Age isn’t “industry” – as in manufacturing – rather it is the job loop: people sell their labor and use their income to buy “stuff” (goods and services), which in turn is made by people selling their labor.

Employment in agriculture declined from 90% of all jobs in 1780 to below 3% today. This change is often taken to show that we successfully replaced agricultural jobs with other jobs and that we can and should do so again now: automate existing jobs only to replace them with new and different jobs and thus stay in the job loop of Industrial Age. But that reading shows a lack of imagination. A different interpretation is that something that once occupied the bulk of human attention, producing enough food to feed the population, has been reduced to an afterthought.

Well, what occupies the bulk of our attention today? The job loop. Paid labor. If we succeed in enabling automation to its fullest extent, if we succeed in transitioning into the Knowledge Age, then 100 years from now we will have done to paid labor what we did to agriculture. A reduction from something that occupies 80 percent or more of human attention today, to something that’s barely noticeable.

It is crucial that we free up human attention now because too many important problems are going unsolved. The market based system has been so successful that it has solved the problems it can solve, leaving us with the ones it cannot. Prices do not and cannot exist for events that are rare or extreme. There is no price for a human finding their purpose. There is no price for preventing an asteroid impact. There is no price for averting a climate catastrophe. Because we are relying on the market to allocate attention, we are paying far too little attention to these crucial issues and far too much attention to making money and spending it on stuff.

UBI then is a central pillar of a new social contract that enables a transition to the Knowledge Aga, a transition that is as profound as the one from the Agrarian Age to the Industrial Age. What replaces the job loop? In World After Capital, I suggest that the answer is the Knowledge Loop, in which we learn, create and share knowledge – broadly defined to include not just science but also art and music.

Now of course there are many objections to UBI. Most of these, such as people spending money on drugs, or an immediate collapse in the supply of labor, are easily dismissed by the evidence from UBI trials around the world going back to the famous 1970s Mincome experiment in Canada, all the way to the currently ongoing Kenya study by Give Directly. There is also indirect evidence that contradicts these objections, such as the by now well documented benefits to the Native American population from casino licenses.

I will therefore focus on two objections, one practical and one philosophical, that are not so readily addressed by the available evidence.

The practical objection that looms largest is that UBI is simply not affordable. Almost every analysis that comes to this conclusion makes two mistakes. First, looking at a gross instead of net expenses. Second, examining payments from a fiscal perspective only.

The gross expenses in the United States would amount to something like $3.3 trillion or roughly the same as all Federal revenues. Net expenses, however, would be quite a bit smaller. In conjunction with introducing a UBI, it is crucial to modify the tax code so that income tax is paid starting with the first dollar earned. A large fraction of the population that is currently not paying federal income tax, Mitt Romney’s infamous 47% remark, would instantly owe some amount of income tax. And of course for people already paying taxes the net transfer is also smaller. At a 35% flat tax rate on all income, whether from labor or capital gains, as well as eliminating various deductions, the net expense required for a UBI is on the order of $1.5 trillion. And this is a completely static calculation which does not assume any GDP growth benefits of UBI, which have been estimated as high as $2 trillion dollars.

$1.5 trillion in new expenses still sounds like an impossibly large amount. But with a UBI in place it becomes possible to eliminate some programs such as food stamps and TANF entirely and modify other programs, such as Social Security, for savings on the order of $500 billion. Now to cover the remaining $1 trillion there are various proposals worth considering including a carbon tax, a financial transactions tax and a VAT – the latter being favored by 2020 Democratic presidential candidate Andrew Yang. Some combination of these could cover the entire remaining $1 trillion.

But we should also consider a fundamentally different approach to implementing a UBI. I am talking about moving from fractional to full reserve banking, something that has historically been favored by economists from the Austrian school, as well as by Milton Friedman, whom I previously mentioned as a UBI advocate. Since the 2008 financial crisis, we have created annually on the order of $500 billion in M2 money supply. This money creation in a full reserve banking system would be possible as direct payments into citizens’ UBI accounts. Instead of letting commercial banks decide where newly created money enters the economy, it would enter equally for everyone. That would make it harder for someone like myself to get a mortgage for a second or third home, but would make it possible for many people to afford a first one.

At the $500 billion annual level we are simply matching the current money supply growth, which has not been inflationary. It is, however, possible to fund more and potentially all of UBI that way instead of via taxation. Wouldn’t that result in inflation? Won’t prices simply go up to offset the new money created? If we wanted to fund more of UBI that way we would have to also institute some form of demurrage, for instance through negative interest rates. Doing so will become much more readily possible with “programmable money,” a better term for what is often referred to as crypto currencies.

All in all though the key takeaway here should be that through some combination of changes in the tax code, elimination and modification of existing welfare and social programs, and some new taxes and/or changes to the banking system, it is entirely possible to finance a UBI. The fact that this is possible shouldn’t be surprising, seeing how even at the gross expense level of $3.3 trillion, a UBI represents only 15% of GDP.

Now on to the philosophical objection. This is the claim that removing the need to work in order to earn a living robs people of their purpose. While strongly held today, this view of human purpose would strike people from other time periods such as the middle ages or antiquity as absurd. They would have answered that human purpose is to follow the commandments of religion, to be an upstanding community member or to be a philosopher.

Why is it so difficult for us today to disentangle our job from our purpose? Well we have spent the last two hundred years or so telling people from practically the day they are born that finding and succeeding at a job is their purpose. It is deeply woven into our culture as part of the protestant work ethic. And it has become the singular goal of education. The current obsession with STEM education is not because of the need to solve difficult problems, such as climate change, but rather because of a belief that people with a STEM degree will find a better job. This of course should not come as a surprise as the modern education system was designed for the Industrial Age. So education too is something we will have to change.

By now you might say that clearly I must be crazy. I want to introduce a UBI, revise the tax code substantially, even alter how money is created in the economy and change the education system to boot? Any one of these seems impossible, let alone all of them together.

We can’t change this much. And yet we have done so twice already. After living as foragers for millions of years — 250,000 of those as Homo sapiens — we changed everything when we transitioned into the Agrarian Age roughly 10,000 years ago. We went from migratory to sedentary, from flat tribes to highly hierarchical societies, from promiscuous to monogamous-ish, from animist religions to theist ones. Then again only a couple hundred years ago we changed everything when we transitioned from the Agrarian Age to the Industrial Age. We moved from the country to the city, we switched from living in large extended families to living in nuclear families or no family at all, we went from lots of commons to private property (including private intellectual property), we even changed religion again going from great chain of being theologies to the protestant work ethic.

Each of these massive changes in how humanity exists were in response to a huge shift in our technological capabilities. Agriculture allowed us to create artificial food supply. Industrial technology allowed us to create artificial power. And digital technology now allows us to create artificial intelligence. Digital technology is as big a change in our capabilities as those two prior ones, it is not simply a continuation of the Industrial Age. We should expect to have to change everything rather than getting away with a few incremental patches here and there.

In conclusion: UBI is not a mitigation measure, keeping us trapped in the Industrial Age. UBI is a necessary, but not a sufficient, enabler of the Knowledge Age. We need to change pretty much everything else about how we live as well, including education, healthcare, the intellectual property regime, and much much more.