On the universal basic income and the mythical Money Tree

In my recent Q&A with tech industry journalist Greg Ferenstein, he spoke about the popularity of the universal basic income in Silicon Valley. Which is not surprising, I guess. If you think technological unemployment is a thing or soon will be — and many in the sector do apparently — then the UBI might seem a reasonable policy response.

Twenty20.

For all its problems, better UBI than a neo-Luddite, anti-technology backlash. Just today, startup accelerator Y Combinator announced it would launch a basic income experiment in Oakland. TechCrunch summarizes:

Y Combinator initially said that it wanted to pay basic income to a group of people over a five-year period and study the effects, but now the company has changed course. It will begin the research with a short-term study in Oakland, Y Combinator announced in a blog post: “Our goal will be to prepare for the longer-term study by working on our methods — how to pay people, how to collect data, how to randomly choose a sample, etc.” Depending on how the pilot goes, Y Combinator may continue with the long-term study.

Great. Policy experiments are a good thing. Big credit to YC for doing this.

But let’s not ever forget about the Money Tree. It does not exist, as the FT’s John Kay explains: 

Yet simple arithmetic shows why these [basic incomes] schemes cannot work. Decide what proportion of average income per head would be appropriate for basic income. Thirty per cent seems mean; perhaps 50 per cent is more reasonable? The figure you write down is the share of national income that would be absorbed by public expenditure on basic income.  … To see the average tax rate implied, add the share of national income taken by other public sector activities — education, health, defence and transport. Either the basic income is impossibly low, or the expenditure on it is impossibly high.

Most advocates of basic income prefer to keep the argument at the level of general principle rather than engage in the grubby practicalities of numbers. The Swiss proponents explain that basic income “arises from a general fundamental democratic right, the Right to Life”. But even they temper ideals with realism. Obviously children would receive less. Sadly this does not help with the basic maths: even 50 per cent of average earnings for children is insufficient for their support and the same is true for the elderly.

Unless you do believe in the Money Tree or Silicon Valley’s approximation of it. YC’s Sam Altman:

One reason we think [UBI] may work is that technological improvements should generate an abundance of resources. Although basic income seems fiscally challenging today, in a world where technology replaces existing jobs and basic income becomes necessary, technological improvements should generate an abundance of resources and the cost of living should fall dramatically.

And he might be right that productivity and real economic growth might be far higher in the future than today, making all manner of government spending policies more affordable. Just striking a cautionary note, as does the TechCrunch piece:

The Center on Budget and Policy Priorities (CBPP) has argued that a government-funded basic income would increase poverty by stripping funding from federal programs supporting the poor and instead inject that money into the middle and upper classes. “Suppose UBI [universal basic income] provided everyone with $10,000 a year,” CBPP’s Robert Greenstein wrote today. “That would cost more than $3 trillion a year — and $30 trillion to $40 trillion over ten years.” The Swiss government has urged voters to reject the basic income referendum, citing its cost.