The Wall Street Journal recently published an article arguing for a basic income. Since this is a topic that is very relevant giving the ever growing unemployment rate, I thought I would address it.
Let me summarize Charles Murray’s proposal:
- Everyone over 21 years old receives $13,000 per year
- $3000 per year must be spent on insurance
- It should replace all welfare, social security, food stamps, etc.
In a previous article I wrote on the Basics of Basic Income I stated that I thought it would be much better than what we have today, but still fundamentally flawed.
Since then I wrote an article about the Economics of the Future where I explored a structural problem with economy where the value of unskilled labor falls below the cost of living.
The concept of a Basic Income is a proposed solution. I would like to revisit whether or not a Basic Income is a viable solution to our structural economic problems. But first, I would like to offer a revisit the nature of the structural problems.
Structural Problems with the Economy
Imagine for a moment that someone invents a replicator that allows them to build anything by converting energy into matter. Today’s 3D printers and fully automated factories are just early versions of technology that is moving toward fully general purpose manufacturing. Now imagine for a second that operating these replicators requires an advanced degree in math, science, physics, chemistry and software engineering. Without all of the above knowledge you would be unable to participate in the part of the economy that utilizes this replicator technology.
The technology is so competitive and capital intensive that no one is able to compete. Any product you could manufacture can be done cheaper via the replicator. Technology has advanced to a point where just 1 million people are able to produce and deliver all of the products that are currently produced by billions of people.
Normally an economy with a monopoly on the means of production would see a revolution that would free the people by redistributing the resources. In this case, the monopoly is based on intelligence and scale, neither of which can be redistributed/divided without making everyone poorer.
This may be an extreme example, but it illustrates a simple concept that is in effect on a small scale today. It will only grow bigger as technology advances.
Basic Income is a Revolution
People are starting to realize that an increasing percentage of the population is unable to offer the economy enough value to cover their cost of living. Many people are no longer competitive in the market. Given a choice between widespread poverty and extreme concentration of wealth or a basic income extracted from the wealthy, many prefer to see the adoption of Basic Income.
The trend toward outsourcing is really the market’s way of telling us that the supply of unskilled labor able to participate in the economy is growing (due to advances in communication and transportation). The value of unskilled labor is falling. The only unskilled people who remain competitive are those willing to work for next to nothing.
Simplifying Government
Today’s economy is largely driven by government spending (at all levels). Total spending is currently $6.7 trillion dollars per year. All told this accounts for 41% of GDP. Beyond the government spending, is the cost of compliance with government regulations. There are millions of accountants who specialize in nothing but tax law. Companies spend billions of dollars every year just to comply with the edicts.
If all of this government spending were redirected toward a Basic Income, then every man, woman, and child in the United States could receive $21,000 per year. In other words, the government spends enough every year to guarantee every family in america an income that is larger than the current median household income.
Given this level of spending, one could argue that we already have a “basic income” funded by the government for the vast majority of the population. The only difference is that it is extremely inefficient and unequal due to central planning and special interests.
A basic income could replace almost all government. Why would we need complex tax codes when the majority of the population is receiving income rather than paying taxes? Why should we tax income at all when we can simply print the money necessary?
Why would we need to have “public schools” when parents receive a basic income sufficient to pay for private schools? Why would we need child support enforcement when every child qualifies for basic income. Why would we need so many “consumer protection” laws when consumers have enough free time and money to look out for themselves? Why would we need so many prisons when fewer people are desperate enough to commit a crime? Why would we be worried about terrorists when we no longer meddle in other people's business?
In effect, every “free” government service we have today could be replaced with a “paid” service and the people could choose whether or not to use their basic income to pay for that service. Imagine putting the government budget directly in the hands of the people who “vote” by spending it on what they need and value. The “free market” could then serve the people rather than special interests who control government spending.
Why is an American Life worth more?
The moral argument for a basic income implies that all lives deserve a minimum standard of living. The question becomes why should this only apply to Americans? Is your neighbor more deserving than a child in Africa?
The answer usually boils down to “we don’t have enough money to support the whole world at the rates able to maintain a minimum standard of living in the U.S.” If the concept cannot scale globally, then perhaps we should ask ourselves how it could work in the U.S. Why is the US both more costly to live in and rich at the same time? Why doesn’t our ‘standard of living’ make us poor by draining our resources?
The answer is our currency. The U.S. Dollar is our largest export and has given those closest to the creation of new dollars an incredible amount of wealth for next to nothing. Every dollar created is spent in the US first and gradually finds its way overseas. This has given americans an unprecedented advantage over every other country. In effect, we have been getting something for nothing ever since the end of WW II. Dollars are plentiful here, so prices are higher.
Implementing a Basic Income is only viable while the United States is able to print the world's reserve currency. International free market competition will continue to lower the value of unskilled labor as the means of production shifts to countries willing to work. The means of production is all that backs the U.S. dollar. After implementing a basic income no one in the U.S. will be willing to work at rates competitive with overseas workers. We would be supporting ourselves on the backs of our currency.
Eventually our currency would fall until our basic income is worthless.
Conclusion
Any approach to basic income that isn’t global in nature will find the market responds with currency devaluation. A global basic income would be perceived as “below poverty level” to americans.
One way or another, the global standard of living will normalize and the markets will redistribute wealth to those who are producing and away from those who are consuming.