Andrew Yang is pushing the idea of Universal Basic Income as his primary platform for his 2020 run for POTUS. Where does this idea fall short and why?
April 1, 2019
By: Bobby Casey, Managing Director GWP
I discussed Andrew Yang’s flagship policy: Universal Basic Income (UBI) in some earlier blogs; but I took the time to listen to his interview with Joe Rogan, to give him a chance to expound on his ideas. Here’s what I got…
I want to start by saying, I don’t disagree with what he identifies as problematic. Where we disagree is in identifying the root of those problems, and thus the end solutions.
He tries to ingratiate himself by saying a red state like Alaska has UBI, and even Milton Friedman endorsed the idea. Either he’s being intellectually dishonest, or he doesn’t understand these two ideas. After listening to him, I think he heard what he wanted to hear, but did so genuinely.
Again, listening to Friedman explain it in his own words to William F. Buckley, he was not talking about a Universal Income. He was talking about a Negative Income Tax.
YES, there would be a subsidy, but it would look more like the Earned Income Tax Credit (EITC) where you couldn’t fall below a certain threshold. That threshold was defined as 50% of the maximum deduction. If a person earned nothing, they would get 50% of the maximum deduction.
It would also replace other paid welfare programs, so people would not fall into the welfare trap of losing all incentive to work.
This is not a fixed universal income. You have to qualify for it. First, you have to live there for a full calendar year with the intention of staying indefinitely. Second if you commit a felony, or two or more misdemeanors in that qualifying year, you are ineligible.
This is a market driven dividend offered to all the residents of Alaska (including children) based specifically on the oil market. The state owns a good amount of land that produces a lot of crude oil. The state shared the profits of that with its constituents.
These funds are managed by the Alaska Permanent Fund Corporation, which invests the money, but how it’s spent is decided by the legislature. It’s an investment fund that grew from $734,000 in 1977, to nearly $54 billion in 2015.
Oil prices are going down, state spending is going up, and the pay outs are getting smaller. The last three years the estimated pay out was overridden by their legislature and drastically reduced to pay for state expenditures.
Payouts were between $1,000 and $2000 on average, annually, not monthly.
Andrew Yang likes to hide behind these two examples, but this is not what he is saying at all. He’s not suggesting a reform to welfare as Friedman called for, and he’s not offering a market driven dividend.
He does say that those on federal welfare would have that amount deducted from the monthly stipend. It wouldn’t be an added benefit to what they are already getting. He also believes less crime would be committed and savings would be had in a lower incarceration rate.
To pay for it, he’s asking for another tax and the splitting of those proceeds. He calls it a VAT (or value added tax), but there’s no scenario where taxes add value, so I’m calling it a sales tax. He pays for it with a tax, but calls the pay out a “Freedom Dividend”.
His UBI goes to adults only, so that’s not exactly universal. There is no means testing. It’s just a flat $1,000 per month per adult.
The fact that Alaska’s state legislature can treat that money as a slush fund — and has — shows a vulnerability like that of Social Security. How is Social Security doing, by the way?
Yang’s biggest concern is automation. He says there’s nowhere for the displaced workers to go once automation takes their jobs. Of course, he cites his myriad conversations with real blue collar workers in Iowa and other fly-over states.
Secondary concerns include the uptick in depression and anxiety, suicide rates, and drug use and overdoses. Likewise, there is a drop in people getting married, having children, and starting businesses.
He contends people slip into the latter because of the former.
You cannot treat emotional, psychological, and societal ills with a political solution. These are complicated issues that cannot simply be mitigated by $1,000 per month. That stipend doesn’t even create room for addressing those issues. It will not move the needle a single tick.
What becomes of the displaced workers? Well, what becomes of military veterans? Some do fall to the wayside. Others, however, go on to create businesses like FedEx, Sperry Shoes, GoDaddy, ReMax, and Walmart. The military didn’t create any of this nor train them to become entrepreneurs. Individuals did this.
And so too will retailers, truckers, and manufacturers. The idea that they have NO other talent to offer the market is condescending and baseless on its face and should be rejected.
Checking the Premises
Much like every other political hack, all these projections assume nothing changes. But when new policies are introduced, market behaviors do change. That is inevitable.
If a sales tax is going to be levied on our purchases to pay for this, we as a country won’t buy as much. That tax instantly inflates the cost of living. If anything, that stipend will at best offset its own costs, and give the illusion of economic security.
Taxing people to give it back to them makes little sense, and offers no solutions to human economic evolution.
Is Automation Economic Cannibalism?
Yang considers himself a modern day Paul Revere when it comes to automation. Automation has made us faster and more efficient. It has made comfort and convenience economically accessible to more people.
Technology also sets the expectations much higher when it comes to volume and turn-around times. The same number of people are producing ten times the volume in half the time.
If there was no minimum wage, would there necessarily be an economic demand for a robot that can flip burgers? If the person can flip burgers at $6 per hour, and the machine can do it for $9 per hour, little reason exists to invest in the machine. We’ve legislated ourselves out of competition.
$1,000/month is tantamount to working a full time job at $5.77 per hour. It’s considered exploitative to employ someone at that rate, but it ceases to be exploitative to cut that check for nothing at the expense of everyone else?
If automation is coming for jobs, then naturally it’s imperative people adapt. Humans are the result of adaptation. Our technology is proof that adaptation is our “super power”. If the landscape is changing as Yang suggests (and I don’t disagree), then free the market so people can adapt.
Yang suggests that we are moving toward an economy where this elite brain trust will have all the wealth while the rest of us go without. That is preposterous.
Look at the myriad hustles out there today. Coaching gigs, consultation gigs, writing gigs, nutrition and work out programs, investment programs, digital marketing… We are moving toward an idea driven economy.
We are also moving away from material satiation toward experiential satiation. Yang sees the fall in retail and the closing of malls as a sign of the times. But hospitality and restaurants are seeing a boost in their numbers. Why? People buy their material goods online. This saves them time and money to go out and spend time and money on experiences instead.
Look at all the little experience based businesses out there:
- Couples cooking classes
- Ceramics and portrait painting
- Escape rooms
- Vineyards, microbreweries, or local distilleries
And there will always be demand for artisan work. Farmers markets are seeing a lot of patronage from those who appreciate authenticity in their foods.
Where We Were vs Where We Are Going
The traditional approach to work as been “get a job, work there for 30 years, collect your pension”. That’s not what the market is offering anymore. Employers and employees alike are no longer exhibiting that kind of loyalty to one another. The market has become so dynamic, that turnover is a natural byproduct.
Yang points out that a greater number of people are working on a contract basis rather than full time. How is that problematic? Yang sees this as a sign of instability and uncertainty. But that’s not true. Taking on several contracts is like a diverse investment portfolio: if one goes sideways, the others are still intact. This should not be scowled upon, but rather fostered.
People should diversify their streams of income. People should be allowed to diversify their streams of income. The adaption is that we move away from the home runs, and move toward accepting multiple base hits to score. This is a practical strategy that can result in boosting wealth.
What About Anxiety, Depression, Suicides, and Addiction?
We can all agree $1,000 isn’t going to do much about any of this. But the root cause of these isn’t losing your job to a machine. These conditions predate technology. Even uncertainty doesn’t necessarily result in mental illness. Uncertainty coupled with the freedom to solve often has people optimistic.
When you distill these conditions down, they trace back to one thing: Lack of Connection. Rehabilitation programs try to restore a sense of human connection by having group sessions and sponsorship.
If the issue is human connection, then automation will reach a limit. The market will not abide by an over saturation of automation. Eventually, the reintroduction of the human element will become a competitive asset. Ask yourself, when was the last time you had to call a customer service line and navigate through a maze of automated menus? How would you rate that experience?
A Genuine Solution
I don’t doubt Andrew Yang’s sincerity in what he sees. But he is only looking at what is going away, without considering what could fill the void. He thinks it’s a lateral shift between tech and man, but that’s inaccurate.
There are free market solutions that won’t cost a dime:
- Reduce the barriers to entry in the marketplace and allow people to hustle and adapt.
- Decriminalize and deregulate the market so people are free to solve their own economic problems.
- Reduce (or eliminate) the tax burdens so people aren’t left to beg for some back to feel stable.
Throwing money at a problem isn’t the way to cope with where the economic tides are taking us. It will never be enough, and it will not solve any of the problems he identified. Necessity is the mother of invention, and freedom is its nourishment.
Click here to schedule a consultation or here to become a member of our Insider program where you are eligible for free consultations, deep discounts on corporate and trust services, plus a wealth of information on internationalizing your business, wealth and life.