AMA Reply: Universal Basic Income

Money, money, money. Must be funny. It's a rich man's world. Aki asked, “What are your thoughts on universal basic income?”

We could start with the definition of “universal basic income” (UBI) which the Wiki says is “a form of social security in which all citizens or residents of a country regularly receive an unconditional sum of money, either from a government or some other public institution, in addition to any income received from elsewhere.”

Income

Let’s also understand what the word “income” means and implies. The dictionary defines it (in part) as “a gain or benefit usually measured in money that derives from capital or labor.” That means, income is dividends (from capital) or salary (from wages of labor). Income is something a person gets in exchange.

An economist would note that aggregate income equals aggregate production. That’s an arithmetic identity. That is, the total income of a group of people is the total production by them during a specific period. The question how should the total output be divided among the people producing the aggregate product is relevant. One way is to allocate shares of the production to individuals in proportion to the amount of inputs (capital, labor) contributed by those individuals. That scheme of rewards commensurate with effort appears to be equitable, fair and morally justified. Moreover, it is economically efficient.

Another way to allocated total production would be to divide it equally among all, regardless of who did what to effect the production. It is hard to justify this in general, although it is not impossible under specific conditions. (More about this sometime/somewhere else.) It is also economically inefficient. (Economic efficiency is another topic that should be clearly understood.)

The three concepts of production, income and consumption are intimately related since they essentially describe different aspects of one underlying reality, that of human going about their mundane activities of living in the material world.

Force and Free Stuff

We have to produce what is not provided free by nature. Air for example is provided free by nature. Water is also free. It falls freely from the skies and is available in lakes and rivers, though we may have to work to bring it using canals, pipes, buckets to where we consume it. So not everything we consume is produced by us. In some sense then, we do get free stuff. How much of it a person actually uses is another matter altogether. We all breathe free air. But the guy who uses a gas guzzler uses more air than the guy who uses a bicycle.

In a sense then, things that appears on earth without any effort should be available free and thus part of unearned income. Why free? Because its price equals the effort that went into its production, namely zero in the case of freely available natural stuff. Anything that requires effort, however, should be distributed as income — meaning, you get out of the system only what you put into the system.

Given that production requires effort, getting an income without putting in the effort has a serious implication. If I get something for which I don’t pay (in terms of money or effort), then it means someone else gets to pay (in terms of money or effort) and receives nothing for it. One person’s gain is another person’s loss. Transfers of this kind are zero-sum games.

In general when the government gives “free” stuff to someone, it has to first take it away from someone else. The government does not have a magical machine that produces stuff which the government then magnanimously distributes to whom the government considers to be the deserving and the needy.

Distributing Profits

But what if the government runs an enterprise, say a commercial airline, and then distributes the profits equally to all citizens? That would meet my definition of an “universal income” or a negative income tax. (Note that I omitted the word “basic.”) This is not unheard of. Every year, the government of Alaska, for instance, sends all residents of the state an equal share of the income it derives from its oil interests in the state.

This is uncommon. In most other parts of the world, governments just keep what they earn from the nations’ mineral wealth. Indeed, the rulers (who constitute the government) of those nations endowed with mineral wealth enrich themselves enormously, and the people are generally poorer than what they would otherwise be. Saudi Arabia is an example. What is worse is that nations with mineral wealth end up poor because of what is known as the “natural resource curse”. (More about this upon request.)

The basic idea here is that people are entitled to free stuff if it was produced without anyone’s effort. Suppose bicycles fell unbidden out of the sky, then everyone would be entitled to an equal share of the bicycle rain. But only what is produced through communal effort should be available to all in that community of workers. This is ethical and moral.

What is unethical and immoral is to take something from someone using coercion, force or the threat of force, even if the taking is for some “social good.” It can be reasonably argued that it is a characteristic of a good society that it provides what support it can to those who are incapable due to circumstances outside their control of providing for their needs. We all need food, clothing and shelter. Some of us are capable of earning our keep; some of us are not. Life’s a random draw, and the accident of birth dictates what we enjoy or suffer.

Life’s a Random Draw

Those of us who are born to good families (a random draw) and have the genetically endowed physical and mental abilities (again a random draw) to be productive are alright with just deserts but what of those who unfortunately drew a very poor hand in the random draw? I believe it is a moral and ethical imperative of the good society to take care of them. It is a social responsibility and therefore it is the society at large that should discharge that duty.

To that end, we have to ask how should society respond to that call to duty? One way is to use the institution of government. Let the government decide what, how much and to whom to give, and how much to take from whom. Leaving aside those details for now, the question is whether it is moral for the government to undertake that task. My answer is an unqualified no since the government uses its monopoly in the legal (perhaps even legitimate) use of force to do whatever it does. That characteristic of government — the use of force — immediately disqualifies it for the task of meeting the society’s social responsibility of taking care of the needy.

It is undeniable that society needs to have an institutional answer to the question. I argue that the government is not the proper institution in this case. But if not the government, then who? The answer is, a non-governmental social institution, an institution that does not have the power to coerce or threaten the use of force or violence. Why? Because using violent means defeats the very end society aims at — that is, the functioning of the good society. The good society is one in which all individuals matter as ends in themselves and not merely as means for achieving some supra-individual goal that individuals themselves are not freely committed to.

Society’s Responsibility, not the State’s

So what I would propose is this. First, the government meet its basic obligations to the society. These are limited to protecting the life, liberty and property of all citizens, and enforcing all contracts, private and public. That’s simple enough to state but decidedly complex to actually do effectively and efficiently. All evidence points to the fact that most governments are unable to meet even that basic obligation, leave alone take on additional responsibilities. Until a government actually gets its essential job done, it has no business getting involved in any other function, including charity and the distribution of general largess.

But assume, contrary to all evidence, that a particular government having discharged its primary function gets into the business of running a corporation that generates a profit. Then it is justified in distributing that profit equally  and without discrimination, to all. Equally means the filthy-rich businessman gets the same share as a homeless man. The government has a right to distribute what it owns but not what it takes from one under the threat or the active use of force to give to another.

In this, I am equating the rights and obligations of a person with the rights and obligations of the government. For example, Mr Bill Gates has the right to give away his own money to whomever he wishes for whatever reason; he does not have the right to hold a gun to my head and take even a dime from me to build orphanages or charitable hospitals. It would be immoral and wrong. What’s immoral in Mr Gates’ case is also equally wrong in the case of the government.

In the real world, the government has neither the moral authority to engage in charity nor the means to do so. Therefore it is for society to provide what help it is capable of giving to the poor. Who should give, how much, and to whom are questions that society has to collectively answer. How?

Voluntary Organization

The good society would have an institution which would be funded by voluntary contributions. Let’s call this the “Social Support Foundation”, or 2SF. Management of the 2SF is done by a board of 20 trustees. To be eligible to be a trustee for a 5-year term, one has to be the top 100 donors over a relevant period. Of the eligible trustees, the 20 governing trustees will be elected by vote by 1000 randomly selected donors from the entire donor base. The charter or the constitution of the 2SF would include the restriction that it cannot discriminate among its beneficiaries based on any group characteristic (such as age, caste, language, sex, religion, etc.)

The 2SF board will decide what to give to whom. This involves no coercion. This involves no political power. This involves no buying of votes for any political party. This is purely voluntary. If the 2SF has so much funds that it can support a universal basic income, so be it.

What if 2SF is doing a lousy job? Well, then it should get out of that business. How? There’s nothing that prevents anyone from undertaking starting a competing 2SF.

In conclusion, an universal basic income is a good idea provided that the society has the means. UBI should not be undertaken by the government because political power and charity don’t mix well, and indeed destroy the social fabric of a society because those in government use the power to grant free stuff as a means to discriminate among groups. UBI should be publicly voluntarily funded and managed by those who pay into the system. It’s a market-based solution and not a political institution.

It’s all karma, neh?

3 thoughts on “AMA Reply: Universal Basic Income

  1. So nicely explained, and this is what exactly the gas subsidy has become! I have a request, although I am a commerce student I never really understood economics in college, can you please do a post on the Taxation policies. I a salaried person will pay 30% income tax and take home the net 70% when deducted with all EMIs, Insurance then it is essentially only 50% left with me, now with this 50% if I start making savings and then plan to have a fat FD, why am I required to again pay tax if I save beyond a certain limit, it is my money which has been taxed once already. Why should I pay taxes over and again which forces me to either spend too much or try to think of ways as to how best I could evade, aren’t our tax policies a bane on salaried classes, can you please explain?

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    1. I sympathized with you. Big government and huge taxes go hand in hand. There’s little any individual can do. The situation is similar to slavery. One slave cannot do anything to escape slavery except commit suicide. But if all slaves were to revolt, there is a possibility that the slave owner would die instead. Taxes that people are forced to pay imply that people have to do involuntary work for the government. This is just another way of saying that people are part-time slaves. Economics does have something to say about the effect of taxes but it has little to say about what should be the response of people to confiscatory taxes. Good luck.

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  2. Somewhat tangential, but I hope you don’t mind me posting here, considering that this topic has been linked to Universal Basic Income: you must have heard of the discussions re. taxing robots. Here is a recent interview of Bill Gates where he talked about it. https://qz.com/911968/bill-gates-the-robot-that-takes-your-job-should-pay-taxes/ Elon Musk has also discussed this a bit. The headlines of the articles scream “Robot tax” when the argument might be more nuanced. I am not sure.

    My first reaction on seeing this was that not content with taxing humans, the proposal is to tax working machines now. Auditing for the number of robots and the exact type of work they do is going to be a lot of fun. And why end at robots? Why not tax the software programs we run, depending on CPU cycles used. It reminds me of time until the early 1980s in India, when we had licenses and license books for the radios and TVs we owned. Revenue stamps needed to be purchased. It sounds like we are emulating discredited and cringeworthy Indian policies.

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