The key to understanding the real cost of UBI is understanding the difference between the gross (or upfront) and net (or real) cost. Here’s a simple example: imagine a room with 15 people who want to set up a UBI for the room of $2 per person. The upfront cost of the policy would be $30. The ten richest people in the room are asked to contribute $3 each towards funding it. After they each put in $3, raising the total $30 needed, every person in the room gets their $2 universal basic income. But because the ten richest people in the room contributed $3, and then got $2 back as the UBI, their real, net contribution is in fact $1 each. So the real cost of the UBI is $10.
This also resolves UBI’s “billionaire’s dilemma” – why give someone like Bill Gates a basic income? The answer is that Gates would simply return that UBI through his taxes – and help pay for others. But if Gates becomes suddenly destitute, the UBI will still be showing up for him to use every month. And since his tax bill will drop, he’ll become a net beneficiary rather than contributor.
https://theconversation.com/why-universal-basic-income-costs-far-less-than-you-think-101134
UBI works. It's very old idea: bizantyne annona works in exactly that way. Similarly ancient Egyptian pyramids was built by very similar purposes.
ReplyDeleteIt's just capitalism which is hardly compatible with such idea, but as capitalism is just failing ( because of too drastic wealth differences. Capitalism cannot work in such circumstances) we are transforming into something between theatre and feudalism.
Let’s elaborate a bit further.
ReplyDeleteThe 10 of 15 people (the “rich” ones) pay that as tax. Let’s say the “UBI tax” is 30% of their income.
That means the income of each of them is $10.
$2 of that comes back from people with UBI.
The rest comes from the other 10 prople without UBI.
That however doesn’t change anything - they still pay 30% income tax. Not 10%, but 30%. And their tax is surely much higher. - this 30% is used solely for UBI.
This 30% is a new tax which they were not paying before.
By the way 10-20% of that 30% “UBI tax” money will be spent on buerocracy just to move the money, so the “UBI tax” would not be 30% of their income, but more like 33-35%. But let’s ignore this for now to keep things simple.
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Let’s ask a sinple question:
“How expensive are things in this economy?”
Let´s say that prople without UBI own all the houses in the economy and all people with UBI are renting them.
Let’s say they charge $1-$2.
Prople with UBI will pay for that.
That means that people with UBI would spend 30-60% of UBI on housing alone.
Now it’s extremely important which it is.
If people with UBI spend 30% of their income on housing, it’s quite likely, that they can live just fine and UBI works.
But if housing for prople with UBI would be 60% of their UBI, it’s quite likely they might not survive, they might not have enough money for other necessary expenses (food, healthcare etc)
In this case prices for living might or might not go lower.
So people withou UBI who own houses might lower the rent in order to actually get the rent money.
If these 15 people is the whole economy (15 people on planet Earth), this would probably happen. And again UBI works well.
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But the reality is very different. There are many more people.
In reality people with UBI will most likely refuse to lower the rent.
They will find someone else who would live there and pay higher price.
Or they might also lend money to people with UBI and get even more (from the interest rate).
So as you can see, it can very easily happen that UBI would not work in this case, because the amount of money from UBI ($3) is simply not enough.
People would have UBI but they can’t afford a house!
So this whole thing was pointless.
You might say OK we have to incrrase the UBI but you would find out that this is a spiral and exactly the same thing would repeat again.
Another solution is to give up free market economy and do a social state instead and regulate everything.
If you own a house for example, the governemnt will say how much is the maximum rent.
You would find out, that this is the most likely scenario that would happen.
And we know this economy very well from history.
This is called utopistic socialism (utopistic because it’s a beautiful ideal which simply doesn’t seem to work well in real world)
This is what communism is, this is what good old russian Soviet Union was.
So just keep in mind that you might want to help people in need but as a result you could very easily end up in deeply state regulated world without free market economy.
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And I’m not even mentioning that even if it all works well, there is another huge problem.
if this whole UBI works - why would prople with UBI have a job? What’s the point?
They can do nothing forever and live nicely forever... why even bother.
The working prople eithout UBI would be very upset and vote for something to create new jobs and force people with UBI to work there.
This is again Soviet union, utopistic socialism. (let’s do something - anything - to keep people working)
It doesn’t matter that the work they are doing is not needed at all. In economics this is called artificial employment (I’m not s native speaker so will need to confirm this expression, sorry if I’m wrong)
ReplyDeleteBut once artificial (non vulentary!) emoleyment is there, you cant stop it because sooo many people would loose their jobs immediately.
There is no polititian in the world who would sacrifice his career like this. So as a result people will be doing unnecessary work forever.
This again was the case of Soviet Union - 99.9% employment all the time! If you refused to accept the work, you would go to jail.
So as a result the UBI doesn’t exist anymore - it was just a catalyst for change from free market economy to utopistic socialism.
As a result the whole economy (country) becomes inefficient and other countries are relatively more efficient, so the country would be loosing against other countries.
That would in turn result in huge and inevitable economic crisis. (again soviet union - the end of it)
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So what I want to say is probably “be really really careful with social projects of such a huge scale”.
The consequences might be very easily completely different than what you might think.
PS:
it’s quite interesting that when discussing UBI it’s quite common that opinions of most of the economists are ignored (they mostly disagree with UBI).
Cherry-picked economists who do agree are heard instead
They are very likely economists who put their own ideals in front of the science of (free market) economy.
And / or they are most likely economists who are actually directly on indirectly employed to promote and payed for promoting UBI.
Another unbelieveable thing is UBI pilot tests.
ReplyDeleteWhy do we test “what would people do if they need money and you give them money just like that”?
(spoiler alert - they don’t complain)
If you want UBI you have to pay for it and it will cost you!
So why don’t we also make a pilot test
“what happens when you increase income tax from 25% to 50-60% to people who have a job?”
(spoiler alert - not happy, they start avoiding tax payments, grey and dark economy will happen big time)
So why don’t we also test
“what happens with the economy when income tax is doubled”?
(spoiler alert - not good for economy, investors don’t want to invest into such economy and the money goes into some another more productive economy, companies start moving somewhere else etc. and the economy is pretty much screwed in long term and people with UBI are even less likely to find a proper job)