Is it Time for a Universal Basic Income?
In May, the idea of the universal basic income resurfaced during Facebook Founder Mark Zuckerberg’s Harvard Commencement Address. The idea of providing a universal basic income (UBI) has been debated for years. Mr. Zuckerberg is not alone among the world’s technological leaders to suggest the UBI. The real-world Tony Stark, Elon Musk, discussed the need for a UBI at the World Government Summit, in Dubai.
Musk believes that automation will drive people to astronomical levels of unemployment, and he believes the only way to support these unemployed individuals would be through a universal basic income. Additionally, there appears to be a greater need for a universal basic income in Hawaii is because of the high cost of living and the large number of homeless people in the state. Hawaii is the first pace the UBI concept will be tried in America, and it is time to look at the larger impact a UBI could have on the country.
Most people who have sat through an economics class are familiar with the concept of opportunity cost. For those who are not familiar with opportunity cost, Iwan Barankay, professor of Management at the University of Pennsylvania’s Wharton School of Business, explains opportunity cost extremely well. Opportunity cost is the value of an object or experience a person is willing to pass up to do something else. For example, a student has a paper due at midnight, but he or she was invited to a party. The student chooses to finish the paper. The opportunity cost was missing the party.
Take a second to apply the principle of opportunity cost to the UBI, and one will quickly see the ramifications of a UBI. If the UBI is designed to keep people out of poverty, then one would assume that the UBI would be given to everyone who makes under a certain income. For example, if the UBI were $30,000, then everyone making less than $30,000 would receive this UBI to provide them with a “livable wage.”
This income limit raises the question of opportunity cost because if a person makes $29,999.99 he or she will still receive the extra $30,000 UBI stipend, effectively making $59,999.99 (UBI Stipend of $30,000 + $29.999.99 income). However, if the same person made one cent more to bring their income to $30,000 without the UBI then he or she would instantly lose out on the extra $30,000 from the UBI stipend. Therefore, the opportunity cost of making $30,000 or more per year would be losing out on the extra money given out by the government in the form of a UBI.
Who Should Receive a UBI?
The opportunity cost associated with UBI leaves the problem of causing a large number of people with the option to work until they reach the edge of losing the extra money gained from the UBI. This would cause people to become dependent on the government, and would exacerbate the problem of unemployment because people would not want to work unless they were able to overcome the loss of the UBI at a certain income. The way to fix this would be to pay every single citizen a universal basic income regardless of his or her income and financial situation.
In general, the government already provides a type of basic income through social assistance programs such as welfare. This being the case, it would be easy to transfer the money spent on these programs to a UBI, and possibly save money by eliminating government departments, right? In Fiscal Year 2016, the U.S. Government spent over a $1 trillion dollars on social programs, had a revenue of over $3.3 trillion, and still incurred a deficit of over $500 billion dollars. For example, if all 320 plus million Americans received a UBI of only $20,000, the total cost would be over $6.4 trillion dollars. The UBI alone would take almost twice the amount of money the U.S. government makes. It simply is not a feasible option.
These points are in respect to a national universal basic income, and at the state level there is a possibility the state of Hawaii may be able to bring its homeless population under control with a UBI. However, at the national level, a UBI has the possibility of cause more harm than good. Industry leaders may believe that automation will put people out of work, and lead to greater unemployment as a result of robots replacing jobs.
However, consider what has happened throughout history with automation. People have been liberated from jobs once their tasks have become automated, and this led to people being motivated to improve on the world as it is. If a person lost his or her job to a robot, then he or she is free to solve another need in the world.
The end of one job has the ability to create a completely new industry. If it wasn’t for the automation of menial tasks, then many of the jobs we have today would not exist. People stopped having to work menial jobs and moved to more advanced jobs, and this trend will continue as long as humans are motivated to work.