Daron Acemoglou’s opening salvo
We need a better and stronger social safety net. We need ways of combating inequality. We need to create a fairer society. Why not, then, sign up for Universal Basic Income (UBI), which would give a basic income to all citizens who are all adults, for example, $1000 a month for every adult American?
Yet, UBI is a flawed idea.
This is for two basic reasons.
First, a better social safety net means a better-designed social safety net. UBI misallocates funds. Rather than transferring to people in need — for example, those requiring financial help because of poverty or unemployment — it pays out to the rich and the middle class as well.
Its advocates might say this is by design: when we transfer to everybody, we make everybody a stakeholder in UBI. I fear that’s wishful thinking. Billionaires will not become fans of redistribution programs because they are getting $1000 a month.
A combination of moderate minimum wages (like the $15 an hour being debated in the US now), earned income tax credit (which augments the take-home pay of low-earning workers), universal health care, and a decent level of transfers to people temporarily or permanently out of a job would improve the income distribution much more, while costing much less.
Second, UBI is the wrong solution to the wrong problem. Many, like the former Democratic presidential hopeful Andrew Yang, advocate it because they think the future will be one without jobs.
There are several layers of misconceptions in these claims. There is little evidence that jobs are disappearing en masse, even if automation, led by robots and algorithms, is displacing workers from some of the tasks they used to perform. However, the problem they are creating isn’t one of joblessness, but one of an acute shortage of good jobs — jobs with decent wages, security, career-building opportunities and a sense of purpose.
UBI doesn’t deal with this underlying problem and is defeatist. We should and can create good jobs for a larger fraction of the population — not just those with elite college degrees and postgraduate certification, but for all workers. To do this, we need to redirect technological change away from automation, reduce the hold of large corporations, especially of the big tech, on the future of technology and work, and increase the protection for and the bargaining power of workers. UBI doesn’t do any of this. Rather, it’s like bread and circus were to ancient Romans. Handouts and diversions for the people left behind.
UBI isn’t just flawed. It is also politically precarious. Some of its advocates, from the left, view it as a way of increasing redistribution. Yet to many of its advocates on the right — in Silicon Valley and libertarian circles — it is a way of paring down the safety net. This is a marriage made in hell.
Rather than being distracted by the chimera of UBI, we should try to build a better future for workers, which starts with a focus on good jobs, an effort to slow down and counteract excessive automation, and a commitment to building a stronger and better-design social safety net.
If UBI were meant as a substitute for the existing safety net, I would also reject it. If it were meant as an admission of defeat in the struggle to create good quality work, I would oppose it. And, if it were to be funded through normal taxation, I would campaign against it.
Like Daron, I too was left unimpressed by early UBI proposals. In the 1970s, I could see how class warriors fighting the corporate corner, notably Milton Friedman, endorsed UBI as a means of tearing up the postwar safety net which had done so much to ameliorate poverty. Echoes of their scheme hit me in 2015 when, as Greece’s finance minister, I was pressurised by the infamous troika to replace existing benefits with a flat, measly, ‘minimum guaranteed income’ – a naked tactic for eradicating what was left of Greece’s welfare state, which I fought tooth and nail.
So, why am I supporting a form of UBI now? Because the world changed drastically in 2008. Today, a therapeutic, non-divisive, progressive form of UBI – which I prefer to refer to as a Universal Basic Dividend, or UBD – is both feasible and necessary. The key is to recognise it as an essential complement to an indispensable safety net, a Green New Deal, and a jobs’ guarantee program.
Let me begin with its feasibility: In the post-2008 world, there is no need to tax struggling workers so as to pay a monthly allowance to layabout surfers or the rich. But, if not through taxation, how shall we pay for this UBD?
It will be paid, in part, by central banks directly into every resident’s bank account – replacing the inequality-maximising, inefficient practice of pumping gargantuan liquidity into private banks which, then, lend it to corporations which, in turn, use it to buy back their own shares – with next to zero green, good quality jobs added at the end of the day. As for the second source of UBD’s funding, here is an idea: Legislate into existence a Public Equity Depository where corporations have to deposit, say, 10% of their shares – in recognition of the fact that, these days, everyone contributes to the corporations’ capital stock (through their taxes for research that corporations exploit, by using Google’s search engine, or writing up a review in Amazon). The accumulating dividends can then fund part of a UBD.
Why is such a UBD necessary? For three reasons: First, because safety nets often entrap those who fall into it while offering no protection to the millions forced to join the ranks of the precariat – or those who do important, but unwaged, care work. Secondly, a poor person’s trust fund (a UBD!) would prove, today, far more effective in boosting workers’ severely diminished bargaining power than even a sizeable Green New Deal. And, thirdly, because without a UBD to fall back on, an otherwise laudable jobs guarantee program may degenerate into a latter-day Victorian workhouse.
A Green New Deal, a stronger safety net, a job’s guarantee, and legal impediments to the unbearable robotisation of the precariat are necessary. But they are not sufficient. Nothing short of the re-distribution of property rights over socially produced money and capital (that a UBD would kickstart) can reverse the post-2008 triumph of socialism for the very few and of stagnation for the many.
So how do we build a better labor market, a fairer economy and a more robust social safety net? Should UBI or what Varoufakis calls a UBD (universal basic dividend) be part of it?
My conviction is that our main objective should be to fight poverty and guarantee decent living standards for those at the bottom of the distribution. The problem with UBI is that it does not target these citizens.
Imagine we are paying $1,000 a month to every adult in a country. The $1,000 going to those above median income will not help reduce poverty. It is not even a well targeted transfer, since these individuals are simultaneously paying taxes and receiving lump-sum money; it would be better, from the viewpoint of economic efficiency, to reduce their marginal tax rate slightly rather than handing them a $1,000 transfer.
But neither a transfer of $1,000 to those earning above the median nor devoting this amount to reduce their marginal tax rates are good uses of government funds. Rather, the social safety net would be stronger if those funds were also used to bolster the living standards of those in the bottom 20 or 30% — for example, in order to achieve a minimum income of $2,000 a month for every adult.
What about creating transfer-induced poverty traps, some might worry? The concern here is that a transfer of, say, $2,000 a month for adults with the lowest earnings may discourage job-seeking, because as earnings increase, transfers will cease. This is the reason why transfers to the non-employed and low-earners should be supplemented with negative income tax systems, such as the Earned Income Tax Credit (EITC) in the US. A well-designed scheme would subsidize earnings around the “notch” where an individual or household starts earning the minimum income, so that they continue to be incentivized to find work and increase their take-home pay when possible.
What about encouraging employers to pay higher wages to workers? This is another important policy objective, especially as good jobs for workers without postgraduate degrees are becoming increasingly scarce. But there is no evidence that UBI would have any such benefits, and we have already tried and tested tools for achieving these objectives: minimum wages and protection for workers, so that they can have a voice and bargain for better pay and working conditions.
It is not only that UBI is not well-calibrated to achieve our main objective; it also obscures the policy priorities. Ensuring that there is a decent supply of good — high-wage, stable and career-building — jobs for workers without postgraduate degrees should be the main priority for the next decades. This is even more challenging when we add to the mix the necessity to reduce carbon emissions, as this means the elimination of jobs in mining and the traditional energy sector. The battle for UBI would distract from this focus — a particularly important concern, since UBI is often marketed as a response to the inevitable disappearance of jobs.
What about the “two birds with one stone” justification — tax wealth and profits and use the proceeds for UBI or UBD? Yet there is no reason to tie where tax revenue comes with how this revenue should be used. If there is a good justification for taxing profits and wealth, we should do it, and then deploy the revenue in the best way we can.
Many corporations have excessive profits because they avoid taxes or find regulatory loopholes. The best way of dealing with this is to improve regulation and tax enforcement.
The excessive power of capital over labor is often rooted in and further feeds into low taxes on corporate profits and capital. As I have argued elsewhere, there are strong reasons for increasing corporate income taxes, which, if designed well, can do more than preventing excessive profits fed by tax dodges; it can also level the playing field between capital and labor, and discourage excessive automation.
There is nothing inevitable about a two-tiered society, in which a small minority with post-graduate degrees, specialized skills and entrepreneurial opportunities have all the earning capacity and command all social status, and the rest are increasingly seen as marginal and dispensable. UBI adds to this narrative, even if unwittingly. It admits defeat and signals that economic contribution and tax revenue will come from an increasingly small fraction of society and we just have to find a way of redistributing it to the rest.
This is the wrong vision. We can and should create higher-quality jobs and a fairer economy, where the vast majority of people can meaningfully contribute to economic surplus and the common good. But this necessitates a radical overhaul of the welfare state and our tax codes, and, as importantly, a huge redirection of technological change away from ceaseless automation towards supporting and furthering human productivity.
We should focus on these challenging priorities, not get distracted by a UBI debate, which, at best, can further cement a dystopian two-tiered society.
My second, and final, reply
UBI cannot civilise labour markets. But nor can the old social-democratic toolkit championed by Daron. The reason? Post-2008 developments, accelerated by the pandemic, have caused capitalism to reach a point of no return to an economic system that smart tax, benefit and regulation tweaks might have once civilised.
Daron, rightly, dreads a future society divided between a minority of highly paid professionals central to the running of Big Tech and a mass of miserable folk confined to their couches and kept alive by a woeful Milton Friedman-inspired UBI.
For my part, I dread more the post-capitalist technofeudal dystopia we already live in: The wealth of the very few kept buoyant by a torrent of central bank money while economic life is increasingly dominated by tech-fiefdoms with immense extractive powers over, on the one hand, an ever-expanding precariat and, on the other, the masses who provide them with most of their capital stock for free (e.g., data, photos, reviews).
No wealth or negative income tax can even scratch the epidermis of this behemoth. No government intervention can slow down the mechanisation of workers spurred on by the new automation. Labour markets, today, are beyond reform. We can no longer fight poverty, precarity and industrial-scale hopelessness by strengthening the safety net or experimenting with novel tax rates.
To create a modicum of shared prosperity, we must liberate as many as possible from the tyranny of the labour market. Which means giving people the option to work usefully and creatively without having to sell their labour – not at all the same as paying them to be idle. And this is where the Universal Basic Dividend (UBD) comes in: as a trust fund for the many.
The affluent understand that trust funds grant their kids freedom from bullshit jobs, a prerequisite for a creative life. A trust fund for everyone democratises the right to say ‘no’ to exploitative terms, ends ritual humiliation in social security offices, benefits the Treasury (which recoups the richer people’s UBD at the end the tax year) and, importantly, allows people to do hugely important work outside the labour market (caring for others, experimenting in the arts, studying for the hell of it).
To make a modest trust fund available to all I have proposed we legislate that a minimum percentage of a corporation’s shares be handed over to a Public Equity Depository at the Central Bank which then offers a digital bank account to every resident in which it deposits both their share of the dividends accumulating in the Depository plus a top up credit – a people’s ‘quantitative easing’ whose level adjusts with the business cycle. Such a UBD would make the central bank’s money tree provide for everyone, rather than for the exclusive benefit of the top 0,1%, while making a dent into the monopoly of the same 0.1% over capital that is produced by the masses.
To end poverty and exploitation the dangerous illusion that waged labour remains key to shared prosperity must be jettisoned.
(If interested in my first debate on Pairagraph, on whether US public debt is about to explode, see here)