UBI is a Hammer and Not Every Problem is a Nail

February 18, 2019 | Gonzalo Schwarz

Given recent progress in the development of artificial intelligence, many policy conversations take for granted that such advancements will lead to mass technological unemployment and could even create a permanent underclass. Once these “facts” are established, a radical and sweeping policy solution typically follows, most often an argument for the necessity of a Universal Basic Income (UBI). But despite their growing popularity, such apocalyptic predictions about the role of AI in replacing human labor and the need for a UBI are greatly overblown. Although I’ve written on this topic previously (one article even garnering a response from Democratic Presidential Candidate Andrew Yang), the doomsayers’ case seems to be in need of a robust response.

When thinking about UBI, it’s important to understand the reasons why some may suggest it as a necessary solution in the first place and why the case is frequently overstated. Even beyond those issues, the concept of implementing UBI as a public policy solution has significant shortcomings that should be discussed.

Several years ago, there were some alarming reports that estimated that up to 47 percent of jobs in the U.S. were at “high risk” of being automated over the following 20 years. These kinds of studies prompted some initial discussions of technological unemployment and what a public policy response might include. However, a more recent study by the Organisation for Economic Cooperation and Development (OECD) puts that figure at only 10 percent. Additionally, the World Economic Forum predicts that robots will displace 75 million jobs globally by 2022 but create 133 million new ones — a net positive. So, more recent data suggests that the effect of technology on job opportunities will be negligible. This conclusion applies to our current situation and into the future, as echoed by the World Bank.

Despite evidence to the contrary, proponents assert that a UBI needs to be implemented not because of automation’s effect on the future of work but it’s current effects. However, the fact remains that in the United States there are currently more job openings, 6.9 million, than unemployed people, 6.5 million. In addition to more recent reports suggesting less alarming estimates on how many jobs will be replaced, a common theme among many studies on the future of automation have suggested that even though some jobs are at risk, it is the tasks within specific jobs that would change the most, not necessarily jobs themselves.

Another argument often given in favor of a UBI is the assertion that it would improve the ability of people to cope with unexpected emergencies, especially since it has been reported that 40% of Americans don’t have $400 to face those emergencies. However the US savings rate is already very low, and there is little reason to think that additional income would be used for such purposes rather than simply boosting consumption. Furthermore, the problem of Americans generally being unable to weather financial shocks is likely more related to higher costs of living. When thinking about the rising cost of living, it is important to know which products and services have become most expensive over the last 20 years and which have become more affordable as economist Mark Perry shows in his “graph of the century”.

But it’s not just the motivations behind suggesting a UBI that are problematic, the actual characteristics of a UBI and its effects are just as concerning. First, we have to acknowledge that several UBI experiments have been tried and most trials have been cancelled for a variety of reasons. The countries who have tried and failed are heterogeneous and even include countries that have less inequality and even more economic mobility than the United States, such as Finland and Canada. Finland discontinued its program mainly because giving money to jobless people without any requirements wasn’t very popular. Even though there was some experimentation with requirements the program was discontinued all together. The Canadian experiment in Ontario which also had some conditionality, which made it not fully universal, was discontinued due to the high price tag. A couple of years ago Switzerland, one of the wealthiest countries in the world, struck down a proposal to implement a UBI experiment with 77% of citizens voting against it.

Another argument often made in favor of a UBI is that it will reduce income inequality. However, if the program is indeed universal, inequality would remain the same, as everyone gets the same amount and the distance between people on the income ladder remains the unchanged. Now, if proponents want to alter the program to be more targeted to those truly in need, that could be a good start, but then it would not be universal. At that point, it would end up being essentially a version of programs that already exist now.

Proponents from both sides of the aisle insist that a UBI would replace and streamline most if not all current welfare programs. However, while such an idea may sound good on paper, the question of whether there is sufficient political will to achieve this is far from clear. Regardless of the answer, which I tend to think is a ‘no’, pilot projects like the Y Combinator Basic Income are actively seeking waivers from local agencies to ensure pilot project participants do not lose their benefits, potentially signaling that in the future, UBI could end up supplementing rather than replacing traditional welfare could be the norm rather than the exception. Additionally, reports from the OECD and the American Enterprise Institute have shown that smoothly replacing current welfare programs with a UBI is not so simple. Replacement could lead to many disruptions, generate winners and losers, or even increase poverty.

Finally, one of the main arguments against a UBI is that participants will have more incentives to not look for work and simply live outside of the labor force. It is undeniable that work provides people with structure and a place where they can build relationships. Given that social capital has been in decline for many decades now, as documented separately by Robert Putnam and the Social Capital Project at the Joint Economic committee, the workplace has become an increasingly central place to build social capital.

Beyond providing an opportunity to climb the income ladder, work also provides the meaning needed to keep climbing. As Oren Cass recently described, work is the cornerstone of meaning, family relations, and social capital. Cass’s “Working Hypothesis” claims that where:

[A] labor market in which workers can support strong families and communities is the central determinant of long-term prosperity and should be the central focus of public policy.

Work is both a nexus of community and a prerequisite for it. Work relationships represent a crucial source of social capital, establishing a base from which people can engage in the broader community. Communities that lack work, by contrast, suffer maladies that degrade social capital and lead to persistent poverty. Crime and addiction increase, their participants in turn becoming ever less employable; investments in housing and communal assets decline; a downward spiral is set in motion.

For a country that was forged and continues to thrive under the mantra of hard work, earned success, business dynamism, and innovation, the concept of a UBI as necessary to solve our problems seems strange. These attitudes have not significantly changed and human flourishing, the pursuit of happiness, and earned success continue to be the backbone of the American Dream. Certainly, welfare programs have a role in providing a helping hand, but they should be a trampoline instead of a mattress. Though there are areas in need of improvement, a Universal Basic Income is not the right tool to get the job done.