For Every Problem

At Bloomberg Satyajit Das is skeptical of a universal basic income:

UBI would allow for the introduction by stealth of “helicopter money,” a controversial proposal for central banks to print money and distribute it to consumers to boost growth and inflation. The idea covers a wide range of policies including the permanent monetization of budget deficits and direct transfers to households financed with base money.

Friedman outlined the concept in his 1969 parable of dropping money from a helicopter. If everyone is convinced that this is a unique, non-repeatable event, then it is assumed they will spend the money, increasing economic activity. The concept generated revived interest in recent years as a means of preventing deflation.

There’s a telling link between universal basic income and modern monetary theory, an unconventional economic approach that’s been gaining ground with politicians. MMT, loosely, argues that a state cannot go bankrupt where it can print its currency – a version of the argument that deficits don’t matter. Under MMT, governments should borrow and spend when demand is inadequate to move the economy to full employment. It provides theoretical cover for governments to issue debt to central banks in greater amounts than hitherto contemplated. This can then finance spending programs – such as a universal basic income – to maintain economic activity.

Whether a guaranteed minimum income can produce economic recovery is questionable, though. It’s a repackaging of existing approaches that have had limited effectiveness. There’s little new in central banks financing governments via QE or fiscal stimulus, including welfare spending. It doesn’t address key structural issues such as excessive debt, imbalances, wage levels and demographics. Adoption of such an approach would also mean the economy becomes dependent on government intervention to sustain activity.

A universal basic income financed by helicopter money may perversely increase uncertainty. Ordinary people may react to unlimited money printing by shutting their wallets and hoarding. Australia’s recent “cash back” program, which provided up to A$1,080 ($740) to taxpayers earning less than A$126,000, doesn’t appear to have offset pessimism about the outlook.

As H. L. Mencken put it there is always a well-known solution to every human problem — neat, plausible, and wrong. Shortly after Thomas More first proposed the idea more than five hundred years ago, it was pointed out that one of the effects of such a plan would be to increase prices, that is, you’ve also got to increase production for such a plan to be effective in alleviating poverty.

However, as Mr. Das concludes the “lure of a painless and easy solution” for poverty will prove to be irresistible and UBI will continue to raise its head periodically for the foreseeable future.

6 comments… add one
  • Guarneri Link

    As your title alludes, for every problem there is an (apparent) solution. Heh.

    A moral society has an obligation to assist the truly mentally or physically impaired, period full stop.

    It also has an obligation to assist those who have sacrificed for the benefit of that society. I’m thinking, in particular, veterans.

    It has no duty, but probably a practical consideration, to assist the marginal member of society so as to avoid social unrest and the potential actions of that marginal member who may resort to harming innocents. We are now on thin ice.

    We have no duty to sloths, or those who are just fine with a marginal existence on the public dime.

    UBI unfortunately will be focused on that last group, because it is a cynical vote getting scheme and that’s where the votes are.

  • Another complication of UBIs is whether they should be carve-out or pile-on? Most of the studies that show any success are carve-out. Carve-out plans are very difficult to imagine in the U. S.

  • steve Link

    I am skeptical about UBI. Would like to see a useful trial or three. That said, it may become a long term necessity in the future if we continue to automate and if AI becomes a reality in the far off future. Robots and all that.


  • That said, it may become a long term necessity in the future if we continue to automate and if AI becomes a reality in the far off future

    So far this round of automation has had precisely the same effects that it has had for the last 300 years. Far from “taking all the jobs” it has created new ones. But that diverges somewhat from my point.

    UBI does not replace a job. Jobs play roles in life beyond delivering an income. That is’t just true for professionals. It’s true for everybody. If you don’t find fulfillment in your job it might be the job or it might be you. In Flow Csikszentmihalyi documents that the people are happiest are those who make a game of their work. That can be done with anything from building rockets to Mars to stacking boxes. It’s a matter of attitude.

    I believe that even if “robots take all the jobs” we will need to create new jobs in self-defense. Otherwise the crime will be overwhelming. That’s what’s going on in Austin and Lawndale (Chicago’s high homicide rate neighborhoods). They need more jobs.

    Returning to the first topic in this particular comment IMO artificial intelligence and robotics has been tremendously oversold (coincidentally by people who are selling AI and robotics). It isn’t nearly as far along as people are claiming.

  • TarsTarkas Link

    It’s all about the votes, baby. Encouraging people to become parasites would simply bring about the collapse of a working economy faster than it would have otherwise under a socialist regime.

  • Guarneri Link

    “It’s a matter of attitude.”

    Attitude and energy, baby. That’s why this garbage I see from time to time – if we would just pay them more they would become model employees – is just that, garbage.

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