Tech Insights
Chandimal Adikari
July 29, 2020

Economy and Universal Basic Income (UBI)

Economy and Universal Basic Income (UBI)

In the previous article, we discussed how the Universal Basic Income (UBI) can be asolution for the job displacements caused by automation. In this article let’slook into how economy will behave with Universal Basic Income (UBI).

Who will get UBI?

UBI is “Universal”.Irrespective of being rich or poor, you will be eligible for UBI. It may seemunfair for the poor, because rich will get richer with the “free money”.Intuitively, we feel, it is more logical if we the money is given just to thepoor. However, there is a reason to not do that. Let’s take an example.

The government inimaginary nation of “Mango Land” decided to give 1000 Mango LandDollars (MD) per month to the unemployed. There are two people, one, Georgewho works at the Cotton Candy Factory who earns 1500 MD a month and Phillipunemployed. Because Phillip does not work, he will get qualified for UBI andreceive 1000 MD a month. With that his income will rise to 1000 MD, meanwhileGeorge’s income will remain at 1500 MD. One day, while having a drink theydiscuss this situation. George may think,

Why would I do thisjob for extra 500 MD, when I can just stay at home and watch movies

Philip also thinks thesame.

Most government welfareschemes work like this. If the person is working, he is not eligible for anygovernmental benefit, which will discourage people to get a job. And UBIdoesn’t do that? Yes and no; with UBI, George will have the option to go towork, while earning 1000MD extra from UBI or do nothing and earn 1000MD. If hechooses to do nothing, someone else will take his position at the Cotton CandyFactory and will earn 2500MD income. In this sense, UBI will push you to earnmore.

UBI is a compensationfor being replaced with machines at work and it is not welfare. If you arestill not replaced by a machine, you are lucky! You can earn extra with UBI.With that people who lost their jobs might get encouraged to learn new skillsand find a job. UBI gives that wiggle room to take the risks.

Making Money out of Thin Air toPay UBI

“There is no such thingas a free lunch”. Someone must pay for it. Even in government welfare, it’sdone with the money collected as taxes from almost every citizen in a country.In theory, UBI is the opposite of tax, people are paid by the government fordoing nothing. If the government collects taxes from the citizens and pay itback as UBI, it feels like it is doing an extremely risky thing concerning thecash flow.

How can agovernment ensure they have enough money to pay back as UBI? Is it by PrintingMoney?

Printing Money is neveran option. Money has its nominal value, due to its scarcity. If everyone has 1 millionDollars in their bank account, having 1 million Dollars is a common thing andthe Dollar loses its value since it is not scare anymore. Therefore, in orderto sustain a UBI based economy, the government should have a better tax policy.

Sources of Funds

The government shouldimpose new taxes to pay a UBI to all the citizens. One way to do this is toreturn to the people what they are owed due to automation from the highlyautomated companies. For an example, if a machine replaced 10 people at a factory,where each person was paid $10/hour assuming he worked 40 hours a week, $4000was saved by automation. If we deduct $1000 from that, as depreciation ofmachines and for maintenance, the company has gained $3000 extra. Governmentcan ask half of that as a Tax of Automation. This is a simple example. In anactual situation, working this out will be more complex. However, there is apossibility for the government to gain an income this way.

The Future with UBI

With time, the number ofautomated workplaces will be increased and the amount of jobs a human can dowill be limited. Some of the people will change their profession by learningnew things. But for some, it might be difficult to learn a new thing, or theywon’t have an income during their transformation period. UBI gives you a chanceto take a risk and try something different or take a rest and enjoy life whilemachines do your job! UBI also give a new meaning to “work for a living, don’tlive for working.”

In the next article let’sdiscuss what possibilities are there in the future with UBI and Automation.