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Economy and Universal Basic Income (UBI)

In the previous article, we discussed how the Universal Basic Income (UBI) can be a solution for the job displacements caused by automation. In this article let’s look 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 seem unfair 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 the poor. However, there is a reason to not do that. Let’s take an example.

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

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

Philip also thinks the same. 

Most government welfare schemes work like this. If the person is working, he is not eligible for any governmental benefit, which will discourage people to get a job. And UBI doesn’t do that? Yes and no; with UBI, George will have the option to go to work, while earning 1000MD extra from UBI or do nothing and earn 1000MD. If he chooses to do nothing, someone else will take his position at the Cotton Candy Factory and will earn 2500MD income. In this sense, UBI will push you to earn more.


UBI is a compensation for being replaced with machines at work and it is not welfare. If you are still 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 skills and find a job. UBI gives that wiggle room to take the risks.


Making Money out of Thin Air to Pay UBI

“There is no such thing as a free lunch”. Someone must pay for it. Even in government welfare, it’s done 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 for doing nothing. If the government collects taxes from the citizens and pay it back as UBI, it feels like it is doing an extremely risky thing concerning the cash flow.


How can a government ensure they have enough money to pay back as UBI? Is it by Printing Money?

Printing Money is never an option. Money has its nominal value, due to its scarcity. If everyone has 1 million Dollars in their bank account, having 1 million Dollars is a common thing and the Dollar loses its value since it is not scare anymore. Therefore, in order to sustain a UBI based economy, the government should have a better tax policy.


Sources of Funds

The government should impose new taxes to pay a UBI to all the citizens. One way to do this is to return to the people what they are owed due to automation from the highly automated 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, $4000 was saved by automation. If we deduct $1000 from that, as depreciation of machines and for maintenance, the company has gained $3000 extra. Government can ask half of that as a Tax of Automation. This is a simple example. In an actual situation, working this out will be more complex. However, there is a possibility for the government to gain an income this way.


The Future with UBI

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


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



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