Until about twenty years ago, Luddites were wrong; mechanization did not create unemployment. New tools and machines created new demands and new jobs. Demand increased when products became cheaper. Cheaper cars meant more cars; etc. Jobs disappeared and new jobs became possible. The farmer left his land and found work in a factory. New desires (entertainment, tourism, personal care, … ) created new jobs and made life more interesting and comfortable. Around 2000 computers started to replace mental labor as well. Market forces no longer created jobs for everyone. When cars replaced horses, horses had no place to go. When computers replace humans, less humans are needed.
Abundance clogged the system
Many services can be provided by an ever-smaller fraction of the population. Around 2010 we suffered from abundance:
oversupply of labor; high unemployment
oversupply of capital; interest rates close to 0%
oversupply of products; businesses hoarding cash
Abundance clogged the system and money circulation faltered.
More people than jobs
The ten commandments engraved at Rockefeller Center say “Everyone has the right to earn a living.“ It should say “Everyone has the right to food and shelter”. Everyone has the right to conditions that allow to pursue happiness. Only people with an income can acquire products and services. Everyone deserves a living, not only those who work. More people than jobs does not need to be problem. When jobs disappear, universal basic income is an alternative way to distribute income. It is the opposite of trickle down. We have gained an unheard level of freedom when not everybody needs to work to provide what everybody needs and desires. Free basic income for everyone is a new opportunity. Market forces will not trigger such a transition; government must create the conditions.
A thought experiment
Assume everybody loses everything beyond a bare minimum of personal stuff. People who have nothing, lose nothing; people who own a lot, lose a lot. Nothing is really lost; land, houses, cars, roads, machines, all the real stuff, is still there. The government as representative of everybody takes ownership of everything and then transfers central ownership to shareholder ownership. I lose my pension and my house, but I get a free basic income and a donation of shares that I can use to buy a house and all the stuff I need. No central planning: market forces determine prices. That desirable end state cannot be created suddenly. Bankruptcy of all would create a chaos that would require years to overcome. Free basic income can be the driving force for a gradual process leading to equitable ownership.
Government can keep money flowing
The government intervention in response to the Covid pandemic shows that a universal basic income is feasible. The pandemic did not destroy anything essential. Everything we need, food, housing, machines, remained available as before. Activities involving groups had to be cut back. Workers in restaurants, shopping malls, airlines, theaters, …, lost job and income. Essential products and services (food, housing, medical care) did not disappear, but money is needed to distribute products and services. Government stepped in and printed money to keep the money flowing. In 2020 everyone received $1200 so that all could pay the stuff and services they needed.
What is money?
Money is a means of exchange, a conduit for distribution of products and services. Money is a means of transportation like blood or water. Organs and muscles need blood to transport oxygen and nutrients. Plants need water to transport nutrients. People and businesses need money to transport stuff and services. When there is insufficient blood, the organism dies. When there is not enough water, plants wither. When there is insufficient money, society breaks down. Moreover, lack of money creates a feedback loop in which more money disappears. Businesses go bankrupt and jobs are dwindling. However, land, houses, cars, infrastructure, machinery, do not disappear. Money (a piece of paper or a number in a bank account) is a promise. When everyone trusts the promise, it works. Still, no real value is lost when promises are broken and money is gone. A sprinkler in the garden ensures that all plants get their nutrients. Likewise, government can sprinkle money.
How to inject money? Support businesses or families?
Republicans accuse Democrats of using the pandemic as an excuse for changing society. The Covid pandemic affects everyone and asks for actions that benefit everyone. When economic depression looms, new money needs to be injected. Republicans wanted to infuse money into the economy in the form of free loans to businesses. Why? To avoid the moral hazard of slackers? The stock market soared. Injected money landed dis-proportionally in the pockets of those who needed it least. If obscene income disparity was an acceptable side effect, why not accept the side effect of slackers? Democrats preferred to send money to families and let the market decide which businesses survive. Parties reached a compromise by doing both. Free income for families would have been better. The market decides which businesses survive. No trickle-down of profits but trickle-up of income. Most people do not need free income; nor do most businesses.
Universal basic income is feasible
Sending checks to individuals was a one-time intervention. It does not have be one time. Government can print dollars and send money every month. Some people will not work because they cannot find work. Some will want to work to get more than $1200/month so they can buy stuff and services beyond the essential. Some will choose not to work. They will balance the extra they can get by working against free time. Some people will want more time with their kids, some will want more time for hobbies. Free income will not eliminate all will to work. Enough people will want more money than the bare minimum. Enough will keep working to keep the economy going. Some will choose to live simple; not work and not use scarce resources. That will not be a moral deficiency but a virtue. The time for universal basic income has come.
Universal basic income will not happen
Universal basic income is a variation on Keynes’ insight that governments can print money with beneficial effects. In Keynes’ thought experiment the newly minted money was buried underground only to be uncovered after a lot of work. Why? Useless work is useless. The objection to printing dollars is that the dollar would be subject to rampant inflation. But the dollar is the dominant currency; there is no alternative A lot of dollars have been printed already and the dollar is still the most desired currency. Universal basic income is unrealistic for another reason: it implies a revolutionary change in the power structure. Money equates power; but that is another discussion December 2021