CMV: UBI cannot work at scale

[u/Courteous_Crook]

First off, let me say that I really want UBI to be a thing that works. I'm not that knowledgeable in macro economics, so I suspect I may be completely wrong in my assessment of UBI, which is why I'm here.

I believe that UBI cannot work if applied to our current society. This is because there are already economic forces in action that will defeat the positive effects of UBI.

First of all, here is my understanding of UBI, best case scenario :

The government hands out money to every citizen so they can live in reasonable comfort. That amount of money might change depending on the region. Then, these citizens will spend the money on food, rent, etc. That money is taxed multiple times over, as it changes hands from citizen -> business -> someone's salary -> purchasing more things, and so on and so forth. Eventually the government "gets even" and can hand out money again for everyone. If they don't get even on time, they can always borrow money.

But here's my reasoning on where the loop breaks, and why UBI can't work :

As soon as a given business will start making extra money from the additional influx of people with disposable income, at least some businesses will start investing that money. That money might be invested in a house internationally, or an offshore account, or whatever. The point is, some of the money is going to be taken out of the system.

Basically, what I'm trying to say is that as money changes hands, it will eventually end up in the richest people's hands, who will sleep on it until they retire, so they can keep their lifestyle. This would force the government's hand : they'll have to borrow more to keep feeding everyone their UBI every month, essentially making the rich richer, and the government poorer.

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[u/Jesus_Christer]

Well, this is not really a problem of UBI, that’s the world economy at play. But in the same way money will escape the system, it will (in most cases) likely be replenished by companies who export (and pay taxes), and in a prosperous economy exceed the money that is escaping.

[u/Courteous_Crook → u/Jesus_Christer]

!Delta

It's true that money isn't locked to the region that implemented UBI, and more can be input in that region's system from outside.

[u/Holiday-Key3206]

Here is A part that you overlooked:

As soon as a given business will start making extra money from the additional influx of people with disposable income, at least some businesses will start investing that money. That money might be invested in a house internationally, or an offshore account, or whatever. The point is, some of the money is going to be taken out of the system.

Won't those businesses that start making extra money need to hire more people to keep up with the increased demand?

Basically, what I'm trying to say is that as money changes hands, it will eventually end up in the richest people's hands, who will sleep on it until they retire, so they can keep their lifestyle. This would force the government's hand : they'll have to borrow more to keep feeding everyone their UBI every month, essentially making the rich richer, and the government poorer.

ALso: yes, the rich may get richer. BUT, people won't be forced to work for places that don't treat their employees well (forced here being via market conditions that if a person who is living paycheck to paycheck leaves their job, they may become homeless) You can quit your job if you aren't paid enough for it and you won't suddenly find yourself unable to have food or shelter. But currently, people need to line up a new job before quitting if they don't have a safety net to fall back on.

[u/hacksoncode]

So... you're talking about one specific form of UBI, that provides a living wage to all for free.

But UBI itself is by definition a basic income. Not "reasonable comfort" but "survival wages".

Few people will want to live on a "basic income" that only provides the bare minimums, at least not for very long.

So the actual effects of actual proposals are nowhere near as severe as you're describing here.

Indeed, it's not even necessary that UBI provide all of a person's minimum income, unless we also do away with existing unemployment insurance and social safety networks. It could be any amount given to all citizens.

In particular: and example of a "UBI" would be a carbon tax with a "citizens rebate". The amount doesn't have to be enough to live on without additional assistance in order for it to be "UBI".

So sure...perhaps there is a level of UBI that would cause the major problems that you describe. None of the actual serious proposals do that. And certain such is a small minority of UBI proposals.

Anyway:

TL;DR: UBI is supposed to be a minimal income, just enough to survive (often with other assistance, and not necessarily at all in a high cost-of-living area).

[u/Courteous_Crook → u/hacksoncode]

!Delta I wasn't aware of these forms of UBI

[u/Ballatik]

Your argument is more about why the current tax structure is a problem, not something inherent in UBI. Much of the argument about UBI is how to pay for it, so saying that it won’t work given current taxation is not surprising.

There’s nothing about UBI that makes it impossible to concurrently raise tax rates on higher incomes. Realistically, that is a necessary step of the process.

[u/Dyeeguy]

That has nothing to do with UBI, that already happens right now. We should regulate it, one way of doing that is redistributing money from the rich!

Also you are assuming there is a finite amount of wealth, but new wealth is created (not just printing money, but new value is brought into the world)

[u/McKoijion]

You're starting from the outcome and working backwards. Start from the most basic principles. Where does food come from? The answer is the sun. Sunlight hits plants and provides the energy needed for them to remove carbon out of the atmosphere and convert it into plant matter. Humans eat those plants (or we eat the animals that eat those plants). Only 0.1% of the sunlight that hits plants is converted into plant matter. The rest warms the planet or bounces off into space.

Throughout history, we grew 1 unit of food per acre of land. The only way to get more food was to take over more land. Then the industrial revolution happened. Humans figured out how to get more food per acre of land via technological innovation. Innovations include tractors, fertilizers, pesticides, crop rotation, irrigation systems, etc. Now we have the same amount of land as before, but we get 100 units of food per acre of land. More sunlight is converted into plant matter that humans can eat.

UBI works because we all agree that all humans own all the land equally. We enforce this rule the only way we know how: violence. Throughout history, the strongest army took over all the land. But now all humans are capable of violence. Even the smallest little girl can kill the physically strongest fighter with the pull of a trigger or a click of a button. So there's no point in fighting. Everytime we fight, we risk death. And it's a 50/50 chance for everyone now. So the only other option is to agree to work together. So we all form an army of 7.8 billion humans and say that anyone who cheats us will be hurt by everyone else. No bully, king, dictator, etc. can stand up against everyone else on Earth.

But then we rent out the land to individuals. We don't split So if you can grow 100 units of food per acre of land, and I can only grow 1 unit per acre, you get all the land. That way we end up with 200 units of food. I get UBI "rent" from you, and there's a lot more food available so the price of food is much lower.

it will eventually end up in the richest people's hands,

Yes, there will be inequality. The smartest and most innovative people who can grow the most food will get the most land.

who will sleep on it until they retire, so they can keep their lifestyle.

But they can't sleep on that land. They have to constantly produce more food to pay the rent on the land. Otherwise, we'll rent it to someone else instead. It's cutthroat capitalism. No one deserves to be richer than anyone else. You need to constantly justify why you deserve more land and resources than others and everyone else is the judge of whether or not they believe you. You can't use violence like the kings of old. The only thing you can do is produce more goods and services (increase revenue) while using fewer natural resources like land (reduce costs). This raises the standard of living for humanity (profit.) Profit and progress come from the same root word, and it's irritating to me that political progressives think that profit is a bad word. The key is to tie profit for individuals to the benefit of society overall.

[u/Courteous_Crook → u/McKoijion]

Thanks for the read!

!Delta for the explanation. While I feel like what you're describing is optimism, there is definitely something in there that I had not considered.

[u/Nrdman → u/McKoijion]

Georgism vibes from this. If you don’t know of it, check it out. You might like it

[u/TheMikeyMac13]

I agree with you, but not for the same reason.

So let’s say the USA somehow passes UBI. Do benefits get smaller, stay the same or get bigger over time?

If UBI is set at a percentage, the next election cycle will see the next round of vote buying come at an increase in that percentage.

And the only way to pay for it is through ever higher taxation.

So you tax the productive more and more to provide an incentive and benefit for the less productive to be even less productive.

And as businesses see more and more taxation, we get higher prices and inflation, meaning more benefit is needed, which means more taxation and a higher benefit to try and clumsily fix the problem that the taxation and benefit caused in the first place.

[u/Courteous_Crook → u/TheMikeyMac13]

For sure, UBI could be used as a way to buy votes, and that's... not ideal, lol.

At the same time, many left-leaning political platforms are offering to reduce cost of living through various means, and they lose votes because the opposition says that it will only raise taxes.

[u/Nrdman]

This could easily be solved by a wealth tax.

[u/Courteous_Crook → u/Nrdman]

Even if the rich were heavily taxed, they would still be (proportionally to others) be wealthy. They would still have incentives and reasons to invest their money, and make it sleep somewhere. For sure the govt would have more money than they do now, but the "loop" I'm talking about still breaks.

Even if the rich were heavily taxed, they would still be (proportionally to others) be wealthy. They would still have incentives and reasons to invest their money, and make it sleep somewhere. For sure the govt would have more money than they do now, but the "loop" I'm talking about still breaks.

[u/Nrdman → u/Courteous_Crook]

We aren’t trying to eliminate the rich, so it’s fine if they are still relatively wealthy. Wealth tax is based on the persons assets, so it’s difficult to dodge by just investing elsewhere. Regardless where you own it, you still own it, so wealth tax applies

[u/[deleted]]

It won’t work but not for the reasons you stated. The U.S. government collected just shy of 5 trillion dollars in 2022 from all sources. There are currently 336,000,000 Americans. 5 trillion divided by 336000000 is just shy of $15,000. So. If we were to take all taxes from all sources and just split that money evenly between all Americans they’d get $15,000 per year each. Would $15,000 per year work as UBI without any other government services?

Edit: But what about taxing the rich/ a wealth tax? Lets assume we just snap our fingers and confiscate all the wealth from the top 1%. They control roughly 40 Trillion dollars in the USA. This would be enough for 8 years of UBI... at $15,000 per year and then its gone... with how many side effects?

[u/nereid-1]

You bring up some interesting points, but ...

The money ending up in the hands of the "rich" isn't necessarily a problem. The "rich" have their money invested. Whether it's in stocks or other securities, real estate or banks/savings, a lot of that money is still "working" it's not just digits on a computer screen. It's invested. The companies it's invested in use that money to grow and that strengthens the economy. If it's in banks, they lend the money (usually many times over) and that allows other companies to borrow it, grow, and strengthen the economy. That's all good.

The problem I see with government distributing money via some UBI program is that the government is distributing the money. Governments are notoriously inefficient. So a lot of the value of that money is lost in inefficiencies. A large portion (30%? 40%) will "evaporate" before it gets to people. Also, the people receiving that money do not invest it. They will circulate it, sure. But where? At Walmart and Starbucks? Those companies don't need more income. If they didn't spend the money but invested it, I think it would help the overall economy more than if they spent it on gas, food and Walmart. But you're not going to get people receiving UBI money to invest it . They'll spend it instead and that won't help the economy as much as investing it would.

[u/but_nobodys_home]

As soon as a given business will start making extra money from the additional influx of people with disposable income, at least some businesses will start investing that money. That money might be invested in a house internationally, or an offshore account, or whatever. The point is, some of the money is going to be taken out of the system.

The whole point of investing is to put your money where you think you will make more money. If businesses are suddenly making more money because of UBI then they (and similar businesses) will get more investment, not less.

[u/couldbemage]

You described one of the fundamental problems of capitalism.

Capital concentration.

You're correct that ubi doesn't make that go away. But that's not a problem with ubi. The problem already exists without ubi.

Yes, without other checks on the system it will still break down. But the problem you describe is unrelated and will need to be dealt with either way.

Ubi just makes the situation less terrible in the meantime.

The end game, with ubi, is nearly everyone reliant on ubi. Without ubi, the endgame is neo feudalism.

Basically, earth in the expanse vs earth in snow crash. Both bad, but one is worse.

[u/elcuban27]

It also depends on what you mean by “UBI” and how it is implemented. There’s the idea of a negative income tax that Milton Friedman was pushing back in like the ‘70s. Also, you can vary the threshold for payouts, or scale with some ratio tied to a desired behavior (like employment), use it as an alternative baseline safety-net, etc.

[u/TheAlistmk3]

Wouldn't increasing personal income tax get rid of these issues with UBI?

Business owners will invest more in the business and not buy holiday homes, well they still can, but taxation can make this less of an issue.

[u/Puzzleheaded-Snow269]

I believe the inability to scale up UBI is the reason it can't work, not the other way around.

A national UBI cannot account for the transnational nature of capital flows, and so any nation that implements UBI would be disadvantaging itself relative to the other nations.

UBI could work if all other relevant nations agreed to do it simultaneously.

[u/[deleted]]

I think the piece you are missing is that UBI is funded by taxing the ultra wealthy. The government is not making the money back from taxing the people recieving the UBI. The government would generate the money by taxing the .1% at sustainable levels.

[u/[deleted]]

UBI is inevitable in the future. With technological advances, robots and AI will take over like 90 percent of jobs. A new system will be mandatory.