Didn't the pandemic-era tsunami of free money prove that universal basic income (UBI) schemes do not work? With inflation ravaging economies, the threat of artificial intelligence accelerating, and the demand among youth to have something for nothing becoming the dominant themes in the Western world, it was only a matter of time before a significant country flirted with the UBI concept again. This time, the home of tea, Coronation Street, and keeping calm and carrying on will be trialing the doling out of no-strings-attached cash.
The UK's UBI Revival
England will launch a UBI pilot project of £1,600 ($2,011) per month with 30 people. Independent think tank Autonomy will secure funding from the UK government to invest in this two-year project that is projected to cost more than $1 million. Researchers will determine the impact of free money on participants' lives. A separate group of participants will not be given cash. They will be monitored by the study authors through a series of interviews, questionnaires, and focus groups to highlight the differences in their lives between having something for nothing and not receiving anything at all.
Will Stronge, director of research at Autonomy, already deduced in an interview with CNBC that the UBI "would directly alleviate poverty and boost millions of people's wellbeing." He added: "With the decades ahead set to be full of economic shocks due to climate change and new forms of automation, basic income is going to be a crucial part of securing livelihoods in the future."
But would a basic income guarantee result in more problems for an economy, especially after what was witnessed during the COVID-19 public health crisis when governments and central banks injected trillions of dollars in fiscal and monetary stimulus and relief? It appears proponents are ignoring this significant drawback of helicopter cash.
A Post-Crisis Economy
In the US today, companies are struggling to fill positions. In April, there were more than ten million job openings, according to the Bureau of Labor Statistics (BLS). Finding workers continues to be one of the chief problems for businesses, forcing these employers to go to extreme lengths to find bodies to perform duties associated with the positions. But while higher wages signal a shift in the marketplace, greater compensation is not leading to increased productivity. In the first quarter, non-farm productivity fell 2.1% and has been on a downward trend since the end of 2021, the BLS reported. In addition, on a year-over-year basis, productivity has been contracting for five consecutive quarters, the longest period since the BLS tracked this data in the first quarter of 1948.
This makes sense in a plethora of ways.
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Indeed, the quiet quitting trend has been installed in our vernacular. This is something that consists of doing the bare minimum – if anything at all – because employers are so desperate for workers that they are willing to overlook sloth or incompetence. There is no doubt that the pendulum shift has benefited workers, although the inflationary pressures sparked by Washington have eaten away their gains.
Individuals might have become accustomed to receiving sweetened crisis-era benefits from federal and state governments. For many Americans, these transfer payments were in addition to the suite of other welfare programs. So, millions were doing quite well: receiving checks from Uncle Sam while finishing crossword puzzles, binging on Agatha Christie novels, and taking naps. That’s the life!
Matt Livingston, the owner of Coach’s Bar and Grill in Georgia, recently appeared before the House Ways and Means Committee, testifying that his industry is facing staff shortages. Those hired will arrive late, skip work, or quit because "they can make more staying at home." This was a blunt assessment of the current economic landscape: "There’s no concept of an honest day’s work for an honest day’s pay."
There is some data to support these assertions. Heritage Foundation economist E.J. Antoni and University of Chicago professor Casey Mulligan dug into the numbers and learned that families could receive a six-figure income without working. According to the duo's research, a family of four in New Jersey with no one working can garner unemployment benefits equal to a job paying about $96,000. Comparable numbers are found in 13 other states, including Washington State, which offers health care subsidies and jobless benefits worth roughly $122,000.
"Many economists have been scratching their heads, wondering why so many workers are sitting on the sidelines today, despite four-decade-high inflation and the resulting record-high number of unfilled job openings," Antoni wrote in a Fox News op-ed in December. "The expansion of welfare benefits—both in terms of eligibility and size of benefits—has provided a substantial disincentive to working. Businesses must not only compete against one another for workers, but against the dole as well."
What About UBI?
(Photo Illustration by Matt Cardy/Getty Images)
Well, what does this have to do with a universal basic income? Logic would dictate that a something-for-nothing society would breed a world of households gaming the system, individuals reducing their living costs to stay home and live on free money, and rampant price inflation. Eventually, this will manufacture dependence on the state, exacerbating the present cradle-to-grave mantra prevalent today. At the same time, it disincentivizes work, resulting in a decline in economic and productivity growth.
The cost is also worth discussing. The treasure trove of benefits led to a multi-trillion-dollar injection into the financial system, money that was created from the printing press. Since joblessness would be the likely long-term scenario in a UBI-dominated ecosystem, the federal government would borrow and print the money; it could not tax because what would there be to confiscate? In addition, there would be substantial demand for goods and services. The problem, however, is that there would not be a corresponding increase in productivity or production, leading to price inflation and an erosion of UBI recipients' purchasing power.
In the end, the only realistic benefit to a UBI is potentially dismantling the entire welfare state and substituting the system with a guaranteed income. But while this had been the proposal in its infancy, proponents have abandoned the policy, suggesting that they want to complement welfare with UBI.
The Time Is Coming
US-based public policymakers will inevitably unveil a nationwide or statewide UBI in the future. They will assert that it is critical to eviscerate poverty in an age of automation and permanent inflation. Across the country, the several local pilot projects will be deemed a success because they involve a few dozen families who say their lives are improved with free cash. Now, try to test a UBI with tens of thousands of families and assess if there are long-term ramifications for the broader economy. Ultimately, the stimulus checks and weekly benefits during the pandemic let the something-for-nothing genie out of the bottle. There will be demand for these programs, particularly as more young people scoff at the notion of adulthood and desire perpetual adolescence. They will take the money, sign up for Disney+ for the nostalgia dose, and buy all the stonks. Is this paradise?
