7 Charts That Reveal UBI is Inevitable
My research shows vital trends and when combined, an answer is clear… Universal Basic Income (UBI) is coming.
The concept isn’t new and it comes in many flavors. Milton Friedman proposed a model in 1962 with the name Negative Income Tax. Fast forward half a century and Silicon Valley is now a breeding ground for the idea. But why are so many powerful minds (Mark Zuckerberg, Elon Musk, etc.) in favor of a Universal Basic Income?
Hint: It could solve one of the biggest problems of the 21st Century.
What is Universal Basic Income?
Universal Basic Income (UBI) is money handed out to every citizen. It’s free and guaranteed. Everyone receives cash at set recurring times.
Other Names: Basic Income, Guaranteed Income, Citizen’s Income, Negative Income Tax
The Compelling Case for Basic Income
Three trends are working hand-in-hand to justify a Universal Basic Income…
Automation is improving our lives and driving Population Growth. There are now more people trying to fill jobs. But many of the new jobs automate work further and require more years of education… so true Unemployment is climbing.
These trends are picking up steam. As a result, investors and top workers are accumulating wealth at a faster clip. The average citizen is struggling to keep up…
Source: Congressional Budget Office
How can most people survive when wage growth on the bottom stagnates and unemployment increases? You already know my answer is Universal Basic Income. But to get a better understanding of why, let’s dive deeper into these trends…
Automation – The History and Future of Replacing Workers
In 1900, over 40% of the U.S. workforce was involved in agriculture. But today, that number has dropped below 2%.
Farm work used to be backbreaking work. One farmer could only manage 80 acres a hundred years ago but planting and harvesting machines now do all the heavy lifting. One farmer can now manage a 1,000 plus acres.
With a well-equipped farm in Iowa, a farmer would be underemployed only managing 1,000 acres. They’d have time to manage livestock too (also largely automated).
Automation is helping improve worker productivity… but income isn’t following suit.
Source: Economic Policy Institute
Automation is a net benefit for society but it’s creating the need for Universal Basic Income.
Agriculture and other industry automation have already replaced millions of jobs. The Ford assembly line is one of many examples… but upcoming automation is going to replace our workforce at a faster pace.
The largest private employer in the U.S. is Walmart and many of its 2.3 million jobs are repetitive. They’re primed for automation. Self-checkout machines are starting to replace cashiers and the Amazon GO stores are taking it to the next level.
On the supply-chain side, major disruption is coming. The American Trucking Association estimates that there are about 3.5 million truck drivers in the U.S… but driverless vehicles will replace them. Driverless technology is far-reaching…
New valuations suggest Uber is a $120 billion business. That value is hard to justify in the short-term but long-term, the company will unlock a lot of value when it replaces drivers. Human drivers are pricey and error-prone.
Driving and other manual jobs are not the only ones at risk. Automation and AI are starting to replace some high paying white-collar jobs. Here are a few examples…
- Accountants process and organize numbers. It’s repetitive work and on the tax accounting side, TurboTax and other software have already replaced many jobs.
- Lawyers read a lot of case law but computers are getting better with processing text. Paralegals will be the first to go.
- Marketers make big bucks finding trends and placing ads. But big data and machine learning are starting to replace that manual work (Google Automated Bidding).
- Airline Pilots put the planes on autopilot and sit back most of the flight. Next step is to remove the pilots.
- Journalists have a formulaic system for reporting news. Since we’re collecting more data, software can produce automated stories.
- Teachers can’t cater to single students in a big classroom. Online classes are producing high-quality lessons that are customizable to different learning styles (Massive Open Online Courses).
- Financial Advisors don’t stand a chance against the rising fin tech. Automated (passive) investing tends to outperform active traders.
People argue that automation creates new jobs. That’s often true, but… the new jobs can’t keep up.
Automation is replacing both white- and blue-collar jobs at a faster rate. Fortune reports that robots may steal as many as 800 million jobs in the next 13 years.
Our economy is entering a new paradigm. And the next trend is throwing more fuel on the fire.
Population Growth – More People to Solve Our Growing Problems
In 1968, a Stanford professor published a best-selling book, The Population Bomb. He thought humans would see mass starvation in the 1970s and 1980s due to overpopulation.
Lucky for us, this didn’t come true.
In 1970, the world had about 3.5 billion people… but thanks to automation in agriculture, healthcare, and other areas, the human race has expanded to 7.7 billion people.
The chart below shows the world’s population growth.
I have no doubt that the human population will continue to thrive (that’s barring a world catastrophe). There will be hiccups along the way but I’m long human innovation. As the growing population problems rise, we’ll have more minds to solve them.
Population growth will continue… but it’s helping push the last trend higher.
Unemployment – Looking Past the Government Reported Numbers
Official unemployment numbers look good although, they’re misleading.
The unemployment number you see in the news is U3 (around 4%). Although, it excludes discouraged workers. They’re people able to work, but haven’t looked for a job in the last four weeks. That’s not a lot of time to be completely cut out of the equation.
The labor force participation rate gives a clearer picture. It measures the employed workers divided by the working age population.
Since the 2008 crisis, the labor force participation rate has dropped 3%. That’s a terrible sign during the longest bull market in U.S. history.
But wait, the number gets even worse when you read the fine print. This government reported ratio shown above excludes retirees, incarcerated people and students… but more people are forced into those categories due to the new economic paradigm.
Most of the population has to go to school longer to get new jobs. The chart below shows the United States population is getting smarter.
Source: Wikipedia and U.S. Census Bureau
The tough job environment is pushing people to improve their education. Student debt has topped $1.5 trillion… but this is just one problem created from growing unemployment. The root – and biggest issue – is finding a way to provide worthwhile work and/or redistribute wealth…
Top Solution is Universal Basic Income
To reiterate… Automation is replacing jobs at a faster clip. The world’s Population Growth is driving the population higher. And as a result, true Unemployment is climbing.
Redistributing wealth is a growing topic and Universal Basic Income is a top solution. Many people argue that giving free money won’t work… but the government is already giving massive handouts to poor people (poor is a relative term… poor people in the U.S. are living better than the average person in the world).
The major benefit is that a UBI could simplify the growing welfare state. To cope with the trends above, the government has already created over 80 means-tested welfare programs.
Since 2008, the total welfare spending has almost doubled…
Source: The Heritage Foundation
Total federal and state spending has topped $1.3 trillion… that’s trillion with a T. All of that money is spent with good intentions… but, a lot of bureaucracy and waste comes with it.
Universal Basic Income could streamline welfare programs. It would be an unbiased system that could reduce corruption. This is a major drive for a basic income policy.
History has shown time and time again the efficiency of free markets. But the current welfare system hinders free markets. Many of the programs require recipients to stay above or below certain benchmarks. The government then says how much they can spend on food, rent, etc.
Some of the benchmarks also create welfare cliffs. If someone makes above a certain amount of money, they lose their benefits. Here’s some more insight on welfare cliffs from ZeroHedge.
Many welfare programs disincentivize work. But a well implemented UBI shouldn’t discourage anyone from working. You won’t lose any of your baseline income if you decide to work more.
To summarize the big benefits of a UBI… it would simplify the welfare system, reduce waste, reduce corruption, add freedom back to the markets… and eliminate discrimination.
I think these benefits are compelling enough to warrant trying a simplified welfare system. Although, we should also consider some of the potential problems…
Possible UBI Problems – Uncharted Waters and We Need Data
With any complex solution, there are roadblocks. I already mentioned welfare cliffs… but a good UBI shouldn’t discourage people from working.
The next big issue is funding so let’s consider some numbers…
There are close to 330 million Americans and if everyone got $500 a month, the UBI program would total $1.98 trillion a year. If the UBI replaced our current welfare system, most of that would be covered. The shortfall would be $653 billion ($1,980 – $1,327).
The goal of a Universal Basic Income is to give people just enough to get by. And $500 (pinned to a special inflation measure) can go a long way if you spend it wisely. With good meal planning, people can get by with a $125 monthly meal budget while eating healthier. That leaves a good chunk left to spend on other essentials.
To fix the shortfall, the UBI could be less… or the most dreaded fix, more taxation. It’s not a perfect solution but the welfare state will likely grow at a faster rate due to the trends above. In the not distant future, replacing the larger welfare system with a streamlined UBI wouldn’t require any additional funding.
We can’t foresee all of the problems with implementing a UBI. It might not work… but we won’t know until we test it on a nationwide scale. There are some small-scale tests but no matter their results, I promise you that momentum will continue to build.
Lots of powerful minds are behind a Universal Basic Income. I think I’ve provided a strong argument. Do you disagree or have any interesting points to add? Please leave comments below.