Under a Universal Basic Income
(UBI) plan, the federal government will pay a monthly stipend to each adult
citizen irrespective of their needs or circumstances. The growth of Artificial
Intelligence and Robotics has prompted many Silicon Valley leaders and other
celebrities to raise the issue of UBI as a counter measure to this emerging
threat to the American labor force. Even the Presidential hopeful Andrew Yang
has been campaigning on the UBI in the name of Freedom Dividend; in fact, his
campaign website Yang2020.com states, “Andrew
would implement the Freedom Dividend, a universal basic income of $1,000/month,
$12,000 a year, for every American adult over the age of 18. This is
independent of one’s work status or any other factor.”
Why does the
UBI plan make tremendous sense? Here are the reasons:
1. Instead of Interfering with the business world by
imposing Higher Minimum Wages at the Federal level, the UBI plan will spur
Tremendous Growth – When a CEO
of a major fast food chain agrees with $15/hour minimum wage, he is basically
saying (to himself), “Thank you for the demonstration. Now kiss your jobs
goodbye. I’ll replace you all with robots in a year.” In a year, the CEO gets a
measly $20M bonus, while the poor workers get pink slips. Sadly, the vast
majority of those workers tend to be poor students and single mothers trying to
pull themselves out of adversity. While $15 is an unfair minimum wage in NYC or
San Francisco, it could be excessive for small business owners in small towns
or rural areas. Therefore, instead of killing jobs and negating economic
growth, the UBI plan would spur unprecedented economic growth by adding
enormous liquidity at the rank and file level, without having to prevail upon
small employers.
2. Instead of Need
or Circumstance-based, the UBI plan would be for all Adult Citizens – Since the UBI is a universal plan, the
federal government would not get to define and choose the “needy.” If the Government
were to define, identify and choose the needy, the UBI plan would have mostly
political meaning that the empowering of government would be more expensive
than the plan itself. In fact, the less politics and fewer government employees
would keep the UBI plan healthy and wise. Under this plan, since rich and poor
would be treated alike, it would not create any stigma like the current welfare
system does, although unfortunate economic circumstances force people into the welfare
program. Hopefully, over a period of time, this universal plan would phase out
the current welfare system, except for the Medicaid component (unless ‘Medicare
for all’ becomes a reality). Also, it could put an end to the discussion on
cancellation of student loans.
3. The UBI plan will incentivize early Retirement – Though the eligible people can activate
Social Security at age 62 and retire, the vast majority of them are unwilling
to do so due to the reduced qualifying income. Since the UBI plan will not
interfere with the social security income, those willing-to-retire-early folks
would welcome this supplemental income and would seriously consider the move.
Furthermore, if the ‘Medicare for all’ plan comes to fruition, the combination
would be one of the greatest win-win government programs ever. The early
retirement would not only open up millions of jobs for the younger generation,
but they would also bring in more modern education and skills to the workforce,
thus significantly reducing the need for the foreign skilled H1-B workers,
which has long been a bone of contention for our own STEM graduates.
Additionally, a good percentage of those early retirees would go on to become
entrepreneurs and new business owners, spurring additional economic growth,
including new job opportunities.
4. The UBI plan will Create a new
generation of young Entrepreneurs –
Millions of young people, especially college students, have forward-looking
business ideas but they generally go nowhere with their brilliant ideas as they
lack the start-up capital. The UBI plan will empower them to move forward with
their ideas knowing very well that this is not a one-off deal. The perennial monthly
UBI (could be higher over time with adjustments for CLI) would allow them to
allocate a portion of the income to their business while taking on less student
loans, thereby reducing the usual mental and financial stress. This early start
would also help those young folks to intelligently avoid the vicious cycle of
poverty. The UBI plan would gradually turn itself into an income and gender
equality movement. Over a period of time, the stronghold of the top 1% would
loosen to a point that the other 99% would be a myth, without fearing or being
subservient to any controlling group.
5. Freedom Dividend will turn Stay-at-home moms into a
new generation of Home-based Entrepreneurs – Stay-at-home moms would be one of the big beneficiaries of the
program. Most of them have the time but not the capital to invest to
bring their entrepreneurial dreams
to reality. Now, with the new-found capital their lives would be financially
lifted to the next level. Since women tend to be better money managers, they
would come up with better allocation of the money between family and business,
adding a whole new dimension to the economy. Most families have one or two
smart entrepreneurial minds so they would take the lead in pooling these new
resources and making things happen for the family, extended family or the
community at large. From the economics point of view, my take is that it will
work the same way as Laureate Yunus’ theory of microfinance or microcredit, but
without having to deal with bank loans. Obviously, since the pressure of
repayment would absent, the entrepreneurial stay-at-home moms would become
better risk-taking entrepreneurs.
6. The UBI plan will do yeoman’s service to Inner City Youths – The inner city youths in America are
severely deprived of the basic economic opportunities, resulting in higher
drop-outs from high schools. The UBI plan would entice them to stay in schools,
opt for college education and compete more effectively for better jobs.
Minority youths, especially African-American youths, would see the leveling of
the playing field. In no time, the enterprising youths would pool their
resources together and take the entrepreneurial plunge, pulling their
neighborhoods and communities out of poverty. As the success stories are
anchored and examples are set across inner cities, the younger generation would
be increasingly more enticed to follow in the footsteps of the successful and
take their communities to a whole new level. As the spending power multiplies
in those neighborhoods and communities, commercial properties – from wide range
of dining establishments to daycare centers to
nationally-known convenience stores to strip centers to super markets to
movie theatres to indoor theme parks, etc. – would pop up at an extraordinary
rate, leading to massive localized economic and job growth.
7. The UBI plan
will Eradicate minor Drug Offences and
Minimize Gang Violence – Owing to the lack of economic opportunities,
people often frustrate themselves into small drug offences. Unfortunately,
punishments are often way too severe for repeat offenders. The UBI plan will invariably
help mitigate their frustrations and emotional stress, re-energizing them about
life, education and career all over again and keeping them out of that vicious
loop. Hopefully, the juvenile detention centers would soon be a thing of the
past. Kids would learn to stay out of trouble by avoiding meaningless drug
risks, knowing very well that they would qualify for a good monthly income at
age 18 – a good enough incentive for them, indeed. Likewise, fewer and fewer
young people would fall off the crack and join the gangs. The lack of
participation and new membership would gradually weaken the gangs to a point
they would be virtually powerless and insignificant, returning peace to many
poor neighborhoods around the country, mainly in and around the major
metropolitan areas.
8. The UBI plan will immensely help Seniors currently living off
Social Security incomes
only – Today, millions of seniors live off social security incomes
only, which sometimes are below the national poverty level, despite having
worked and paid taxes all their working lives. It would be the saving grace for
those seniors living month to month off the social security incomes. Using
Andrew Yang’s proposal of $1,000/mo., the additional $2,000/mo (for two
seniors) would lift them out of the poverty threshold. Again, this additional
monthly income would encourage them to explore and enjoy aspects of life –
vacation, restaurants, casinos, golf, pilgrimage, etc. – that would have been
otherwise next to impossible for them. With this additional income, they would
be able to refinance their homes again, to avoid having to succumb to scams or
reverse mortgages. In fact, it could trigger a new refinancing boom for the
senior homeowners. Of course, all of these new expenditures would go back to
the economy and shore up growth.
9. Futuristically, government should encourage rich
folks to give up the UBI in exchange for higher SALT cap – The new $10K SALT cap has been hurting the
rich folks in high tax states. Government should, therefore, offer a deal
whereby those rich folks would give up the monthly UBI in exchange for correspondingly
higher SALT cap. Right now, the cap has been severely impacting certain housing
markets, making them very illiquid. The higher SALT cap could make those
housing markets a bit more liquid. Instead of giving up, say, all of $1,000/mo., recipients may opt for partial give-up as well, in which case they would
receive partial credit towards the higher cap. Either way, they would not
qualify for double dipping, meaning should they accept this deal, full or
partial, they would not be allowed to show this (again) as charitable
contribution.
Again, the UBI is a plan to fend
off poverty. The merits are numerous and multi-faceted. It helps the poor. It
helps the middle class. It even helps the rich in certain scenarios. Last but
not least, it would be growth-financed, without having to tax and spend.
- Sid Som, MBA, MIM
President, Homequant, Inc.
