Economic Update: Beyond Universal Basic Income



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[S9 E13]

On this week's show Prof. Wolff presents an in-depth analysis of UBI shows its advantages over most welfare, safety net systems. An even better alternative would avoid capitalism's unnecessary production of unemployment because it utilizes technical progress (rising productivity) for profits. The alternative benefits workers' leisure rather than profits. It is more democratic and avoids splitting people into unemployed vs employed, non-poor vs poor population.

Transcript has been edited for clarity.

Welcome, friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives. I'm your host Richard Wolff. I bring this program to you in the hopes that an analysis of what's happening in the economy we all depend on is a useful part of your life, as it is of mine.

Today, I want to spend the entirety of our program on a topic that many of you have asked me to talk about, and that is in the news more and more each day. It's called “universal basic income.” It's the idea, that isn't all that new, that in a society which seems to be unable or unwilling to provide meaningful work for all the people, what do you do with the people for whom such work is not provided, who cannot, or will not, for whatever reason, find a place in the workforce?

And there have been many efforts to deal with this situation for hundreds of years. One of the ones that is most widely known gets the name “guaranteed minimum income,” or sometimes just “welfare.” And here the idea, very old, is that for those people who either have no work and therefore don't earn any money, or in a modern capitalist system, have a job but are paid so little that they cannot live, especially not if they're part of a family, that some assistance is provided. You aid the poor, working poor, unemployed poor, and you kind of help them out, sometimes with cash, sometimes with services, and so on

The problems with this are very well known. Just to mention them, one, it creates a split in the society between those who earn their living by working, and that's all that they can earn is by working, that's all their income, and those who have either part or all of their income without working. Wow. What this does is develop jealousies, envies, tensions, and bitternesses, often between people so different in modern society as that.

Then you have the added problem, which is, if you're going to sustain poor people by, effectively, a transfer payment, a gift of money or goods, then the question is, who pays for that? You could tax corporations and the rich since they are the ones either not employing or not paying the mass of people enough to avoid this problem. But typically, the corporations and the rich don't want to pay for the sustenance of the poor, and so they shift the burden onto the mass of workers.

Now you get that famous situation in which particularly right-wing politicians can go after that situation, telling the people who have a job that they're paying taxes to support people who earn an income without working, so you can play on the tension between these two. Of course, the proper response would have been: if you don't want to be a worker who pays for the unemployed or the poor, then make sure the people who are most responsible for their being unemployed and poor pay for it. In other words, the issue is the burden of taxation, not the existence of it.

Well, this kind of tension, which has dogged welfare systems from day one, has led to this other idea called the universal basic income, and here's how it's different. In this idea, you don't give poor people money because they're poor, because they have no job, or they're paid so little for their work. Instead, you give everyone a flat lump sum of money, a universal basic income. It could be in-kind, but mostly these ideas are about money. And the idea here is, you're not going to set up tension because everybody gets it. Everybody gets it equally, by the way, is this idea, not some more, some less. No, everybody gets a basic amount of money, and they get that because they're a citizen. They get that because they're a person in the community.

Some people seem to think that this is a radical, new idea. It isn't very radical, and it is certainly not new. It has been tried in a variety of countries at a variety of times. There was a recent experiment in Finland that has gotten quite a bit of attention in recent months. But in actuality, and I found this remarkable in preparing this program, the biggest and best and longest modern example is right here in the United States, although it appears that many Americans are not aware of it.

Here's what I'm talking about. In 1982, the state of Alaska made a decision to do something which it has done ever since, so we're talking almost 40 years of experience. Over these 40 years, the state of Alaska developed something called the “Alaska Permanent Fund.” To make it simple, they taxed the oil that was found underneath the soil and water of Alaska, very rich deposit worth billions and billions of dollars. They taxed it, a small tax on it, to produce a fund. And the fund was then invested. And the idea was, these are the resources of the state of Alaska. Nobody put them there that's living, or that's around today, or ever for that matter. And so, it's, in a sense, a resource, a national or natural resource.

And so, here's what's done. The income earned by that fund, invested as any fund would be, is distributed to every citizen of Alaska, the same amount, each person. That's been going on, as I say, almost 40 years. At its height in 2015, when the price of oil was high, it worked out to two thousand and seventy-two dollars per person, which meant for a family of four, a little bit over eight thousand dollars was simply given to them, and to everybody else, equally. It's been as low as 800 to 900 dollars per person, per year.

So, the question arose right away, particularly by people who were fearful about this, “Well, this didn't do any good, it didn't, it didn't solve problems in...” Whatever the argument is, two professors, Damon Jones of the University of Chicago, and Ioana Marinescu of the University of Pennsylvania, found that doing this had no effect on employment. Why did they ask that question? Because right-wing critics of these ideas argue that if you give people money just as a citizen, well then, they won't bother to work, and we will have people withdrawing from labor. And this research showed crystal clearly that nothing like that happened in Alaska. You gave people money, they didn't stop working or reduce their work commitment at all.

What are the arguments for this? Well, oil is nobody's output. It was there before human beings were, so it's a way of sharing the benefit without letting a few people make a fortune while everybody else gets nothing out of this natural resource. It means, of course, that you have less inequality, because you're giving the same amount of money to a poor person, for whom it means the world, as you are to a rich person, for whom that means pocket change. So, it is a way of reducing inequality. It also removes extreme poverty. It means people can't fall below a certain amount, and in the case of 2015 at least, eight thousand dollars for a family was nothing to sneeze at, even though prices in Alaska are higher, generally, than they are elsewhere in the United States.

Okay, and here's a last conclusion about Alaska. What Alaska did, anyone can do. Any one of the other 49 states could do it, too. What do you do? You tax land. You tax corporate profits. You tax wealthy people. You put together a fund. You invest the fund, and then you distribute the amount of money. One person gets the same as every other person.

Why is it being discussed now? Well, the truth of it is, and this is very important, because there are now fears that we are about to enter into another period of time when capitalism, as an economic system, brings us technical improvements, things that make it easier for human beings to produce goods and services, but the byproduct is unemployment.

Today, the most fanciful ideas are raised that artificial intelligence and the computer and robots, you put all that together, and there have been estimates that something like 47% of jobs that exist today will not be there 10 or 20 years from now, because they will have been automated out of existence, the way computers automated lots of jobs, the way machines automated lots of jobs, and so on. And the great fear is that capitalism is a system that seems to accompany technological advance with plunging masses of people into unemployment, which by the way, is a profound criticism of capitalism. 

And the idea is, oh, my god, masses of people without work, masses of people that therefore have no income, they will become a threat to the system itself, out of their misery and their deprivation, and something has to be done, and whoops, here we go, we get welfare ideas, but we also get UBI, universal basic income, as a way, at least, to pacify these people. To give them enough that they don't have the rage of extreme poverty that might threaten the system.

Well, let's talk about this a little bit. Is it really necessary to have this conversation? Whatever you think about the goods or bads of doing something like this, here's a fundamental question. Do we have to have a system, an economic system, in which the good thing, technological advance, being able with less effort by human beings to produce as much or more than used to take much more effort, when we have technical change and we can make human beings more productive, meaning that we don't have to put as much time and trouble and toil and effort and sweat into producing the goods that we need to consume, is there a way to take advantage of that that doesn't throw large numbers of people out of work, and in a way, make them expendable, throw them out of the economic system, so that we're worried about them, hopefully, on the humanitarian basis? My goodness, technological advance, through no fault of theirs, [that] plunges them into unemployment, seems on the face of it immoral, unethical, and unfair.

And if, on top of it, we say that it's inevitable, that somehow if we're going to have progress, well, this is the price we pay, it leads us to ask a question which I hope is in all of your minds. Could we not have an economic system that was able to capture the benefits of technological change, that was devoted and interested in finding productivity increases, but that didn't have to accompany that good thing with a really bad one, namely, the kinds of unemployment, the kinds of deprivation, the kinds of poverty that lead human beings, well-intentioned human beings, to think about welfare and to think about a universal basic income? 

In the second half of today's program, we're going to answer that question. We're going to analyze what it is about capitalism that produces this sad unemployment, poverty, alongside the positive of productivity increase, and how we get there.

But before we do that, I want to remind you as I often do at this point in the program, that we maintain websites, www.democracyatwork.info is one of them, www.rdwolff.com is another, that are there to provide more information than we can do on this program, that allow you to communicate with us if you have questions and concerns through the email function that's there, that allow you with a click of your mouse to follow us on Facebook, Twitter, and Instagram.

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Welcome back, friends, to the second half of today's Economic Update. This is a program devoted to an in-depth analysis of the universal basic income proposition. Once again, the notion that a better way to deal with inequality in our system, a better way to deal with the mass of people who don't have an income because they have no job and have run out of unemployment benefits, if they were entitled to them, or the the people who have a job, the working poor, but are paid so little that they really have a hard time making ends meet on a basic level. And we have millions of those people in the United States, and we always have.

To deal with that, this universal basic income idea is, give everybody a cash outlay. And in the first half of today's program, we talked about how Alaska has been doing that since 1982, quite successfully, in the sense that it is widely supported by the people of Alaska and no major politician has dared propose its elimination. And I pointed out that, of course, this could be done anywhere, that the money could be raised by taxing wealth, by taxing the corporations, by taxing the rich, and that could assemble the money, just like they did in Alaska, to provide for the fund to be invested, and to earn income, which could then be distributed to everyone, exactly the way Alaska does with the Alaska [Permanent] Fund. But in this part of the program, I want to do the analysis.

What has happened to create the problem? Because however much you may believe that universal basic income is a decency provided to poor people who deserve no less, it may well fall short of the kinds of solutions and alternatives that ought to be part of this discussion and that often aren't, as if all we're going to do is discuss the pros and cons of a universal basic income, its presence or its absence, as if there were no other choices, and that's not reasonable.

I like to give the metaphor that if someone accosted you on the street and said, “I'm gonna give you free choice: I'm either gonna stab you to take your money, or I'm gonna shoot you to take your money, but it's your free choice.” You wouldn't be excited about the freedom of choice because you don't want that choice. You don't accept those as the only alternatives that you are to choose between. And I want to make that case in terms of yes or no for universal basic income.

So, let's begin with the basic reality. Back in 1950, something on the order of 35%, over a third of Americans working, were working either on the farm or in the factory. They were doing what we call agricultural or manufacturing work. It took more than a third of us to produce the goods that we all needed to consume.

Fast forward to the last couple of years: it's 10% of the American people that now work on the farm and in the factory. Nine out of ten people in our society who are working, are not working on the farm and are not working in manufacturing. That's part of why Mr. Obama's efforts to revive manufacturing, and now Mr. Trump's efforts, are public relations stunts, and have done nothing to change the long-term trajectory of declining manufacturing and farming. Why? Because productivity grew. We developed, technologically, the way to have fewer and fewer people producing more and more things.

And so, what happened? And here comes the crux of it. In a capitalist system, the capitalist, the employer, has the following incentive: if a new machine comes along, whether it's a combine on the land, or a new computer-aided machine in the factory, the employer sees, “Oh, my goodness, I have a chance at making more profit.” And what the employer does is fire…

Let's use a simple example. Let's suppose a machine comes along that makes all workers twice as productive as they were before. So instead of a hundred workers, you only need fifty to produce exactly the same amount of output. Whether that's tomatoes, or whether that's cell phones, it doesn't really matter. Ok, what happens in a capitalist enterprise is the employer fires half the people. He doesn't need them. He can produce just as much.

We'll keep our example simple. He can produce just as much output with half the workers that before took twice as many workers. So, he fires half his workers. He sells the same amount of goods, because half the workers can produce that, sells it for the same price, we're going to keep our example simple, gets the same revenue as he did before, uses the same proportion of it [as] before to replace the tools equipment and raw materials he used up, and now pays his workers.

But now he needs only half as much, because he has half as many workers. So, he gives the half that's left the wages they've gotten before, same wages, everything's the same, and we're done. But his profits have gone way up because the money he doesn't have to give to half his [workers], he keeps for himself. He produced the same amount of goods, sold them for the same price, got the same revenue, but had half the wage bill, and so his profits went up. He is smiling all the way to the bank where he deposits his profits.

What happens to the half of his workers he laid off? They have no job. They just lost their job because of a machine that was invented. By the way, just a little footnote, that's one of the reasons working people are very skeptical about productivity improvements. That's not because they don't like progress, but because progress threatens them, in this very practical way, because they get unemployed.

And what's going to happen to them? Well, if they're lucky, they'll go find another job. But they may have to work for less money to find the job, particularly if they have no savings and have to find a job quickly. You can understand that. Many of them end up finding a temporary job, or a job that's considerably lower pay. That may mean that they have to ask, if they're a man, for their wife to go to work, if she hasn't already done so. They may need their teenagers to work on the weekend. They may need the elderly to come back out of a retirement, if they even had one to enjoy. You can see the problems. And if they don't find a job, or if the job they find is low wage, they become the poor. Progress in productivity renders people poor, who then become recipients of welfare, or the very people pointed to as the reason for a universal basic income. 

Is there an alternative to this story, with its good news about productivity and efficiency, and its bad news about the human cost? And the answer is, you bet there's an alternative. And really, if I had to summarize the goal of today's program, it's to make sure that alternative is in your minds, and therefore part of the conversation in this country, as we face the next wave of progress in productivity.

So, here's the alternative. Suppose, again, the same example: an employer, a hundred workers, a machine comes along that makes all workers twice as productive as they were before, only now the story changes. Instead of the employer firing half the workers, for all the reasons we just went through, that isn't the solution. Here's the alternative: every worker keeps his or her job and works half as many hours per day.

Let's go through it. Instead of eight hours, four. If you work only four hours with a machine that's twice as productive, you'll produce just as much as you did before. You're working a half-day, not a full day. Same number of goods produced, the employer sells them, make it simple, at the same price, pulls in the same revenue, pays the workers the same wage he paid them before, even though they're only working half-time, and he keeps the same profit he had before, because everything's the same. The revenue’s the same, replacing the tools, equipment, and raw materials is the same, the wages are the same, and so the profits are the same. 

Well, what has happened here? What has happened here is we've had a technical improvement. We have now machines twice as effective as before. And who has gained from that? The workers have gained. What they've all gained is half a workday off. To use the technical language in economics, we have benefited from technological progress in the form of leisure. The majority of people who are workers have benefited from progress, they have four free hours every day that they never had before. The goods produced, same as before. The profits to the employer, same as before.

Wow. The benefit of productivity going in the form of leisure to the majority of people, versus the benefit of productivity going to a small minority, the owners and top executives of the company, in the form of profit. Now, let me ask you, if there were a democratic choice, the majority, being workers, you can bet, would use productivity to produce leisure for themselves rather than profits for the minority. But because the majority doesn't run capitalism, because it is not a democratic system, a small minority, owners and operators of enterprise, use technology for the profits they take rather than the leisure that could be provided to the mass of people.

And let me talk a little bit about that alternative that shows up too infrequently in public discussions. If you cut everybody's work hours, you're not dividing society between those who work and those who don't. All those tensions disappear. Everybody works. Long ago, if we didn't have capitalism, we would have understood that the way you handle productivity on the farm, in the factory, in the office, you name it, is if it's more productive, let's all work fewer hours. Then we don't divide ourselves into those who keep the job and those who lose it, there being no real fairness in that anyway, and it's much less socially divisive. It's much less likely to explode. It doesn't give right-wing politicians an opportunity to play different groups of workers off against each other. It is a more democratic, fairer, and better way to use productivity gains.

And a little final point. If all the workers understood that every improvement in productivity enhanced their leisure, the time they would have to be with their family, to be with their friends, to develop their cultural, hobby, sports interests, if they understood that, they would all be pushing for productivity increases.

We don't have that now. Why? Because every worker who sees an improvement in technology worries in the back of his or her mind, if we have that, if we have the new machine, the new way, the new saving, the new efficiency, will my job be removed? Will I be the one required, with my family, to pay the price that capitalism extracts from technical progress? My guess, we'd have much more improvements in productivity if everybody was on the same page as gaining from it. Every worker would get more leisure, the capitalists would not lose any profit. What an arrangement.

There is no excuse, neither moral, nor ethical, nor democratic, nor logical, to continue with a capitalist system that so badly uses, and abuses, technical change as the one we have. Worker co-ops would be institutions that would institutionalize using productivity for leisure and not for the profits of a few. That needs to be part of the discourse and the discussion of universal basic income.

Thank you for your attention, and I look forward to speaking with you again next week.


Transcript by J. Scott McCampbell
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