New Economy Journal

Why a UBI is Needed

Volume 3, Issue August 2022

August 30, 2022

By - Michael Haines

Piece length: 1,319 words

Article Theme : Health and Wellbeing in the New Economy

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A previous version of this article was published on Medium.


Once, it was our birthright to live off the land.

Since the invention of property rights, money, and the system of paid work; ‘living off the land’ is no longer possible for most people in the developed world.

As a result, as Scott Santens has identified:

Humans have become the only species that requires money to survive. This article will explore some of the solutions put forth to solve this problem, before highlighting why a Universal Basic Income (UBI) is the best choice.

 

Welfare has been designed to meet this requirement by providing money for people who are ‘out of work’.

Unfortunately, it comes with a ‘poverty trap’.

The higher the benefit, the more rational it is for people to take it in lieu of low-paid work. Given this fact, it is also rational for governments to keep benefits ‘below the poverty line’, to incentivize people who can work to take the available jobs.

This has the iniquitous side effect of forcing many people into poverty: those who cannot work, who also lack savings and family support.

Welfare could be increased,  if we could easily identify who can and who cannot do paid work, and only make payment   to those who cannot work. In practice, this becomes onerous, subjecting people to intrusive questioning of their bona fides, with front-line staff forced to make imperfect judgements as personal circumstances continually change. As a result, many people fall through the safety net. Usually, it is our most vulnerable who find it difficult to navigate the bureaucracy. This is a systemic problem.

No nation has solved it, though some do a better job than others.

 

A Job Guarantee is another method of tackling the problem. This aims to ensure that everyone who wants a job has one, by ramping up ‘public service’ jobs when the private labour market is weak and  releasing the labour when the market picks up.

A job guarantee avoids the need for people to prove entitlement and is aimed at providing both money and meaning for people who can work: an estimated 50% of the population at any time, plus their dependents.

However, there are  several drawbacks:

  1. Most significantly, a job guarantee  can do nothing for the 12–14% of the population who are forced into poverty because they cannot work.In Australia, this is over 3.2 million people, comprised largely of  single women with kids, the elderly and incapacitated and their unpaid carers, and some who are ‘between jobs’. All of whom lack savings and family support. This figure includes 17% of all children in Australia.

    This is an indictment of the system, given we have the resources to supply the basic needs of every one of our 26 million citizens and permanent residents.

  2. A Job Guarantee cannot do  anything for the people who work without pay to maintain our homes, care for our children, sick, aged and disabled, and who maintain our social networks — mostly women.
  3. While work can be meaningful, it can also be soul destroying. Having to perform menial work under a Job Guarantee simply to have enough to survive is hardly uplifting.
  4. A Job Guarantee requires a permanent organisation structure to manage the scheme in each local area. This can be costly and inefficient if the principal aim is to act as a foil for the job market. When employment is at capacity, the Job Guarantee organisation would sit idle.
  5.  The Job Guarantee worker may be pulled away from their role when the private market needs them. In services roles such as the provision of aged or disability care, where the work being done under a Job Guarantee is both meaningful and necessary, this may cause unnecessary stress and disruption for the people reliant on the services of the worker.
  6. Providing ‘jobs’ could easily become a ‘cash cow’ for contract companies whose sole purpose is to maximise profits rather than deliver quality goods and services through the deployment of Job Guarantee workers on socially useful tasks. We have seen this in the way  employment organisations are now set up to ‘tick and flick’ job seekers to maximise income.

If the work is socially valuable, it should be publicly funded and simply form part of the job market, with pay rates set to attract the required workers.

A Job Guarantee may help to balance the labour market and has the potential to provide meaningful employment. However, it cannot eliminate systemic poverty, or compensate for unpaid work in the home.

 

A Universal Basic Income (UBI) offers an alternative solution to both welfare and a Job Guarantee. A UBI can both eliminate systemic poverty and balance the labour market,without the need for a massive bureaucracy to manage it.

A UBI is an unconditional payment to every permanent resident at or above the poverty line (currently around $500/week).

The approach developed by Basic Income Australia offers a way to implement a UBI without altering the current welfare or tax system, or increasing taxes or debt, or taking money from other programs, or causing excessive inflation. It can be implemented with very little risk by starting at just $10/week and increasing slowly, for example, over five years, to the poverty line.  This will give the supply chain time to adapt to the new patterns of demand, without causing shortages that drive inflation.

A UBI solves the fundamental systemic problem by ensuring everyone has sufficient money to survive, effectively restoring our birthright.

By paying the money to everyone, unconditionally, it also allows everyone who can work to earn extra, without losing their UBI. It provides a floor to stand on, not a ceiling on achievement — eliminating the ‘welfare poverty trap’.

Pilot programs from around the world have demonstrated that when people have enough money to survive, most are highly motivated to better themselves and their family. This includes providing better family care and undertaking more education, as well as taking on paid work when they can.

Once the UBI reaches the poverty line, it can also be used to keep the labour market in dynamic balance. This can be achieved because each person has a different propensity to take on paid work, depending on their age, commitments, needs, and other income.

As automation and virtualisation result in a fall in demand for workers, the UBI can be increased.

As it is raised, individuals will make their own choice to stop looking for work, or to drop out of paid work, to live on the UBI and any other passive income they may have. Once the rate at which jobs are being filled begins to push out beyond ‘standard’ recruitment times, this would signal the need to hold the UBI rate until the market is re-balanced.

It would never be perfect, but it should facilitate the transition to a ‘new normal’ over time.

With the labour market balanced, all jobs would be filled; and people in paid work. Those not in paid work would be doing it by choice.  Importantly, each person would be deciding what was meaningful in their own lives - without detriment to the community.

Lastly, and perhaps counterintuitively, in today’s inflationary environment, a small UBI that is gradually increased could act as a circuit breaker by providing an effective wage rise without cost to employers, thereby avoiding ‘cost push’ inflation.

In summary, unlike Welfare and a Job Guarantee, a UBI can eliminate systemic poverty and keep the labour market in dynamic balance with very little bureaucracy. It can also provide some compensation for in-home work, as well as provide a real wage increase for low-paid workers — without cost to employers, limiting wage-push inflation. Overall it will enhance mental and physical health, while lowering domestic violence triggered by financial stress, thus bringing about significant benefits for our society.

 

The next in the series explains how it should be possible to fund the UBI using newly created money, without causing excessive inflation.

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