Universal Basic Income and the Free Market

Have you ever really thought about the term "free market economy?" What is the "free market" free of, anyway? Of course, it's free of government intervention! Ignoring for a moment that this is obviously false, is government really the only thing markets need to be free of to work properly? The government may not compel businesses to allocate their resources in specific ways, but people are compelled to act against their will by a force more powerful than the government: the threat of poverty.

This force is so pervasive that we don't even work it into our normal calculations. We like to imagine that employers and employees come together for their mutual interest, to trade wages for work on terms that seem fair to both parties. In reality, employees may be willing to take less than their labor is worth, because if they don't, they will die. Market forces are important. But is there some way to preserve the power of the market while also making it free of that threat of extreme poverty? A universal basic income (UBI) can do this, and is essential to a market that is "free" in the most meaningful way.

UBI schemes (also called a Guaranteed Income, or GI) are straightforward. The government pays for citizens to receive a minimum income to keep them from falling into poverty. Under some plans, the UBI only comes into effect if a citizen's earned income falls below a certain threshold. Other plans call for the money to be unconditional.

A UBI is not a new idea. It's been implemented as a pilot project in several countries, and was almost signed into law in the US by Richard Nixon at the urging of the famously conservative economist Milton Friedman. However, most members of Congress turned against the idea when an error in divorce rate data in Seattle (where a UBI experiment had been under way) convinced them that the guaranteed income was making women too independent. The idea has lain dormant for decades, but new research, a jobless economic recovery, and worsening wealth inequality have breathed new life into the Universal Basic Income.

Although a UBI has plenty of liberal and conservative fans, it also has staunch opponents, who point to the same pretty apocalyptic fears:

1. A UBI will make people lazy.

It seems reasonable to assume that being paid to live would discourage people from working, but let’s dig a little deeper. It seems safe to say that most people are not content to live at the poverty line. As humans, we generally want not only more material comforts than that, but we also have a powerful desire to project a degree of social and economic prestige; you can’t keep up with the Jones’s when you receive the lowest income possible in the country.

Conservative opponents of the UBI point to (usually hypothetical) “welfare queens” as proof that not everyone feels this innate desire to better their economic fortunes. Still, even the prototypical welfare queen would have more incentive to work under a UBI than under the current welfare scheme. Most aid-to-the-poor programs today are means tested, meaning that one must prove to government that they are in fact “poor enough” to qualify. In this arrangement, benefits are phased out as you earn more money, resulting in an obvious disincentive to work. Under most UBI plans, benefits are not phased out as your income rises, solving that particular problem (sometimes called the 100% marginal income tax).

Luckily, we don’t have to rely on theory alone to predict how people would react to a guaranteed income. In the 1970's, a pilot program called “Mincome” supplemented the incomes of about 1000 families in whose earnings fell below the poverty line in Dauphin, Canada. The experiment, which cost $17 million, was cut short in 1978 when a recession hit Canada. Researchers have found that only two segments of the population worked less than before the program started—teenagers and new mothers. Teenagers presumably devoted more time to study, as high school graduation rates got a boost. New mothers used the subsidy to spend more time with their babies. As it turns out, the government may actually have been saving a fortune by allowing new mothers to take the extra time off, which brings us to the next argument:

2. A UBI is far too expensive.

Commentators have pointed out that if you take all the money currently being spent on welfare (including some special tax benefits for the rich and the middle class) and use it all for a UBI, you don’t have quite enough to pay everyone a living wage.

However, there's a lot missing from these calculations. Most importantly, it assumes that a UBI has no effect on economic growth. If a UBI does lead to stronger economic growth, the government has more income, profit, and sales to tax, leading to higher government revenues. Crucially, there are important reasons to think that a UBI will lead to a better economy. Most new businesses actually lose money for the first few years, so right now entrepreneurialism is basically limited to people already rich enough to live without an income for years. How many potential Googles and Apples has the world already lost because some visionary son or daughter had to take the first job that came along to help support a family? A pilot study in Namibia has already shown how a UBI can increase entrepreneurial activity by hedging some of the risks of starting a business.

We already know that a UBI can encourage students to pursue more education, and I leave it to the reader to decide whether or not this is good for economic growth in the long run.

Even if we deny that a UBI can lead to stronger economic growth, there’s another reason to believe it won’t break the bank for the government: it can save money on healthcare.

Let’s return to Dauphine, where we learned that new mothers receiving Mincome spent more time raising their babies. Why does this matter? According to Stephen Bezrucha, a physician and professor of public health, “roughly half of our health as adults has been programmed in the first thousand days after conception.” In other words, allowing a mother to properly care for a baby can save Medicare from paying through the nose for healthcare later, when that baby is in the geriatric ward.

This might help explain why Sweden, which offers universal paid maternity leave and subsidized daycare, pays less than half what we in USA do on healthcare (per person) for the same results. In a country where almost a quarter of the federal budget goes to healthcare, achieving a spending level closer to Sweden’s could save some serious cheese. And while we can only make an educated guess that those babies in Dauphine will have better health outcomes than their counterparts as they age, we already know that hospital visits during the Mincome years were down almost 10 percent. As a researcher reviewing the Mincome data, notes, “When you walk around a hospital, it's pretty clear that a lot of the time what we're treating are the consequences of poverty,” 

To be honest, it's difficult to know how much a UBI will change government spending if these changes do take place. But this only leads us to a more basic question: does a policy that essentially ends poverty in America need to save money? Isn't wiping out poverty a goal that's worth spending money on? After all, no one argues that Medicare is free—most people just think seniors having access to health care is a worthwhile goal. No one argues that the military is free—most people just think that keeping America safe is a worthwhile goal. It's true that the wealthy might have to pay more in taxes (at least at first), but if a UBI turns out to be effective at eliminating poverty and growing the economy for everyone, I think the wealthy may consider it money well spent.

3. A UBI Will Turn Us All Into Government Drones

The last charge laid against a UBI is not economic or political, but philosophical. The Paul Ryans and Charles Kochs of the world contend that government transfers destroy human dignity by making people "dependent on the government." Unless you're living alone in the woods like Christopher McCandless from Into the Wild, your survival will always depend on other people. Is it really so bad to have part of your income depend upon a democratic government? I think a lot of folks whose jobs have been shipped off to low-cost countries would agree that being dependent upon a private corporation for your survival is not necessarily better.


Thomas Picketty's new book on inequality (which I admittedly didn’t read) has a lot of people talking. He traces the staggering concentration of wealth at the top that's been underway for half a century. According to his predictions, we might be heading towards a world (and specifically an America) that looks more like medieval feudalism than a land of opportunity. But we can head off this grim future by taking action soon. There are a number of things we can do, like index taxes to measures of inequality as Yale economist Robert Shiller has suggested. But a UBI can do more than just stand as a bulwark against feudalism. It can transform our economy into a market that is truly free.

Time Gets It Wrong on China's Rise

As Fareed Zakaria put it on Thursday’s Daily Show, how the United States gets along with the People’s Republic of China will be "the big story of the 21st century." When Britain ruled the world and Germany was quickly rising, the two destroyed one another in a pair of world wars, eventually allowing the US to take over as the world's only superpower. Anyone concerned about America's future, then, must also be concerned with China. 

Hannah Beech's cover story in this week's Time Magazine, I thought, would help me understand the People’s Republic. "How China Sees the World" is a title rich with the promise of depth and nuance. Sadly, it disappoints. Instead of thoughtful analysis and measured predictions, "How China Sees the World" is a compilation of sensationalized claims.

Ms. Beech depicts China's rise as swift and contentious—something to be feared. In fact, China's rise will almost certainly be slow and peaceful—something to be welcomed. 

What Battle for the Pacific?

The growing might of China's military is invoked like the boogeyman, and the threat is just as real. Time's helpful infographic alludes to the fact that while the US deploys only 180 naval ships in the Pacific, China has a whopping 269. This ignores the obvious: Ships are not all created equal. To give you an idea of what I mean, recall that China launched its first-ever aircraft carrier in November. A US study into the acquisition found that China's "new" Soviet era carrier is "largely symbolic" and would be useless in war. By the way, the US sports a fleet of ten aircraft carriers (the next largest "fleet" belongs to Italy, which has two).

But even if China's current fleet cannot stand up to US naval power, surely they are catching up to US capabilities? Quite the contrary. China's rising military spending reflects China's growing economy. But China's military spending compared to the size of its economy has been coming down for decades, settling at about 1.3% of GDP (or about $106 billion in 2012). The US, on the other hand, spends about 4.3% of it's economy on its military (or about $680 billion in 2012). This means that every year, the US spends more than six times more on its military than China does. 

As a matter of course, Time also devotes some space to explain how Chinese hackers are stealing US military and economic secrets. While the US and China both have every right to protect their digital privacy, we must remember to put China's activities in context. As Dan Murphy at the Christian Science Monitor points out, the US openly spies on other countries in much the same way. It is literally in the National Security Administration's job description to hack into the communication systems of "foreign powers." 

China's Troubled Economy

Time's trumped up claims about the future of Chinese economic growth further contribute to the article's tone, which is marked by both fear and distain. The most baffling sentence in the entire piece posits that China's economy "could eclipse the U.S. as the world's biggest within five years." This implies an annual growth rate of more than 15%. China's growth target for this year 7.5%, and many China experts argue that even this is too ambitious. Since the financial crisis began, China has kept growth up by unleashing massive amounts of easy credit. The credit rating agency Fitch warned yesterday that China has created the largest credit bubble in the history of the world—far bigger than the real-estate bubble that crashed the US economy. 

Michael Pettis, an expert on Chinese financial markets, believes that it may be possible for the Chinese economy to avoid a deep recession if Chinese banks stop issuing so many loans. But this will also slow down Chinese growth, which has been driven by these loans (and other forms of "shadow" credit). Pettis doubts sustainable Chinese growth in the next decade can top 3-4%. Even if China shatters these expectations and can manage 5.5% growth without interruption, China's economy will not catch up with America's before 2038 (assuming the U.S. grows steadily at 2.5%). If Pettis is right and China grows at 4% per year, China can probably catch up in 50 years.

Understanding the Real China

Hannah Beech is correct when she writes that it is important to understand how China sees the world. Over the past hundred years, China has seen the demise of a dynastic system that spanned millennia, the rise of a Republic, disintegration into civil war, brutal occupation and the birth of a Communist Party which, for all its blunders, has freed hundreds of millions from abject poverty. The Chinese language is a musical one, spattered with curious idioms which have grown out of thousands of years of vibrant folklore. The Chinese people are warm, generous and hospitable. And in the coming century, China, along with our other developing neighbors, will rise to share the responsibilities of governing a peaceful world. It is in this spirit—not one of competition and fear—that we must come to understand the world according to China. 

New article on Policymic:

http://www.policymic.com/articles/20020/fiscal-cliff-2013-what-the-best-deal-for-millennials-looks-like/301098

Another article on Policymic, check it out!

http://www.policymic.com/articles/18959/super-pac-spending-even-with-an-obama-win-big-money-still-bought-the-presidential-election

Everyone should read this article on Policy Mic!

http://www.policymic.com/articles/18007/hurricane-sandy-new-jersey-this-halloween-chris-christie-dressed-as-a-bipartisan

So you think affirmative action is why you didn't get into college... (What the hell's wrong with you?)

You might ask, "Gary, you sure haven't a written a post in a long ass time. I thought you were dead, or at least realized that no one reads your blog." Well, you're dead wrong, motherfucker. My doctors tell me I'm still alive,  and still haven't checked my pageview stats.

No, the real reason I haven't posted is because I have not wanted to write about affirmative action. The fact is that "affirmative action" does not deserve 1% of the controversy surrounding it, and you're doing yourself a disservice when you complain about it--playing into the hands of the richest of bastards, who win when poor/middle class blacks and whites are at each other's throats. Don't believe me? Let's have a drunk conversation.

"Have you guys ever noticed that when black people are on welfare, it infuriates you? Now you have."

1.  MOST OF WHAT YOU CALL "AFFIRMATIVE ACTION" IS ACTUALLY COMPLETELY MADE UP AND NOT A REAL THING, ANYWHERE

If you've seen American History X, you probably remember the scene where Ed Norton figures out that his dad is a big racist (it took him 17 years to piece it together, I don't know how that guy caught Red Dragon).  The dad's talking about how his fictional fire department has to hire X number of African Americans, so lots of good old white boys were squeezed out, even though they totally deserved those jobs. My sense is that most high school and even college kids think this is how real college works. It doesn't.

According to the 1978 Supreme Court case Bakke vs. Regents, schools can not set "numerical targets based on race for admission or employment." So, where does all the "If you're black and Native American you can get into Harvard even if you are mentally retarded and once stabbed another mentally retarded person" talk come from? 

A lot of it comes from the fact that people like their self esteem, so when little Jimmy gets rejected from TCNJ and Jamal gets accepted, his subconscious has an answer that makes him look like a victim instead of a lazy fuck up. Good for Jimmy. And since almost all white kids get rejected from at least one school, they're not going to call bullshit. They like that answer too, even if they have absolutely no reason to believe it. 

"Come with me and you'll never have to take responsibility for your shortcomings again!"

It is true, however, that some schools may have diversity goals. They don't have a set number of African Americans, Jews, Arabs, Vietnamese, orphans, Wisconsinites, people who's parents were missionaries, etc. that they have to have, but they know that they don't want a school divided between Tiger Mom offspring and white nerds. But is it really surprising or "unfair" that colleges look at more than SAT scores when they select students? 

If one of the university's missions is "to encourage diversity and cross-cultural understanding," they may have very good reasons for selecting for diversity. If a mission is "giving back to the community," it's perfectly natural that Johns Hopkins should extend admission to some top inner city Baltimore students, even if Chad Crackerton edged out their SAT scores. 

Besides, a college might just have every reason to believe that the son of a poor, black single mom growing up in a gang-plagued neighborhood who got a 1380 on his SAT's and wrote a perfect essay might be an objectively more promising candidate than Cole Everwhite, who got a 1460 on the SAT's but lived in a rich suburb, and is a little bitch. 

"But... I ate all my aderall studying for the Latin SAT II... You OWE ME an acceptance letter now!!"

So if you didn't get into the college you wanted, you can't really prove that you deserved a spot and lost out to someone who didn't, so stop saying that. It's not like they've done studies on that. What? Wait, they have. And the findings were...

2.  THE REAL "AFFIRMATIVE ACTION" IS FOR RICH WHITE KIDS

According to a study based on closely guarded admissions data from top U.S. colleges, about 15% of students are rich white kids who failed to meet minimum academic standards. Most had connection to their university through alumni, donors, faculty or politicians. Overall, whites with shitty grades were twice as likely to be accepted as blacks and latinos with shitty grades. 

So while people like Donald Trump might say things like "Obama only got into Harvard because it's easier if you're black," the truth is that it's easier if you're like Donald Trump.

"Satan said he would make me a rich white man if I agreed to look like Susan Boyle had sex with a LOLcat."

Now before this shit get's any longer, I'd like to leave you with a quote from the late historian Howard Zinn:

"It is important [for the richest 1%] to make sure that the 99% remain split in countless ways, and turn against each other to vent their angers. How skillful to tax the middle class to pay for the relief of the poor, building resentment on top of humiliation! How adroit to bus poor black youngsters into poor white neighborhoods,  while the schools of the rich remain untouched and the wealth of the nation, doled out carefully where children need free milk, is drained for billion-dollar aircraft carriers. How ingenious to meet the demands of blacks and women for equality by giving them small special benefits, and setting them in competition with everyone else for jobs made scarce by an irrational, wasteful system. How wise to turn the fear and anger of the majority toward a class of small criminals bred by economic inequality, deflecting attention from the huge thefts of natural resources carried out within the law by men in executive offices."