by Andrew Yang
Peter Frase, author of Four Futures, points out that work encompasses three things: the means by which the economy produces goods and services, the means by which people earn income, and an activity that lends meaning or purpose to many people’s lives. We should tackle these one at a time, with the easiest one first. In a future without jobs, people will need to be able to provide for themselves and their basic needs. Eventually, the government will need to intervene in order to prevent widespread squalor, despair, and violence. The sooner the government acts, the more high-functioning our society will be.
The first major change would be to implement a universal basic income (UBI), which I would call the “Freedom Dividend.” The United States should provide an annual income of $12,000 for each American aged 18–64, with the amount indexed to increase with inflation. It would require a constitutional supermajority to modify or amend. The Freedom Dividend would replace the vast majority of existing welfare programs. This plan was proposed by Andy Stern, the former head of the largest labor union in the country, in his book Raising the Floor. The poverty line is currently $11,770. We would essentially be bringing all Americans to the poverty line and alleviate gross poverty.
A universal basic income is a version of Social Security where all citizens receive a set amount of money per month independent of their work status or income. Everyone from a hedge fund billionaire in New York to an impoverished single mom in West Virginia would receive a monthly check of $1,000. If someone is working as a waitress or construction worker making $18,000, he or she would essentially be making $30,000. UBI eliminates the disincentive to work that most people find troubling about traditional welfare programs—if you work you could actually start saving and get ahead. With the growing threat of automation, the concept has gained renewed attention, with trials being run in Oakland, Canada, and Finland as well as in India and other parts of the developing world.
Today, people tend to associate universal basic income with technology utopians. But a form of UBI almost became law in the United States in 1970 and 1971, passing the House of Representatives twice before stalling in the Senate. Versions of the idea have been championed by robust thinkers of every political persuasion for decades, including some of the most admired figures in American life. Here’s a sampling:
Thomas Paine, 1796: Out of a collected fund from landowners, “there shall be paid to every person, when arrived at the age of twenty-one years, the sum of fifteen pounds sterling, as a compensation in part, for the loss of his or her natural inheritance,… to every person, rich or poor.”
Martin Luther King Jr., 1967: “I am now convinced that the simplest approach will prove to be the most effective—the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.”
Richard Nixon, August 1969: “What I am proposing is that the Federal Government build a foundation under the income of every American family… that cannot care for itself—and wherever in America that family may live.”
Milton Friedman, 1980: “We should replace the ragbag of specific welfare programs with a single comprehensive program of income supplements in cash—a negative income tax… which would do more efficiently and humanely what our present welfare system does so inefficiently and inhumanely.”
Bernie Sanders, May 2014: “In my view, every American is entitled to at least a minimum standard of living… There are different ways to get to that goal, but that’s the goal that we should strive to reach.”
Stephen Hawking, July 2015: “Everyone can enjoy a life of luxurious leisure if the machine-produced wealth is shared, or most people can end up miserably poor if the machine-owners successfully lobby against wealth redistribution. So far, the trend seems to be toward the second option, with technology driving ever-increasing inequality.”
Barack Obama, June 2016: “The way I describe it is that, because of automation, because of globalization, we’re going to have to examine the social compact, the same way we did early in the 19th century and then again during and after the Great Depression. The notion of a 40-hour workweek, a minimum wage, child labor laws, etc.—those will have to be updated for these new realities.”
Barack Obama, October 2016: “What is indisputable… is that as AI gets further incorporated, and the society potentially gets wealthier, the link between production and distribution, how much you work and how much you make, gets further and further attenuated… we’ll be debating unconditional free money over the next 10 or 20 years.”
Warren Buffett, January 2017: “[Y]ou have to figure out how to distribute it… people who fall by the wayside through no fault of their own as the goose lays more golden eggs should still get a chance to participate in that prosperity, and that’s where government comes in.”
Bill Gates, January 2017: “A problem of excess [automation] forces us to look at the individuals affected and take those extra resources and make sure they’re directed to them in terms of re-education and income policies…” (Gates later suggested taxing robots.)
Elon Musk, February, 2017: “I think we’ll end up doing universal basic income… It’s going to be necessary… There will be fewer and fewer jobs that a robot cannot do better. I want to be clear. These are not things I wish will happen; these are things I think probably will happen.”
Mark Zuckerberg, May 2017: “We should explore… universal basic income so that everyone has a cushion to try new ideas.”
My mom, September 2017: “If you think it’s a good idea, Andy, I’m sure it’s a good idea.”
You may be thinking, This will never happen. And if it did, wouldn’t it cause runaway inflation? Enable generations of wastrels?
Twelve thousand dollars a year is not enough to do more than scrape by. Very few people will quit their jobs because of a guaranteed income at this level unless they were in a marginal or exploitative situation. The available data bears this out.
On the other hand, the benefits would be absolutely enormous:
• It would be a massive stimulus to lower-cost areas.
• It would empower people to avoid making terrible decisions based on financial scarcity and month-to-month needs.
• It would be a phenomenal boon to creativity and entrepreneurship.
• It would enable people to more effectively transition from shrinking industries and environments to new ones.
• It would reduce stress, improve health, decrease crime, and strengthen relationships.
• It would support parents and caretakers for the work that they do, particularly mothers.
• It would give all citizens an honest stake in society and a sense of the future.
• It would restore a sense of optimism and faith in communities around the country.
• It would stimulate and maintain the consumer economy through the automation wave.
• It would maintain order and preserve our way of life through the greatest economic and social transition in history.
• It would make our society more equitable, fair, and just.
An analysis by the Roosevelt Institute of this $12,000 per year per adult proposal found that adopting it would permanently grow the economy by 12.56 to 13.10 percent—or about $2.5 trillion by 2025—and it would increase the labor force by 4.5 to 4.7 million people. Putting money into people’s hands and keeping it there would be a perpetual boost and support to job growth and the economy. The cost would be about an additional $1.3 trillion per year on top of existing welfare programs, most of which would be folded into the plan, as well as increased taxable revenue and cost savings. Conservatives would rejoice that the patchwork of 126 plans with perverse incentives and cumbersome bureaucracies would mostly disappear.
The cost of $1.3 trillion seems like an awful lot. For reference, the federal budget is about $4 trillion and the entire U.S. economy about $19 trillion. But there are myriad ways to pay for it. The most sensible way to pay for it in my view would be with a value-added tax (VAT)—a consumption tax—that w
ould generate income from the people and businesses that benefit from society the most.
Here’s the challenge: We need to extract more of the value from automation in order to pay for public goods and support displaced workers. But it turns out that “automation” and “robots” are very tricky things to identify or tax. If a CVS replaces a cashier with self-checkout and an iPad, is that considered automation? Or if a bank replaces 200 call center workers with a software program, what do they pay? Assuming appropriate staffing levels is impossible. Plus, you actually don’t want to tax automation too heavily, because you don’t want to discourage it too much—you need the value it’s creating to pay for things.
Another thing to keep in mind—technology companies are excellent at avoiding taxes. Apple, for example, has $230 billion in overseas earnings it’s holding abroad to avoid paying taxes. Microsoft has $124 billion and Google has $60 billion. Our current system of taxation will have a hard time harvesting the gains of automation from both the giant tech companies that will be among the biggest winners as well as from the small tech companies, which often aren’t hugely profitable. Even taxing human income will become increasingly problematic as more and more work gets done by machines and software—hence Gates’s suggestion that we should start taxing robots.
The best way to ensure public gains from the automation wave would be a VAT so that people and companies just pay the tax when they buy things or employ services. For businesses, it gets baked into the cost of production at every level. It makes it much harder for large companies, which are experts at reducing their taxes, to benefit from the American infrastructure and citizenry without paying into it. The biggest companies, like Amazon, would pay the most into the system because a VAT gets paid based on volume, not profits. It also would make it so that we’d all root for progress—the mechanic in Appalachia would feel like he’s getting a stake every time someone gets rich.
Out of 193 countries, 160 already have a VAT or goods and services tax, including all developed countries except the United States. The average VAT in Europe is 20 percent. It is well developed and its efficacy has been established. If we adopted a VAT at half the average European level, we could pay for a universal basic income for all American adults.
A VAT would result in slightly higher prices. But technological advancement would continue to drive down the cost of most things. And with the backdrop of a universal basic income of $12,000, the only way a VAT of 10 percent makes you worse off is if you consume more than $120,000 in goods and services per year, which means you’re doing fine and are likely at the top of the income distribution. Businesses will benefit immensely from the fact that their customers will have more money to spend each month—most Americans will spend the vast majority of their money locally.
The hedge fund billionaire who spends $10 million a year on private jets and fancy cars will pay $1 million into the system and receive $12,000. The single mom will pay about $2,500 and receive $12,000, and will also have the peace of mind that her child will start receiving $1,000 a month when he or she graduates from high school.
For people who consider this farcical, consider the bailouts that took place during the financial crisis. You may not recall that the U.S. government printed over $4 trillion in new money for its quantitative easing program following the 2008 financial collapse. This money went to the balance sheets of the banks and depressed interest rates. It punished savers and retirees. There was little to no inflation.
We did this nominally so that the banks would lend money to businesses, who would then create jobs and shore up the economy. In practice, most of the money went to the balance sheets of the banks and to inflate asset bubbles all over the country, primarily in assets like real estate in Manhattan and Silicon Valley and the stock prices of private companies like Uber and Airbnb. Many human beings did get rich from the money printing bonanza, but they were people among the best situated, not the least. We did this because we believed in institutions far more than we believe in our people.
With the Freedom Dividend, money would be put in the hands of our citizens in a time of unprecedented economic dislocation. It would grow the consumer economy. It’s a stimulus of people. The vast majority of the money would go directly into the economy each month, into paying bills, feeding children, visiting loved ones, youth sports, eating at the local restaurant, piano lessons, extra tutoring help, car repairs, small businesses, housing improvements, prenatal vitamins, elder care, and so on. Most Americans are so cash-strapped that most of the money would be spent locally and quickly.
The government needs to adopt as its primary mission managing the economic transition that automation will bring. We are way behind the curve and need to catch up.
I’m relatively hopeful that the United States will wind up passing a UBI policy like the Freedom Dividend in the coming years. It’s simple, it’s fair, it’s equitable, it’s easy to understand, it benefits at least 80 percent of the population, and it will be necessary to maintain the fabric of society during the automation wave. It will become increasingly popular and commonsense. It would simply take an act of Congress, and the checks/transfers will start going out. Labor leader Andy Stern comments: “The government is not great at many things. But it is excellent at sending large numbers of checks to large numbers of people.” Even in its current debilitated state, the government could easily start collecting a VAT and sending out the Freedom Dividend to end poverty as we know it and prepare society for the future.
To paraphrase Winston Churchill, “Americans will always do the right thing. After they’ve tried everything else.” The question in my mind is what happens between now and then, and how bad things will get.
Believe it or not, the Freedom Dividend is the easy part of the transition. Money is easy. People are hard. For all of the immense good a UBI will do, it is just the first step. The ongoing challenge will be to preserve a mindset of growth, responsibility, community, humanity, family, and optimism in an era when so many bastions of the past are going to topple into obsolescence and so many ways of life will be changed irrevocably.
I never played Magic: The Gathering, but its creator, Richard Garfield, wrote about UBI in a way that I really liked: “UBI… is not shaming—everyone participates. It does not try to control the economy from the top—people can spend their money on what they want and therefore steer the economy as it has always been best steered, by the consumer. It could free up the job market in ways that are hard to appreciate… I am entranced by UBI, not just as a needed fix but as an institute that unleashes people’s potential… I find myself convinced that UBI is natural, and would lead to a more productive and happier world—and it would allow us to fully harness people’s creativity and the technology they create.”
We’re trying relative deprivation and it’s not working. Half-measures are wasting time. Scarcity will not save us. Abundance will.
Before I get carried away with my argument for UBI, let’s look back at the history of the concept—and how versions of it are already a reality.
SEVENTEEN
UNIVERSAL BASIC INCOME IN THE REAL WORLD
It’s hard to fathom now, but the idea of a guaranteed annual income was mainstream political wisdom in the United States in the late 1960s and early 1970s. Medicare and Medicaid had just been passed in 1965, and the country had an appetite for solutions for social problems. In May 1968, over 1,000 university economists signed a letter supporting a guaranteed annual income. In 1969, President Nixon proposed the Family Assistance Plan, which would provide cash benefits of about $10,000 per family and serve as a guaranteed annual income with some eligibility requirements; this bill was supported by 79 percent of respondents polled at the time. The Family Assistance Plan passed the House of Representatives by a wide margin—243 to 155—but then stalled in the Senate due to, of all things, Democrats who wanted an even more robust plan. A Democratic congressman, William Ryan from New York, instead proposed an income floor equivalent to $33,000 today, a
nd the original bill would be argued and reproposed for years thereafter.
The U.S. government funded a number of studies between 1968 and 1975 to gain insight into how guaranteed income would impact individual families. The primary agenda was to see whether people would keep working if they were getting money from the government with no strings attached. The New Jersey Graduated Work Incentive Experiment gave cash payments to more than 1,300 families between 1968 and 1971 to get above the poverty line. Researchers found minimal impact on work—men worked one hour less per week, while women reduced their work weeks by five hours. Mothers spent more time with their children, whose performance at school improved. High school graduation rates rose substantially over the period, by as much as 30 percent.
Similar studies were rolled out in North Carolina, Iowa, Indiana, Colorado, and Washington. Most of these studies showed results similar to the initial New Jersey population. However, the most rigorous and generous study in Denver and Seattle found work hour decreases of about 9 percent for men, 20 percent for wives, and 14 percent for single mothers. The Denver study also showed an increase in marriage dissolution, which surprised a lot of people and helped arm opponents of the legislation, who defeated it for good in 1978. In 1988, scholars at the University of Wisconsin went through the data and found that the effect on marriage was dramatically overstated based on an erroneous model. Other scholars later questioned the work decrease as based on self-reported hours. But by that time, the debate had passed.
The U.S. studies involved individual families and never tried to measure communal impact. Canada tried it all in one small town. In February 1974, Canada spent the equivalent of $56 million to get everyone in the town of Dauphin, a 13,000-person town northwest of Winnipeg, above the poverty line. One thousand families got a check each month of different amounts with no restrictions. They called it “Mincome,” short for minimum income. It lasted for four years, before a conservative government won control of the government and discontinued payments.
