Great discussion guys. IMHO the fear of UBI is totally illogical.
We already have a system very similar to a UBI in the form of govt pensions, unemployment benefits etc. Today you can choose not to work if you want to and still receive money. The world isn't caving in. The difference between UBI and what we have today is that currently if you are on a benefit and do some work you can have a massive effective marginal tax rate (sometimes >100%, where if you earn an extra dollar you lose benefits worth more than a dollar). See the charts here: https://www.austaxpolicy.com/effective-marginal-tax-rates-part-2/ . This is a huge disincentive to work. UBI encourages everyone who wants to work. Today most people continue to strive for a life better than the bare minimum and that wont change just because the way we tax and distribute welfare is different.
To prevent sudden changes, the govt could phase in a UBI slowly, each year adding say $1000/month to UBI payments, and reducing taxes and benefits by the same amount. So everyone is basically on the same income as before. Eventually UBI could increase to a final amount of say $30k/year (similar to age pension), and taxes could be a flat 40% irrespective of income. This would replace almost all government benefits and asset tests etc (perhaps there is still a need for NDIS and one or two other systems). The increase in taxes for people on high incomes would be roughly equal to the UBI meaning that its not about giving welfare to the rich. Economists could determine the optimal UBI payment and flat tax rate so as to avoid a sudden increase in average income and the ensuing inflation.
Better still, the reserve bank could be given the ability to set the UBI, directly controlling inflation in a way that is much more direct that setting interest rates. Thoughts?
Great conversation thanks! The Great Rupture, but Viktor Shvets has some great musings on this topic too. Also asking the question if moving to a more AI driven economy reduces the need for social structures that create innovation and allowing previously less successful governments to thrive.
I'm not too familiar with the New Zealand system but wouldn't they have a problem with ageing population if they have a pay-as-you-go pension system unlike Australia where you're forced to save during your working years. Wouldn't you get the same problem with a UBI. I suppose you can mitigate that with a social wealth fund like structure.
Super merely defers spending from your working years into spending money during retirement. In the meantime it creates asset bubbles in the stock and property markets. It also extends income inequality well into retirement and inheritance. If this compulsory savings mechanism is abolished then yes more people will rely on the UBI (formerly called the age pension) but on the other hand younger people would be getting 10% more income but paying say 40% of that in tax, which would help fund the additional UBI payments. If youre worried that due to an ageing population we wont be able to afford pensions, remember that AI and other technologies will mean that we can get the same work done with fewer people, so quality of life should be similar.
I doubt automation would that extensive. They have saying that in the 18th century when we saw more automation in the textile industry. We haven't even managed to fully automate the textile industry. It's like the third largest manufacturing employer in the world. I don't see LLMs and machine learning in general is going to automate childcare, construction, healthcare, nursing etc.
I agree that service industries such as those listed cannot readily be automated. Some people working in these industries today are paid minimum incomes and are practically wage slaves, and given the option to quit and go on a UBI would do so, even if it means they will only just have enough money to survive. But these are essential services with fairly inelastic demand, so prices will rise and so will wages, attracting more workers away from industries that can be partially or fully replaced by AI, such as lawyers, doctors etc.
I have been hearing about AI replacing doctors for over twenty years. I'll believe it when I see it. Telemedicine and telerobotics is probably more realistic and even that relies on deregulation of the sector.
For the case of Australia the biggest disruption wouldn't be coming from AI but the green transition and the slowdown of the construction sector in China. A rapid fall from coal, gas and iron ore exports within a decade will be an extremely disruptive process.
I dont think the green transition reduces the need for steel. Similarly gas will be essential for the interim. So Iron Ore is not going anywhere, gas is around for a while yet and while Coal may be on its way out, the only current decarbonisation path is green hydrogen and there is a reason Twiggy is pushing so hard on green hydrogen.
I also mentioned the slowdown of the construction sector in China. That is the reason behind the fall in iron ore prices. I don't think India and sub Saharan Africa will be able to pick up the pace.
The green hydrogen is mostly vapourware. The only viable use case of green hydrogen will be the production of green plastic and that's it. (other than replacing current hydrogen demand of course).
There is going to be a huge amount of American LNG coming online in a few years and will also makes our LNG less competitive internationally.
I'm very concerned about what we will have to do in return for a UBI... our data for machine learning for e.g.? https://fortune.com/2021/06/27/universal-basic-income-data-privacy-trusts/ To teach AI how to replace us further. There are so many bigger conversations needed around a UBI. How, did we enter this arena with so few people understanding what is going on? The covid years have also taught me to very, very concerned about being dependent on the government and the corporate interests invested in the Fourth Industrial Revolution.
Agree with you on concerns around giving away personal data and how that can be very powerful in the hands of governments or even larger organisations.
But that should be unrelated to a UBI. The UBI can be "funded" by increasing taxes to a flat rate irrespective of income. And the UBI can be set to any dollar amount we like. Too low and people cannot survive and are forced into work. Too high and you will create an oversupply of cash and/or undersupply of willing workers, both causing inflation.
As Cam says though, I dont think you have to worry about people not willing to work if its too high. The bigger worry is how you fund it, that would be the main limiting factor. The reality is that you probably need to fund it from capital, move away from taxing income.
Secondly, UBI doesnt need to be huge, lets say 30k/year. The lower it is the more people will be encouraged to find work and keep the economy ticking over.
Thirdly, a huge amount of profit is made by miners extracting minerals from the ground and shipping that overseas. Mining could be taxed a lot more and the mining companies would still make a very decent profit.
Great discussion guys. IMHO the fear of UBI is totally illogical.
We already have a system very similar to a UBI in the form of govt pensions, unemployment benefits etc. Today you can choose not to work if you want to and still receive money. The world isn't caving in. The difference between UBI and what we have today is that currently if you are on a benefit and do some work you can have a massive effective marginal tax rate (sometimes >100%, where if you earn an extra dollar you lose benefits worth more than a dollar). See the charts here: https://www.austaxpolicy.com/effective-marginal-tax-rates-part-2/ . This is a huge disincentive to work. UBI encourages everyone who wants to work. Today most people continue to strive for a life better than the bare minimum and that wont change just because the way we tax and distribute welfare is different.
To prevent sudden changes, the govt could phase in a UBI slowly, each year adding say $1000/month to UBI payments, and reducing taxes and benefits by the same amount. So everyone is basically on the same income as before. Eventually UBI could increase to a final amount of say $30k/year (similar to age pension), and taxes could be a flat 40% irrespective of income. This would replace almost all government benefits and asset tests etc (perhaps there is still a need for NDIS and one or two other systems). The increase in taxes for people on high incomes would be roughly equal to the UBI meaning that its not about giving welfare to the rich. Economists could determine the optimal UBI payment and flat tax rate so as to avoid a sudden increase in average income and the ensuing inflation.
Better still, the reserve bank could be given the ability to set the UBI, directly controlling inflation in a way that is much more direct that setting interest rates. Thoughts?
Great conversation thanks! The Great Rupture, but Viktor Shvets has some great musings on this topic too. Also asking the question if moving to a more AI driven economy reduces the need for social structures that create innovation and allowing previously less successful governments to thrive.
I'm not too familiar with the New Zealand system but wouldn't they have a problem with ageing population if they have a pay-as-you-go pension system unlike Australia where you're forced to save during your working years. Wouldn't you get the same problem with a UBI. I suppose you can mitigate that with a social wealth fund like structure.
Super merely defers spending from your working years into spending money during retirement. In the meantime it creates asset bubbles in the stock and property markets. It also extends income inequality well into retirement and inheritance. If this compulsory savings mechanism is abolished then yes more people will rely on the UBI (formerly called the age pension) but on the other hand younger people would be getting 10% more income but paying say 40% of that in tax, which would help fund the additional UBI payments. If youre worried that due to an ageing population we wont be able to afford pensions, remember that AI and other technologies will mean that we can get the same work done with fewer people, so quality of life should be similar.
I doubt automation would that extensive. They have saying that in the 18th century when we saw more automation in the textile industry. We haven't even managed to fully automate the textile industry. It's like the third largest manufacturing employer in the world. I don't see LLMs and machine learning in general is going to automate childcare, construction, healthcare, nursing etc.
I agree that service industries such as those listed cannot readily be automated. Some people working in these industries today are paid minimum incomes and are practically wage slaves, and given the option to quit and go on a UBI would do so, even if it means they will only just have enough money to survive. But these are essential services with fairly inelastic demand, so prices will rise and so will wages, attracting more workers away from industries that can be partially or fully replaced by AI, such as lawyers, doctors etc.
I have been hearing about AI replacing doctors for over twenty years. I'll believe it when I see it. Telemedicine and telerobotics is probably more realistic and even that relies on deregulation of the sector.
For the case of Australia the biggest disruption wouldn't be coming from AI but the green transition and the slowdown of the construction sector in China. A rapid fall from coal, gas and iron ore exports within a decade will be an extremely disruptive process.
I dont think the green transition reduces the need for steel. Similarly gas will be essential for the interim. So Iron Ore is not going anywhere, gas is around for a while yet and while Coal may be on its way out, the only current decarbonisation path is green hydrogen and there is a reason Twiggy is pushing so hard on green hydrogen.
I also mentioned the slowdown of the construction sector in China. That is the reason behind the fall in iron ore prices. I don't think India and sub Saharan Africa will be able to pick up the pace.
The green hydrogen is mostly vapourware. The only viable use case of green hydrogen will be the production of green plastic and that's it. (other than replacing current hydrogen demand of course).
There is going to be a huge amount of American LNG coming online in a few years and will also makes our LNG less competitive internationally.
You're probably right. UBI is a good way to distribute limited resources fairly given all of the upheaval in the jobs market in Australia.
I'm very concerned about what we will have to do in return for a UBI... our data for machine learning for e.g.? https://fortune.com/2021/06/27/universal-basic-income-data-privacy-trusts/ To teach AI how to replace us further. There are so many bigger conversations needed around a UBI. How, did we enter this arena with so few people understanding what is going on? The covid years have also taught me to very, very concerned about being dependent on the government and the corporate interests invested in the Fourth Industrial Revolution.
Agree with you on concerns around giving away personal data and how that can be very powerful in the hands of governments or even larger organisations.
But that should be unrelated to a UBI. The UBI can be "funded" by increasing taxes to a flat rate irrespective of income. And the UBI can be set to any dollar amount we like. Too low and people cannot survive and are forced into work. Too high and you will create an oversupply of cash and/or undersupply of willing workers, both causing inflation.
As Cam says though, I dont think you have to worry about people not willing to work if its too high. The bigger worry is how you fund it, that would be the main limiting factor. The reality is that you probably need to fund it from capital, move away from taxing income.
To start with, income tax should go up to a flat 40% irrespective of income. We effectively have a min marginal tax rate of 40% today via the loss of benefits as you ratchet up your income https://www.austaxpolicy.com/effective-marginal-tax-rates-part-2/.
Secondly, UBI doesnt need to be huge, lets say 30k/year. The lower it is the more people will be encouraged to find work and keep the economy ticking over.
Thirdly, a huge amount of profit is made by miners extracting minerals from the ground and shipping that overseas. Mining could be taxed a lot more and the mining companies would still make a very decent profit.