"In the following pages I offer nothing more than simple facts, plain arguments, and common sense; and have no other preliminaries to settle with the reader, than that he will divest himself of prejudice and prepossession, and suffer his reason and his feelings to determine for themselves; that he will put on rather than off, the true character of a man, and generously enlarge his views beyond the present day." - Thomas Paine, Common Sense

Friday, December 20, 2013

Guaranteed Universal Income = Guaranteed Universal Poverty

Another flawed, not-so-new economic idea to save the poor and middle class has once again started to gain popularity: a guaranteed universal (or basic) income. Basically, everybody is guaranteed a certain amount of money per month, courtesy of our overlords benevolent leaders. Anyone who earns above that amount gets taxed "in proportion." There are better ideas, but basic income advocates naively claim that their scheme would defeat poverty once and for all.

According to the 2013 Federal Poverty Guidelines, the individual poverty level is just under $12,000/year. So let's imagine a system where everyone, upon reaching a certain age, received a check for $1,000/month just for being alive.

The fault of any basic income scheme is in the underlying assumption that, once implemented, people will continue to work just as much as they do now. But this assumption conveniently ignores the immense disincentive to work once such a system is in place.

It should be obvious that no one earning below, at, or slightly above the poverty level would continue working. Let's say you've got a minimum wage job at a higher-than-average $9/hr. You work 8-hour days every single weekday in the year, never taking a day off because you're a total iron-(wo)man, and you desperately want to get ahead. All that work gets you ~$17,000/year, or in the ballpark of ~$1400/month.

But wait! Your lazy-yet-capable neighbor who sits at home and does absolutely nothing except throw parties when you're trying to sleep gets a cool, free $1,000/month basically to do exactly that. You would be too, but you choose to work your ass off for an extra $440/month like an admirable idiot, and then even that gets taxed and inflated away to pay for all the people who suddenly decided that working wasn't worth their time.

There's a less obvious force working that would inevitably result in the mandated poverty line being raised: inflation. As the costs of this welfare program (and all the ones before it) increase as more and more people take advantage of it, taxes alone won't be able to pay for it. Even now, most of our tax dollars go toward paying interest on our national debt. The Federal Reserve will be forced to massively inflate the money supply, causing prices for everything to go sky-high.

The higher prices will result in a tremendous push to raise the poverty level. Now people will be paid $1,500/month, then $2,000/month, etc., and people who earn at or around that level will quit their jobs as well, compounding the problem even further.

As more and more people quit working or lose their jobs, the tax burden on those who do work increases and their income decreases. The commonly held belief that rich people are taxed to pay for poor people is false - in reality, poor and middle-class people are taxed to pay for other poor and middle-class people. Eventually you'll stop and realize that you can't justify getting up for work every day simply to earn just as much as your non-working neighbor. 

Despite what some conservative and supposedly libertarian writers and pundits have claimed, a guaranteed universal income scheme will not replace the current welfare system. This is a ridiculous argument that is contrary to experience, yet has been routinely trotted out to appeal to limited-government folks every time there's a new grand welfare program being pushed. One major example is Social Security, which was touted as a replacement for a patchwork of confused, sporadic, and inefficient old-age relief programs. Instead, Social Security was simply placed on top of those programs. This is no different: all of our current welfare programs would be supplemented by a basic income, rather than replaced.

Instead of paying someone, McD's will just have Robots make your crappy burger.
But that's not all: with the increased taxes, higher prices for goods and labor, and an unstable currency, what few businesses are left in the country will either leave for more appealing markets or won't be able to hire anyone. Many more jobs will become automated. Any remaining leverage that workers had would be gone because jobs would become even scarcer.

As is common with the surface-deep economic thought behind many socialist ideas, a universal income simply attempts to treat the symptoms of a dead or dying economy instead of attacking the cause of the problem. The irony of the idea of a basic guaranteed income is that it frames the government as the solution to a government-induced problem, and, contrary to the naive and shortsighted expectations of its advocates, will only serve to make things worse. 

When you see all the money the government is handing out not only to people who don't work but people and companies who make millions or billions of dollars, the correct approach is not to say, "I should get mine, too," but instead to realize that our government should not be stealing money from anyone (which they do by threatening us with jail-time) and giving it to someone else. The fact remains that there has yet to be a government program nearly as effective as private charity at aiding those in need, and simply having the government throw money at poor people while taxing, regulating, and destroying the economy around them isn't going to solve anything.

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Recommended reading (click link or picture to purchase from Amazon and support SFPA):

by Henry Hazlitt

by Murray Rothbard

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