Op-Ed by Troy Vincent
2020 Democratic Presidential Candidate Andrew Yang has been making the rounds on talk shows and popular podcasts like the Joe Rogan Experience over the past month. The key platform of his candidacy is what his team has branded “The Freedom Dividend.” This promise of a $1,000/month government payout for every American adult over the age of 18 is nothing more than a rebranding of what is commonly known as the Universal Basic Income (UBI). Unfortunately for Yang, the basis of both the supposed need for his policy prescription and the prescription itself is built upon a foundation of economic fallacies and lies.
Yang is seeking to appeal to the same voters that helped Donald Trump rise to the presidency. He is explicitly targeting the struggling working class and what he claims are hordes of soon to be unemployed middle Americans with little education and job prospects. In other words, he’s looking to buy votes by paying those who have fallen upon hard times and by convincing others that they too will need government handouts in the future due to losing their jobs to technology. While it can be said that all politicians are buying votes in some form or another, to make handing out $12,000 a year to every American adult the basis of your presidential campaign would be to set an alarming precedent with perverse incentives and a slippery slope. When $12,000 fails to satiate the voting public or live up to the outcomes claimed – which it is certain to do – this figure can only surely rise in the future. And after enacted, how willing would voters be to simply give up their $12,000 payout?
Yang’s plan of giving the entire population of Americans over the age of 18 who aren’t already receiving more than $1,000 in government benefits per month would mean the Federal Government, which is already $22 trillion in debt, would be handing out nearly $2 trillion per year. His solution – funding the plan with a new value added tax (VAT). A VAT is nothing more than an elaborate consumption tax. As Rothbard noted, “Surely a sales tax, other things being equal, is manifestly both simpler, less distorting of resources, and enormously less bureaucratic and despotic than the VAT. Indeed the VAT seems to have no clear advantage over the sales tax, except of course, if multiplying bureaucracy and bureaucratic power is considered a benefit.”
As Yang has admitted, the “Freedom Dividend”, polls far better than the term “Universal Basic Income” with Americans. This alone should be reason for concern. Yang isn’t even an elected politician yet and he’s already relying on verbal sleight of hand to appeal to the population’s economic ignorance and patriotic tendencies in order to convince them that handing out $12,000 a year to every adult is a good idea even though it goes against their most basic instincts.
Yang invokes three common economic fallacies to support his proposal:
1. Technology destroys demand for labor and dooms future generations to economic misery
Yang’s claim that robots and automation are leaving less work for humans and dooming American’s to economic misery is an old and tired line that has existed as long as capital has been accumulated and utilized to make technological breakthroughs. This line of thinking is a continuation of the logic espoused by English Luddites of the 19th century which protested against the substitution of manual labor for employing even the most basic forms of machinery. This is the same line of thinking that leads to protectionist trade policies. After all, a robot or machine isn’t the only form of competition for labor. Free trade, which allows for accessing skills and goods for lower prices globally than can be had domestically was also claimed to be a job killer and economic death sentence. Over the past century, the protectionists have of course been proven wrong as the rise of global trade has led to both domestic and global economic growth resulting in staggering declines in poverty and rising standards of living.
Sure, instead of petitioning to end the use of technology in business Yang and the supporters of UBI are suggesting government handouts via redistribution, but their entire basis for the need for a UBI emerges from this view that Americans are doomed to be displaced by technology and left worthless in the labor market. It seems hard to believe that after witnessing the last two centuries of employing ever more technology in the workplace, and the commensurate rise in objective measures of standards of living over that time, that anyone could even make such a claim in good faith.
Yang invokes the labor force participation rate, which remains below pre-2008 recession levels, and claims this implies we need a UBI because those not in the work force are there due to technological displacement. And while it is true that the labor force participation rate remains marred below financial crisis levels, the 4% decline in labor force participation happened between January 2008 and September 2015 as the US economy entered recession and then languished from the government’s so-called economic remedies. You would have to be a fool (or conniving politician) to suggest that the labor force participation rate, which even as technology progressed was unchanged between 1990 and 2007, suddenly plummeted due to the employment of technology following 2007.
Yang tries to weave statistics into his justification for a UBI, and relies on hysterical “the sky is falling” forecasts of mass unemployment driven by technological advancement in near the future. However, oddly enough, he never mentions the fact that 40% of Americans were employed in agriculture at the turn of the 20th century and by the end of the 20th century only 1% of the population was employed in the field and yet America rose to economic prominence over the period. Tractors and farm machinery made millions of jobs obsolete, and yet economic catastrophe did not follow. The same can be said for countless other industries. Yes, specific jobs are destroyed by innovation and technology, but this has always been the case and it does not lead to a general decline in the demand for labor. Furthermore, technology has historically displaced the most dangerous, monotonous and grueling tasks – which we should all be thankful for.
2. Maximizing employment as an economic goal rather than maximizing wealth
Yang claims the US needs a VAT to stick it to companies like Amazon who are innovating away the need for labor, so that this tax revenue can be used to fund the UBI and create millions of new jobs. Not only do empirical studies find that the rise of technology throughout history does not lead to a long term rise in unemployment, but this leads us directly to the second fallacy of making maximizing employment the measure of economic success and an economic goal in and of itself. Even if the labor force participation rate was set to decline due to the rise of technology, that isn’t something to necessarily fear. The fallacy arises in part due to the fact that the unemployment rate is discussed as being nearly synonymous with the strength of the economy.
Intuitively we should all know that we do not value work for work’s sake – we value wealth, not jobs per se. If simply employing the most labor and resources, instead of creating wealth is what is to be valued, then we would simply make every process as inefficient and labor intensive as possible. But we don’t. What makes people’s lives more enjoyable, what raises their standard of living, is that which makes food and other key goods and services more abundant. If an abundance of resources can be had with less hours worked surely we would all be in favor. In fact, it is clear by our very actions that we value wealth more than work for works sake.
People who speak alarmingly over the rise of automation and technology displacing human labor must be appalled by the fact that the average number of hours worked by full time workers declined by over 33% over the course of the 20th century as technology was increasingly utilized. After all, if employment of human labor is a good in and of itself, we should want to work more hours rather than less. But of course that’s not the case. At this point, surely the absurdity of such a fixation on maximizing employment is clear. We all want access to goods and services and we all want to expend as little time and energy as possible to attain them. Only masochists would want to labor away to attain things which could be attained with less effort.
The past century of progress in the growth of the material wealth of individuals has proven that the rise of technology allows humans to work less while simultaneously achieving greater degrees of material wellbeing. The employment of technology is not a plague to be feared. Alas, unfortunately we can’t all just set around and do as we please while robots do all of our work quite yet. People need to prepare for a changing economy and to learn new skills as they always have. The best thing we can do to make sure this happens is to get government out of the way of those willing to prepare.
3. Consumer spending is the basis of economic growth
Following the Keynesian framework, Yang employs the fallacy of consumer spending as the basis for economic growth. Of course, if you measure economic growth as a measure of spending like GDP, less spending necessarily means less growth. Under the current GPD fixated Keynesian framework, it is spending rather than savings that makes the economy grow. But this is merely a matter of the mathematical formula that makes up GDP and says nothing about the logical considerations or intertemporal allocation of resources that should actually be examined when trying to judge what determines economic success.
As Yang’s Keynesian consumption fixated model goes, putting cash in the hands of individuals gives them confidence to spend. And when they spend more money other people receive more money and their confidence rises and they spend more money. And this circular flow continues. Yang employs this narrative as justification to hand out money under the UBI. This is the foundation of the Keynesian framework, which suggests that aggregate demand for goods is what drives the economy and a lack of demand for goods is what causes economic contraction. He seems unaware that great thinkers like Henry Hazlitt intellectually destroyed this framework many years ago.
This model for viewing the economy ignores the fundamental tradeoff between producing consumption goods and producing investment goods. That is to say, it ignores the very notion of scarcity. Before more of something can be consumed, more of that thing must be produced. Producing more of a good first requires investment in capital goods like tractors, or welders, or production facilities. Investment in those capital goods necessarily requires savings, which is to say consuming less than otherwise possible. You cannot save if you have already maximized consumption. So it is savings, not spending that allows for greater consumption in the future. The Keynesian framework to which Yang likely unknowingly subscribes sweeps this entire consideration aside. It focuses purely on the need to boost aggregate demand. The employment of this model by the US government has led to the justification for the disastrous deficit spending, bail outs, and money printing of the past century.
This begs the question – why stop at $12,000 a year? If scarcity need not be considered, if the UBI is such a great idea, if high aggregate demand is the key to economic success, and if government can simply print money with no consequence as is readily suggested today, why not just give everyone a UBI of $100,000 per year with money printed by the Federal Reserve? To suggest that this is a ludicrous suggestion is to admit that there is indeed an undisclosed cost to such a UBI proposal and for the entire Keynesian framework for that matter.
In the depths of the great depression, Keynes suggested that “the Government should have people dig up holes and then fill them up” so as to provide pay for anything no matter how fruitless in an effort to spur on consumption. A UBI is then nothing more than skipping the step of digging the hole. For the average man who is not corrupted and predisposed to the Keynesian model, the great pre-Keynesian economic insight of scarcity and of the need to produce before consuming is largely self-evident. The corollary to this insight is that any policy that hopes to help those rise up and better their material wellbeing should first help individuals be more productive.
Yang claims that the UBI will not cause people to quit their jobs, as $1,000 per month is too little to cause people to quit work. While this may be true in many instances, it still misses the point. Shouldn’t the goal of such a policy be to help individuals become financially independent? Have we completely given up on teaching a man to fish? Finland, which ran a trial of UBI for unemployed Fins from January 2017-December 2018 had hoped it would give people the financial security to allow them to receive education and build new skills needed to re-enter the workforce. But the study concluded that those on the UBI were no more likely to find employment than a control group who did not receive the payment. Yang’s proposal is far more sinister as he is not even singling out the unemployed. In this way, it is simply just expansionary fiscal policy that goes straight to individuals. Ironically, this is proposed by the same group of people that don’t want to cut taxes.
With UBI and Modern Monetary Theory rising to political prominence among the left’s young and hip, we should prepare for the onslaught of economic fallacies that will be employed to justify their enactment.
Troy Vincent is a 2011 graduate of Mises University and has a BS in economics and public policy from Indiana University. Since 2013 he has worked in energy economics for private sector research and consulting firms.
This article was sourced from Mises.org