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Guaranteed Mirage Income?
Jonathan Kolber   May 14, 2016   Ethical Technology  

Abstract:

According to Oxford, B of A Merrill Lynch, and other researchers, technological job displacement will increase dramatically in the next decade. Awareness of the threat this poses to societal stability is rapidly rising. Along with this awareness, there is increased discussion of guaranteed income (in various flavors) as a solution. This article explores the myriad challenges associated with permanently implementing any such program on a national basis.

It argues that these challenges are too daunting for such a program to succeed in existing societies, except in response to extreme social instability such as a Great Depression. Such instability carries with it enormous risks.

It concludes by introducing an alternative method of implementing a guaranteed income by sidestepping the gridlock and entrenched interests of established societies. This alternative is based on the creation of a new, model society. Once successful in simulation, such a society can be built in real life, further refined, and then duplicated elsewhere as wanted and needed. 

Article:

Increasingly, pundits are raising a clarion call about the threat machine intelligence poses to the workforce. Prof. Vivek Wadhwa of Stanford University, and former US Secretary of Labor Robert Reich are but two of the luminaries now writing about this issue.

Accelerating automation, via its handmaiden technological unemployment, is displacing more and more types of workers across the board. This includes white collar, technical, services, and many of the remaining manual labor jobs. Researchers from Oxford University, Brookings, Nomura, and Bank of America Merrill Lynch all think that 40% or greater job displacement is possible soon in the United States. The effect will be greater in poorer countries, as high as 85%.

When one considers that during the Great Depression, unemployment peaked around 25%, the gravity of the situation becomes apparent. But it is not only worse numerically. After the Great Depression ended, many of those jobs returned. These lost jobs won’t. Automation is the ultimate in outsourcing.

Some think that technology will generate plenty of new jobs, while some of us who are skeptical note that a new form of AI called deep learning has already demonstrated superhuman ability to learn complex subjects.

Given that jobs, whether existing or new, will soon not be available for large numbers of people, the great question of our time becomes: how do we provide displaced people with the meaning and incomes they now get from work?

Most are endorsing a guaranteed income for all. But is this realistic?

A guaranteed income comes in two broad forms. There’s the guaranteed minimum income (GMI, which would be means-tested. Then there’s the guaranteed basic income (GBI, also called Universal Basic Income), which would be paid regardless of income to everyone (or to every adult citizen, or …)

Both forms are designed to eliminate poverty, and experiments on small scales have shown promising results. This idea is being considered on a national level in Switzerland and Finland.

It sounds so simple. What could be simpler than a GBI? Everyone (or, at least, every adult) who has a national ID or Social Security number would receive a check each month. It would be enough to cover basic living expenses. Liberals love that aspect; conservatives love the streamlining of bureaucracy. But in this case, the devil is definitely in the details.

Enormous Practical Problems

The problem with this theory, like so many others, is that it runs into practical problems. When bureaucracy is "streamlined" and "consolidated", that means enormous losses of jobs, and lost contracting opportunities for businesses. They will not acquiesce gracefully.

According to the economist James Tobin, if a nation spends 25% of its national income funding public services, then offering a GBI that provides recipients just 60% of the median national income would require tax rates exceeding 80%.

Advocates generally ignore the fact that work isn’t just a source of income. For most people, it’s how they find meaning in life. It’s their primary source of social contact, and what gives them a sense of being valuable. This is important. Loss of job is a significant risk factor for suicide.

The only countries now seriously considering a GMI or GBI on a national level are wealthy, small, and homogeneous. Consider Switzerland. The Swiss referendum proposal, which many are noting favorably, would consume 30% of national GDP, according to The Economist. It is, they say, “absurdly expensive”.

In addition to the national plans being discussed, some cities and regions have flirted with such incomes. The latest ones gaining steam are in the Canadian province of Ontario and the Dutch city of Utrecht. While their proposals would pay recipients only about 1/3 of the Swiss proposal, left unanswered is the question of immigration. Once it’s known that a place—whether city, region or nation—guarantees everyone an income, it will become a magnet for immigration. While residency restrictions can and will be imposed, those are only temporary—and may be subject to manipulation.

Immigration is already becoming unpopular in Europe and the USA. If a guaranteed income were to magnify immigration, it could fan the flames of nationalism and demagoguery. Further, the additional budgetary pressures would make it harder to sustain the program. This is an especially large challenge for city or regional programs, or in nations within the European Union which have agreed to support mutual immigration.

In the USA a guaranteed minimum income (GMI) would surely be derided as a “gimme”. Welfare recipients are generally disrespected in the USA; any proposals for giving them enough to “suck forever at the public teat”, will raise a hue and cry rarely seen. This seems likely in Europe as well, given how nationalist sentiments are on the rise and immigrants are among the least likely to be employed.

Then there is the matter of payment. While there would undoubtedly be savings in reduced bureaucracy, especially with the GBI, the costs are enormous. Consider the United States. There are slightly more than 240 million adults (18+) living in the USA, of whom 93% are citizens. Limiting payments to adult citizens, that’s 223 million people receiving checks. At a modest $10K/year, which is below the poverty line, that’s $2.23 trillion.

Let me repeat that: $2.23 trillion. Annually.

The current US welfare budget is about $1 trillion. So even if all of the current costs were eliminated—a very big if—GBI would still remain an enormous annual expense. Where would it come from?

Annual deficits of $1.23 trillion on top of planned deficits will not win support, so the only solution is $1.23 trillion in new taxes. Again, annually. Such extreme changes only are possible in democracies in two conditions: wartime, and economic crises such as Great Depressions.

Even during the Great Depression, it was a great struggle to get a social safety net imposed (and one of the most promising options was politically dismissed; more on this below). If a new “Greater Depression” is needed to ramrod through a guaranteed income, it may have to await such an event.

But such events bring with them demagoguery. During the Great Depression, America might have elected Huey Long. It might elect another demagogue soon. Demagogues are the underbelly of democracy, of whom the US Founders were fearful. The warning signs are there to see, not only in America but similarly across Europe and elsewhere. Fascist elements are rising, in multiple nations.

Desperate people will grasp at any straw to survive. Even if a Greater Depression were to bring a guaranteed income to many countries in the world, it risks not only political instability but also very real social consequences.

Those among us who are old enough once knew grandparents who squirreled away all manner of things, even pennies, because they were ever fearful of acute scarcity. Much of the potential of those people was lost; their quality of life damaged forever. The price of a Depression is too high to accept.

With the middle class soon to be rapidly shrinking due to accelerating automation, they will not be a viable target for such new taxes. Obviously, the poor will not be such a target--and many of the formerly middle class will become poor when their jobs are automated. (Per McAfee and Brynjolfsson, only a fraction of the middle class will soar as “winner take all superstars”.)

Those Who Can Pay for This, Won’t

Those who embrace the idea of a guaranteed income will propose taxing big corporations and the rich. However, big corporations have demonstrated great nimbleness in avoiding taxes. There are now legal, established mechanisms by which a large corporation can move its tax locale to a tax-friendlier nation. Likewise, through the use of vast armies of paid lobbyists, bribed public officials, and captive tax experts who assure the existence of loopholes, big business is almost always ahead of the curve on legislation and regulation.

It’s even worse than I’ve stated. As more and more of their assets become intangible intellectual property (rather than buildings and machinery), their portability increases. The same is true for those who own such corporations, as well as other rich people whose assets are primarily financial.

Unlike other nations, the US seeks to have a global reach in its pursuit of tax revenues. It also has the most sophisticated collection mechanisms. The fallacy of believing that such mechanisms will work well against corporations fleeing taxation is shown in the US government’s continuing unwillingness or inability to tax its own home-grown major corporations, which increasingly use “inversions” to relocate to lower tax nations. $2.1 trillion reportedly remains ashore, untaxed.

Instead of an income tax, some propose that imports be taxed—especially targeting companies that choose to change their domicile. Apart from “most favored nation” and other international agreements restricting such taxes, there is the question of value added. If a company located in Cayman Islands delivers software to its US “subsidiary” which then “improves” it before sale, the value of the software can be allocated between venues as the company prefers.

To look closely at this one example; that of software, there are extraordinary and legal ways to avoid an import tax. Here are some ways if the US is the present corporate domicile and a company wishes to avoid US taxes:

  • Move the corporation via inversion to a tax haven nation, or if that becomes difficult in future then create a new “subsidiary” or “affiliate” entity that is domiciled in a tax haven nation.
  • The company sells the initial software purchase inexpensively. It then charges significant fees for support and/or renewal of the existing license
  • Less ethical companies could “sell” their software to non-US buyers who would then “give” copies to friends in the US. (With a mere $5 markup, there would be people in India doing this for a living.)

Keep in mind that I am no tax expert. If I can think of these, how many more would a CPA or tax attorney uncover? The point is that there may be little “import value” to tax.

Another possibility to pay for this is taxation of assets. This has already been tried. Alaska has a “Permanent Income Fund” from oil revenues, and in effect so does Saudi Arabia. The problem with such schemes is that asset values are rarely enduring. A few years ago, oil prices exceeded $100/bbl. Now, Deutschebank is questioning whether oil will remain competitive with solar even if priced at $10/bbl.

Some such as Thomas Piketty think that a global tax treaty can capture the needed taxes, but any such treaty would threaten the financial interests of many powerful figures including high officials. Further, banking is one of the world’s most regulated industries. Yet, among nations, only Iceland was able to imprison any of the bankers responsible for the global 2008 crisis. Why would anyone expect a new regime of taxation and regulation to work better?

After all, despite the pomp and circumstance associated with the new Paris Accords on climate change, actual enforcement mechanisms remain elusive and rich countries are not stepping up to the extent needed to pay for the remediation costs of poor countries. And, unlike personal incomes, climate change in poor countries also affects richer ones!

Even if such an international treaty and tax were to come into existence, it would surely arrive replete with its own loopholes, awaiting tax lawyers better trained and better paid than those in government service. Further, with every country that signed on to such a treaty, the advantages to the remaining countries from remaining apart as tax havens would only increase. Some claim that such countries could be sanctioned. But sanctions tend to be short-lived in their effectiveness, and accepting the sanctions might be an acceptable price to some nations.

Others imaginatively propose that machines be taxed so that part of the benefit corporations gain from automation can be made available for a GBI. However, accountants can allocate those savings in various ways. They may not appear tied to the machines at all. When making a physical product, it may be possible to tie a worker(s) to it. This becomes still harder with intangible products and services, which represent an ever-growing percentage of the economy.

If such a “machine benefit tax” is to be tied to wage savings, how will those benefits be determined? In the short term, an employer who replaced a worker will look for the lowest paid “comparable” position. Comparability will be debated, especially as time passes and comparables disappear. Wages will drop over time as more and more displaced people compete for fewer and fewer open positions. Companies will use this to justify lower and lower taxes.  In the long term, when there are no more human workers of that kind, what then?

Then there is the question of fairness. Companies taxed for newly “hired” machines will scream that all machines must be similarly taxed, as all machines replace human workers who would have been hired. Other companies not presently taxed will fight against this just as hard. This could quickly lead to absurd levels of complexity and tax claims--a bureaucratic and political nightmare. Most seriously, it will be impossible to tax the lost human jobs that will never exist because people were never even considered. Topping it off, all of this is a recipe for endless litigation.

That’s in the USA; one of the countries best able to pay. Third world countries that lack even fundamental infrastructure and any safety net will not be able to pay. (They can’t even pay to contain diseases in their own countries, or to build enough roads or schools.) So most of the world’s population will not have a GBI or GMI any time soon.

(While there have been some small, localized experiments in India, no nation has scaled up a guaranteed income program beyond small experiments to the national level on a permanent basis. Absent a Greater Depression, I expect that none will, with the exception of a few wealthy and homogeneous ones such as Finland and Switzerland.)

New Solutions Needed

As commonly proposed, the guaranteed income is at best a palliative. At worst, it’s a mirage. Humanity needs a truly new solution to the rising tide of technological unemployment, and soon.

A different kind of guaranteed income is possible. Such a solution should, at minimum, address the following concerns:

  1. The income must carry dignity and social respect
  2. Powerful interests should not view it as a threat to their incomes or assets
  3. Payment of the income should require no new bureaucracy or intrusion
  4. Recipients need to find the meaning in life most now find from a job, but without insulting “make work”.

In my recent book, A Celebration Society, I have proposed a new model societal design that includes such an income. This design can quickly be simulated, tested, debugged and refined online until it meets key quality of life metrics. Once that has been accomplished, it can then be exported to the real world for further testing. After a few years, this “open source” model could be duplicated elsewhere, and eventually retrofitted to existing societies. Using advanced technologies, the first such physical society could potentially be built within about a decade—just in time for the predicted jobs crisis of 2025.

While existing societies are quite unlikely to undertake drastic redesign under present conditions, should they experience job losses in a new and sudden Greater Depression, they will then become desperate for alternatives.  At that point, if a model such as mine has been proven viable and retrofittable, some will start to adopt it (likely with their own variations) and others will follow.

The income would be paid only to adult Citizens. Citizen would be an earned office, never a birthright. It would be available to all adults, but only after a rigorous, objective qualification process. No one other than Citizens would have a role in government. Citizens would accept modest duties in the government in exchange for a modest income to meet their basic needs. The proposal includes a specific way that this income can be generated, including full use of the potential of automation to support the society.

(I recently published an invited Quora competition answer, which summarizes my proposed societal design in several pages. It’s http://tinyurl.com/gnq6utb.)

There are multiple possible societal designs that could meet the coming needs of permanently unemployed people. My proposal is but one of them. We need to start testing them now, preferably via cheap and fast simulations, so we can be ready for the coming tsunami of joblessness in the 2020s.

Instead of building dikes, most of us are playing ostrich. Let’s work together to find viable solutions to meet the basic needs of us all, without need for any redistribution programs that will engender needless conflict and delays.




COMMENTS

Please consider the notion of providing a global BI with the interest on sovereign debt, through Commons shares and social contracts, using existing everything.

https://en.m.wikipedia.org/wiki/User:Tralfamadoran777

A few decades ago, one economist thought that a new economy would be based on atomic power. I always liked the idea that GAI, UBI, if ever performed would be based on something, material, actual. Not merely psychologically based, althoug the mind is central to all this. I feel we need a physical foundation in order to rest this new unemployed economy. Great article. I will now pass it along.

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