Sunday, August 4, 2019

Why Presidential Candidate Andrew Yang’s “Freedom Dividend” Makes Tremendous Sense

Presidential hopeful Andrew Yang’s campaign website states, “Andrew would implement the Freedom Dividend, a universal basic income of $1,000/month, $12,000 a year, for every American adult over the age of 18. This is independent of one’s work status or any other factor.”

Why does it make tremendous sense? Here are the reasons…

   1. Instead of proposing a higher minimum wage at the federal level, he is offering Freedom Dividend – When a CEO of a major fast food chain agrees with $15/hour minimum wage, he is basically saying (to himself), “Thank you for the demonstration. Now kiss your jobs goodbye. I’ll replace you all with robots in a year.” In a year, the CEO gets a measly $20M bonus, while the poor workers get pink slips. Sadly, the vast majority of those workers tend to be poor students and single mothers trying to pull themselves out of adversity. While $15 is an unfair minimum wage in NYC or San Francisco, it could be excessive for small business owners in small towns or rural areas. Therefore, Andrew didn’t walk into that controversial trap; instead of killing jobs and negating economic growth, his Freedom Dividend would spur unprecedented economic growth by adding enormous liquidity at the rank and file level, without having to prevail upon the small employers.    

   2. Instead of making it need-based, he is making it Universal Basic Income (UBI) for all adult citizens This is extremely prudent. Since it would be a universal plan, the federal government would not get to define and choose the “needy.” If Government were to define, identify and choose the needy, his 2-term presidency would not see any UBI. Then again, he is not a career politician so he understands that empowering government would be more expensive than the plan itself. In fact, less politics and fewer government employees would keep the plan healthy and wise. Under this plan, since rich and poor would be treated alike, it would not create any stigma like the current welfare system does, although unfortunate economic circumstances force people into the program. Hopefully, over a period of time, this universal plan would phase out the current welfare system, except for the Medicaid component (unless ‘Medicare for all’ becomes a reality). Also, it could put an end to the discussion on cancellation of student loans.

    3. Freedom Dividend will incentivize early retirement – Though eligible people can activate Social Security at age 62 and retire, the vast majority of them are unwilling to do so due to the reduced qualified income. Since Freedom Dividend will not interfere with the social security income, those willing-to-retire-early folks would welcome this supplemental income and would seriously consider the move. Furthermore, if the Medicare for all plan comes to fruition, the combination would be one of the greatest win-win government programs ever. The early retirement would not only open up millions of jobs for the younger generation, but they would also bring in more modern education and skills to the workforce, thus significantly reducing the need for the foreign H1-b (high skilled) workers, which has long been a bone of contention for our own STEM graduates. Additionally, a good percentage of those early retirees would go on to become entrepreneurs and new business owners, spurring additional economic growth, including new job opportunities.        

   4. Freedom Dividend will create a new generation of young entrepreneurs – Millions of young people, especially college students, have forward-looking business ideas but they generally go nowhere with their brilliant ideas as they lack the start-up capital. Freedom Dividend will empower them to move forward with their ideas knowing very well that this is not a one-off deal. The perennial $1,000/mo (could be higher over time with adjustments for CLI) would allow them to allocate a portion of the income to their business while taking on less student loans, thereby reducing the usual mental and financial stress. This early start would also help those young folks to intelligently avoid the vicious cycle of poverty. The Freedom Dividend plan would gradually turn itself into an income and gender equality movement. Over a period of time, the stronghold of the 1%-base would loosen to a point the other 99% would be a myth, without fearing or being subservient to any controlling group.

   5. Freedom Dividend will turn stay-home moms into a new generation of home-based entrepreneurs – Stay-home moms would be one of the big beneficiaries of the program. Most of them have the time but not the capital to invest in order to bring their entrepreneurial dreams to reality. Now, with the new-found capital their lives would be financially lifted to the next level. Since women tend to be better money managers, they would come up with better allocation of the money between family and business, adding a whole new dimension to the economy. Most families have one or two smart entrepreneurial minds so they would take the lead in pooling these new resources and making things happen for the family, extended family or the community at large. From the economics point of view, my take is that it will work the same way as Laureate Yunus’ theory of microfinance or microcredit, but without having to deal with bank loans. Obviously, since the pressure of repayment would absent, the entrepreneurial stay-home moms would become better risk-takers.            

   6. Freedom Dividend will do yeoman’s service to inner city youths – The inner city youths in America are severely deprived of economic opportunities, resulting in higher drop-outs from high schools. This universal plan would entice them to stay in schools, opt for college education and compete more effectively for better jobs. Minority youths, especially African-American youths, would see the leveling of the playing field. In no time, the enterprising youths would pool their resources together and take the entrepreneurial plunge, pulling their neighborhoods and communities out of poverty. As the success stories are anchored and examples are set across inner cities, the younger generation would be increasingly more enticed to follow in the footsteps of the successful and take their communities to a whole new level. As the spending power multiplies in those neighborhoods and communities, commercial properties – from wide range of dining establishments to daycare centers to nationally-known  convenience stores to strip centers to super markets to movie theatres to indoor theme parks, etc. – would pop up at an extraordinary rate, leading to massive localized economic and job growth.

    7. Freedom Dividend will eradicate minor drug offences and minimize gang violence – Owing to the lack of economic opportunities, people often frustrate themselves into small drug offences. Unfortunately, punishments are often severe for repeat offences. UBI will invariably help mitigate their frustrations and emotional stress, re-energizing them about life, education and career all over again and keeping them out of that vicious loop. Hopefully, the juvenile detention centers (which are inherently immoral institutions in the first place) would soon be a thing of the past. Kids would learn to stay out of trouble by avoiding meaningless drug risks, knowing very well that they would qualify for a good monthly income at age 18 – a good enough incentive for them, indeed. Likewise, fewer and fewer young people would fall off the crack and join gangs. The lack of participation and new membership would gradually weaken the gangs to a point they would be virtually powerless and insignificant, returning peace to many poor neighborhoods around the country, mainly in and around the major metropolitan areas.  

   8. Freedom Dividend will immensely help seniors currently living off Social Security incomes only – Today, millions of seniors live off social security incomes only, which sometimes are below the national poverty level, despite having worked and paid taxes all their working lives. It would be saving grace for those seniors living month to month off social security incomes. Unarguably, the additional $2,000/mo (for two seniors) would lift them out of the poverty threshold. Again, this additional monthly income would encourage them to explore and enjoy aspects of life – vacation, restaurants, casinos, golf, pilgrimage, etc. – that would have been otherwise next to impossible. With this additional income, they would be able to refinance their homes again, to avoid having to succumb to scams or reverse mortgages. In fact, it could trigger a new refinancing boom for the senior homeowners. Of course, all of these new expenditures would go back to the economy and shore up growth.    

   9. Futuristically, government should encourage rich folks to give up Freedom Dividend in exchange for higher SALT cap – The new $10K SALT cap has been hurting the rich folks in high tax states. Government should, therefore, offer a deal whereby those rich folks would give up the $12K income in exchange for $22K SALT cap. Right now, the cap has been severely impacting certain housing markets, making them very illiquid. The higher SALT cap could make those housing markets a bit more liquid. Instead of giving up all $12K, recipients could opt for partial give-up as well, in which case they would receive partial credit towards the higher cap. Either way, they would not qualify for double dipping, meaning should they accept this deal, full or partial, they would not be allowed to show this (again) as charitable contribution.  

Again, this is a brilliant idea. The merits are numerous and multi-faceted. It helps the poor. It helps the middle class. It even helps the rich in certain scenarios.

Last but not least, it would be self-financed.

Worth supporting!

Thank you.

Sid Som, MBA, MIM
President, Homequant, Inc.

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