Wednesday, September 25, 2019

Universal Basic Income will Reduce Dependence on Welfare and give a Lift to Inner Cities

Under a Universal Basic Income (UBI) plan, the federal government is expected to a pay a certain sum of money to each adult citizen irrespective of their needs or circumstances. The growth of Artificial Intelligence and Robotics has prompted many Silicon Valley leaders and other celebrities to raise the issue of UBI as a counter measure to this emerging threat to the American labor force. Even the Presidential hopeful Andrew Yang has been campaigning on the UBI in the name of Freedom Dividend; in fact, his 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 the UBI plan make tremendous sense? Here are the reasons:

   1. Instead of Interfering with the business world by imposing Higher Minimum Wages at the Federal level, the UBI plan will spur Tremendous Growth – 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, instead of killing jobs and negating economic growth, the UBI plan would spur unprecedented economic growth by adding enormous liquidity at the rank and file level, without having to prevail upon small employers.    

   2. Instead of Need or Circumstance-based, the UBI plan would be for all Adult Citizens  Since the UBI is a universal plan, the federal government would not get to define and choose the “needy.” If the Government were to define, identify and choose the needy, the UBI plan would have mostly political meaning that the empowering of government would be more expensive than the plan itself. In fact, the less politics and fewer government employees would keep the UBI 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 welfare 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. The UBI plan will incentivize early Retirement – Though the 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 qualifying income. Since the UBI plan 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 skilled H1-B 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. The UBI plan 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. The UBI plan will empower them to move forward with their ideas knowing very well that this is not a one-off deal. The perennial monthly UBI (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 UBI plan would gradually turn itself into an income and gender equality movement. Over a period of time, the stronghold of the top 1% would loosen to a point that the other 99% would be a myth, without fearing or being subservient to any controlling group.

   5. Freedom Dividend will turn Stay-at-home moms into a new generation of Home-based Entrepreneurs – Stay-at-home moms would be one of the big beneficiaries of the program. Most of them have the time but not the capital to invest 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-at-home moms would become better risk-taking entrepreneurs.            

   6. The UBI plan will do yeoman’s service to Inner City Youths – The inner city youths in America are severely deprived of the basic economic opportunities, resulting in higher drop-outs from high schools. The UBI 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. The UBI plan 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 way too severe for repeat offenders. The UBI plan 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 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 the 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. The UBI plan 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 the saving grace for those seniors living month to month off the social security incomes. Using Andrew Yang’s proposal of $1,000/mo., 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 for them. 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 the UBI 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 monthly UBI in exchange for correspondingly higher 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, say, all of $1,000/mo., 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, the UBI is a plan to fend off poverty. 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 growth-financed, without having to tax and spend.

Link to the Book

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

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