Universal Basic Income: Wrong Premises to Wrong Conclusions

What is alarming about Andrew Yang and his “Freedom Dividend” is not any chance of his campaign succeeding to the point where it could be implemented, but the number of average voters that are actually captivated by his message. Yang’s Freedom Dividend would pay $1000 per month to every American based on the idea that automation is going to cause massive unemployment in the future. This variation of universal basic income is thought of as a replacement for individuals that will have their jobs stolen by machines with the extra benefit of stimulating the economy through subsidizing consumer spending. 

For progressive voters, Yang had them at “$1,000/month from the government”, however, moderate to right-leaning voters seem to have mixed feelings for his premises based on automation. The idea that machines can outsource labor and cause unemployment is an idea deeply rooted in working-class minds, and Yang is aiming to captivate the same blue-collar voters that elected Donald Trump. The problem with both the premises and conclusions of the Freedom Dividend is that both are fallacies rooted in mercantilism.

1. Wrong Premises

Yang’s narrative of “robots are stealing our jobs” is that regardless of the massive accumulation of machines and capital throughout Western history that did not cause massive unemployment, this time is different. Essentially, he speculates that this time the shift away from human labor will be so large, the usual creation of new jobs caused by capital formation as a replacement will not outweigh the loss. Trucking is specifically cited as a popular job that will be automated in the future, yet, agriculture once employed 40% of Americans which reduced to 1% with the development of machinery. But now, from 2019 and forward, all development of more productive capital will only leave mass unemployment. Apparently, this point in time just happens to be the turning point where the cycle of a dynamic labor market improving in productivity just ends outright, perfectly timed for Andrew Yang to implement his master plan. 

In reality, the mercantilist fear-mongering about automation is based on economic fallacies that will never come true. The accumulation of capital is what increases the wealth of an economy and raises living standards, so it would be an reductio ad absurdum contradiction to regard its development as harmful. Labor is a human cost with the aim of increasing the well-being of the laborer, it is not an end in itself. All capital goods aim at increasing productivity and therefore the productivity of labor. All capital goods that make a production process more efficient reduce the labor time necessary to produce the same output, and this is a feature, not a fault. In the real world, certain types of labor fall in demand with the accumulation of more productive capital goods. These jobs are not lost permanently and the individuals are not left for dead, as seen by examples of various claims of massive unemployment throughout the 20th century that never came true. 

The theme of the automation story is to believe that the purpose of an economy is to make work rather than wealth. But as previously stated, labor is not an end in itself but a means to consume. To be logically consistent, make-workers must oppose the use of any job-saving capital good, implying the same message as protectionism. Frederic Bastiat famously wrote the satirical essay The Candlemaker’s Petition where he proposes a state ban on windows in order to block sunlight and preserve the jobs of candlemakers. Although they don’t like it, proponents of Andrew Yang’s fallacy must explain in their own words and in all seriousness, why or why not the government should ban windows in this case. The idea of artificially limiting automation to make labor relatively less productive, prices higher, and the economy poorer (or giving universal basic income to make up for it) is no logically different than Bastiat’s satire. Moreover, maybe they can explain that if trucking automation is bad for workers, why should we not destroy all capital down to sticks and shovels? 

2. Wrong Conclusions

Besides solving the unemployment problem, the Freedom Dividend is said to stimulate the economy by boosting consumer spending. If working-class citizens receive the Freedom Dividend, they will probably be spent back into the economy. Under the framework of the Keynesian multiplier, one individual’s spending becomes another individual’s income and it is deduced that consumer spending is the driver of economic growth. It is aggregate demand that drives this growth and maintains the circular flow of money. If this is true, why do we need the threat of automation to justify UBI if handing out free money to everyone grows the economy on its own terms? Or why stop at $1,000 per month, if we can really stimulate the economy with $500,000 per month? 

This is a false conclusion to the Freedom Dividend because it is saving, not spending, that grows the economy. It is saving that frees resources for loanable funds that are used to produce capital goods. The accumulation of capital, not consumption, that increases wealth. What the Keynesian story ignores is the tradeoff between present consumption and investment. No capital can be accumulated or maintained without investment, which is necessary at the expense of consumer spending. 

The consumer spending gospel that UBI proponents embrace ignores the fact that goods are scarce, which is the reason an economy exists in the first place. If a boost in aggregate demand is the only means to grow an economy, the existence of goods and services is taken as a given fact as if they do not need to be previously produced. 

Conclusion

Both the premises and conclusions of the Freedom Dividend and Andrew Yang’s narrative present slippery fallacies that deduct to absurdities. The fear-mongering that new machines are going to cause long-term unemployment has existed since the invention of the cotton gin and can be reduced to the conclusion that real wealth is bad. Moreover, the the idea that UBI can boost aggregate demand and grow the economy falls back to the traditional Keynesian framework that misunderstands consumption, investment, and scarcity. 

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