The Freedom Dividend

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by Ryan Chou

Andrew Yang, a major proponent of the Freedom Dividend and 2020 presidential hopeful, in 2019

It was passed by the US House of Representatives, is used in Alaska, and is being supported by 2020 hopefuls such as Andrew Yang and Marianne Williamson. It is Universal Basic Income, a guaranteed promise of money to all citizens of a country. 

While amounts can vary, the trademark value nationally right now is $1000 per month through Andrew Yang’s Freedom Dividend, so let’s use that as the value of what a UBI would look like in America.

Really? $1000 per month? How can that be afforded? Wouldn’t it hurt the economy with inflation and increase our already massive budget deficit? Why do we need it?

Well, let’s start off with where funding from UBI would come from. Firstly, funding from welfare programs such as Medicare and food stamps would help pay about $1.8 trillion of the $3.4 trillion of the UBI cost. This would be done by giving Americans a choice: if they like the benefits they are getting from food stamps, they can keep them, although many welfare benefits are lost the minute someone finds work as opposed to UBI, which would be given to everyone; if they would prefer UBI, they can select it over their welfare benefits. The rest of this $1.6 trillion price tag would stem from a value-added tax at 10%, or about half the European level directed at technology companies such as Amazon, a trillion dollar digital conglomerate which, from the view of some, has acted as a catalyst for closing down shopping malls in favor of digital shopping in the United States.

What is a value-added tax? It is a flat tax that has been put in place in over 150 countries across the world that is placed on every step of a supply chain where the product progressively gains value. The idea of a VAT has been very controversial in the United States, with its opponents arguing that it has negative effects on businesses and consumers, and its supporters arguing that it could generate revenue to help balance a federal budget. The VAT that would be used in this model of UBI would not be included on necessities such as groceries, and would likely be less than the price rise that would occur due to the fact that innovative and more efficient ways of production are occurring on a daily basis. And with nearly 80% of Americans living paycheck to paycheck, the money would likely circulate back into the economy while generating money for businesses involved in groceries and clothing, since it would be spent on necessities (albeit opponents of UBI argue that there are some who would use it for illegal purposes and not on necessities).

The impact of this on business entrepreneurship could be very positive in the United States. Many people who want to start a business choose not to start one due to fear that if the start-up fails, with 20% of small businesses failing in their first year and 50% by their fifth year, then they will have ruined their economic future. As a result, they choose to keep jobs which they may not like, but are just enough to pay the bills. With UBI, which is just at the poverty line for a single person, business start-ups could potentially be encouraged, since individuals making just enough to survive would know that they have something to fall back on in the worst-case scenario where the start-up fails. And at the same time, it could help entrepreneurs, as more money overall being placed in consumer pockets would mean that businesses would have more consumers which can afford their product that they can sell to. Combined, the Roosevelt Institute estimates that UBI will lead to a total job growth of approximately +4.6 million and stimulate economic growth of as much as 12% yearly in a positive scenario.

The productivity of businesses would also be impacted by UBI. With about 70% of US employees expressing unhappiness with their jobs, this would inhibit productivity since they simply do not like what they are doing, and as a result, may not put in the same level of effort into their work as they would in something they find meaningful. But if more individuals have the resources they need to look for a career in what they find purposeful, it is more likely that they will have the intrinsic motivation to work hard in a job where they are passionate and thus accelerate business growth by submitting quality work or discoveries to employers or the public. And as a result of quality of work from workers increasing, businesses would benefit from the innovations and profit it would ultimately generate.

In the job market today, there are about 130 million workers in America. Of this, studies such as McKinsey have shown that as many as half of these could be automated in the near future of 10-20 years. This may seem unrealistic given that from our own eyes, we may not see automation occurring clearly, but it should be noted that this has already occurred among the four million manufacturing jobs in the Rust Belt, with AI technology being more efficient at performing repetitive manufacturing tasks than humans in general. In the foreseeable future, a majority of trucker, retail, and fast-food jobs will follow, which could result in a ripple effect where the trucker who has now been replaced by a self-driving car will no longer be staying at a motel, meaning the motel has lost its customer and may have to lay off some employees. And if more employees are now laid off, a variety of other industries will be affected greatly due to losing consumers. So along with the direct impact of automation of the job market, a ripple effect would follow suit in other industries, which could lead to economic recession. Opponents of UBI for this purpose argue that this is a natural part of the business cycle and an event of a similar magnitude has occurred before with the Industrial Revolution and therefore a laissez-faire approach should be taken to allow the economy to gradually re-balance itself, while supporters of UBI argue that this is the result of huge-scale man-made technological innovation that cannot be compared to anything in the past and will not be a natural business occurrence and instead be impacted by technological growth, since most recessions and even depressions typically do not result in such a huge portion of the workforce being laid off.

The idea of $1,000 per month is that while it is enough to sustain someone without a job, it is certainly not enough to maintain a decent lifestyle. So the concept of this amount in the jobs market is to keep individuals searching for jobs while giving them just enough to afford basic needs. However, opponents of this idea believe that many will simply take this lifestyle and live with it, while supporters of this idea believe that individuals will continue to be motivated to search for jobs but will be less stressed, since they will have fewer worries about affording basic needs when unemployed.