What major flaws does this particular Universal Basic Income model have, if any?

Question

On Reddit there's currently a news article titled Chinese factory replaces 90% of human workers with robots. Production rises by 250%, defects drop by 80%

This of course brought up the discussion of UBI, where a few commenters note:

Comment:

early success of automation will only push it everywhere else faster, every business owner is going to want that for themselves.

Reply:

Trouble is that'll decrease everyone's ability to buy the stuff the robots are making, since fewer people will be working and earning a salary. A good idea is perhaps to impose a tax on industrial robots to fund a universal basic income, as proposed by one of the French presidential candidates.

This is a topic that interests me, mainly the issue of differences in the cost of living being problematic for any flat tax UBI solution. I responded explaining a system I think might work, but I'm not in any way a professional economist, so I'm interested to know what problems there would be with my proposed UBI system:

My idea is an 80% tax on all goods and services produced by automation broken into 2 categories: local and national - You cant just split that tax as UBI evenly to everyone because cost of living is much higher in some areas than others, and it's not viable to regulate cost of living to be equal nationally. But we can all buy a lot of things like computers, phones, and TVs for the same price over the web. So I propose we split the value of locally distributed goods and services (like automatically harvested oranges, robot built houses, automated car repair) to the people in that local area as one category of UBI, then split the value of globally distributed goods and services (TVs, Google, Netflix) to everyone in that nation equally. I propose that population control is built into this plan: By default, the UBI you get should be enough to raise 1 kid and live comfortably with a partner helping support the family (or a partner providing child support), but if you choose to raise two, you will either be financially strained, or you'll need to earn extra income. If you want a second child or accidentally have one, you'll have the option of working really hard, training yourself in an advanced field (free automated college), and working in one of the few fields where people can work: Entertainment, Science, Engineering, Politics, eSport Coaching, etc. Or you can start a business - It's still viable to run a business even with 80% of your product being taxed because you're paying almost zero overhead for labor, and you can save up your UBI / pool it with other people, earn extra with jobs to pay for the original hardware.

I'm not asking about the ethics involved, my question is specifically focused on whether or not this economic model has any major foreseeable systematic flaws, and if so, what are they?

Answer 1

My idea is an 80% tax on all goods and services produced by automation

How will you know what goods and services are produced by automation? In fact, what is automation? Consider

• You deliver pizzas in a car. How much of that is automation and how much human participation?

• You work at two different pizza shops. One has an oven that you open and close. You have to take the pizza out manually when it is done. The other has a conveyor belt. Is the latter automation?

• You work at a restaurant that promises hand-cooked food. It has a microwave and heats up frozen meals instead. Tax evader?

• You work at a convenience store. Someone comes in and buys a frozen meal. No tax on hand-made groceries. Someone else buys the same meal but throws it in the store microwave. Did they just quintuple the price? Based on an actual Pennsylvania rule that charges sales tax on microwaved food but not frozen food.

• Is a steel mill automated or not? Labor makes up only a tiny amount of its overall cost.

If none of those are automation because there are still people involved, what happens if your automated business hires some people? They don't do anything. They just get paid because that's cheaper than paying the tax.

Or you can start a business - It's still viable to run a business even with 80% of your product being taxed because you're paying almost zero overhead for labor

Labor is nowhere near 80% of the cost of practically any business. One estimate suggests 5-30% is a typical range. Note that a 30% inclusive overhead rate is the equivalent of a 43% tax counted exclusively. I.e. if you charge $10 and $3 is overhead. $3 is 30% of $10 but 43% of $7. But with an 80% inclusive tax rate and $7 in fixed costs, you need a price of $35, which is a 400% exclusive tax. That's 250% inflation too.

TL;DR: tax rate too high and evasion too easy.

Answer 2

This is too long for a comment.

The reply comment you quote above contains a popular fallacy: that workers must make enough to buy the goods they are producing. This concept has intuitive appeal but runs afoul of supply and demand: namely that supply is demand.

In other words if there is insufficient demand the price will drop until someone is willing to buy it. There are exceptions but they're generally rare: people aren't generally dumb enough to produce large quantities of stuff no one wants at any price. So if workers can't afford to buy the products they produce there's no problem, as long as someone else wants to buy them (consider for instance the case of luxury goods). As the price goes down or up production wanes or waxes appropriately. Reallocating resources this way is the main function of capitalism.

The rationale for a UBI is that, on a human timescale, this process doesn't happen fast enough. I'll borrow from Joseph Heath (who IIRC was quoting someone else in turn):

The US can produce cars two ways: they can manufacture them in Detroit or they can grow them in Iowa. The farmers in Iowa raise wheat, ship it out to the Pacific Ocean, where by a technology called 'Japan' the wheat turns into Toyotas. So wheat farmers* in Iowa are competing with car makers in Detroit.

It may be advantageous for the US economy as a whole to shift more in one direction than the other. So we move resources away from Detroit. The problem is that those former factory workers in Detroit do not move to Iowa and become wheat farmers. Nor could they generally even if they wanted to (the "just learn to code" fallacy).

* Please don't get too hung up on the specific example of wheat farmers, it could be any other sector of the economy. It's just a useful concretion.

Answer 3

Humans are by nature an innovative society - making our lives easier is the very core of what we all do. By extension, capitalism is the reward system which drives people to spread the benefits of easier living to as many others as possible. No product would ever advertise itself as making something harder - or at least not seriously anyway!

AI, self driving cars, lights out factories and broadly automation in general represent the forefront of human innovation and progress. Such a tax extends much further than it might initially appear too; for example, if someone discovered a universal cure for all cancers which made hundreds of thousands of working people redundant, should that be taxed too? Or how about a device which makes anything from your own home? Thus we are really talking about a 'progress tax' - a tax on any progression which makes human labour irrelevant. That then raises this question:

What are we really trying to achieve as a society?

Wouldn't it be great if we could travel the stars. If nobody had to do any physical work and you owned entire planets. People dream of a time where they can have everything and do nothing, but humanity requires major amounts of progress before it can be anywhere near this kind of society.

There's a double effect here too, because if you knew that you don't need to work at all - that your universal basic income would just support you anyway - then it's likely that you would just stay at home and have a relaxing lifestyle. Humanity would become less productive and progress slows down anyway.

So therefore:

• It's really a progress tax
• People would be inclined to not bother working, hitting progress even more
• Countries which don't have this kind of tax would progress faster
• If progress stalls, an economy shrinks and prices go up (which would probably lead to something of a vicious cycle, as the UBI would have to increase, resulting in hitting progress even more)
• Slowing progress ultimately delays our collective longer term goals
• The complex definition of what is taxable and what isn't would probably generate a lot of loopholes
• Governments should incentivise progress (as they currently do), not tax it

That last point is important, because it provides us with an alternative route. For example, what if Governments funded projects which aim to automate all or parts of the production chains which form our basic cost of living. Entirely automated food production, for example, which can be provided at little or no cost. It's very socialist sounding, but this way they are both incentivising progress and providing a solution for those who have been displaced.

Answer 4

What's wrong with this UBI theory? What's wrong with it, is that it assumes that automation will put people out of work. If you look at the long history of automation, both in the past and today, you find that automation does not put people out of work. It puts people in new jobs, in the new markets that the lower priced automation built product opens up.

Go back to one of the first serious automation efforts: the spinning loom that eliminated hand weaving, the machine that Ned Ludd took such exception to. The loom eliminated a lot of hand weaving jobs, but it also dropped the price of clothing dramatically, and opened up a host of new markets that didn't exist before... all of which needed people to run those markets. Transportation jobs to handle the higher volume from greater sales of cheaper clothing, clothing store jobs, even designer jobs when style was created to encourage people to buy new clothing long before their current attire was worn out. The loom created far more jobs than it eliminated, by lowering the price of clothing and increasing the volume of sales dramatically.

Another landmark in automation was Henry Ford's automobile assembly line. Ford employed far fewer people to make the Model T, than the typical handbuilt auto of that day. Did he put people out of work? No, the product was so cheap that it found a huge number of buyers who could now afford an auto. Jobs repairing the autos, jobs meeting the huge demand for gasoline to run the automobiles, jobs designing better automobiles in great volume, even unrelated jobs that became profitable due to the cheap transportation of the automobile, like traveling salesperson.

In fact, automation has never put people out of work. It has put people in different jobs, either other work at the factory to meet the higher demand for the now less expensive product, or jobs that are created tangentially due to the cheaper products.

And this is still true today. The current smart phones are built with considerable automation, and they definitely cut into personal computer sales, and jobs assembling personal computers.

However, they also opened up a host of new markets, feeding information to smart phone owners in a manner conducive to smart phone operation, and those markets need people to operate them. With the online software sales, the smart phone has created a burgeoning software developer market... if one is mentally agile enough to adopt to the new methods.

Automation does not eliminate jobs. It changes the nature of jobs, and tends to create even more jobs. It has always been that way, and always will be that way... if you study the history of how automation has affected economies, and is affecting economies today, instead of falling for cherry picked gloom and doom.

Answer 5

Automation does not replace people. this is a myth. Automation is a tool that makes people more productive. A company with 100 workers produces 4800 objects a day. 48 per worker over 8 hours or about 1 object every 10 minutes. An automated line produces 1 object per minute so you need 10 lines to do the work of 100 workers, but each line takes 2 people to run it. So you still need 20 people. Does that mean you just replaced 80 people? Or did you install 50 lines and now produce more objects? or did you put those 80 people on a different production line make a different product to diversify your production?

Automation makes your workers more productive. More productive people tend to get paid more and you can produce objects at a lower cost making them more affordable.

The job requirements and the skills needed are somewhat different when using automation, but not as much as you would think. It is easier to teach an experienced welder to run a welding robot than it is to teach a robot programmer how to weld.

Answer 6

Universal basic income does not have to come from robot salary.

It can come from land taxes or regular income taxes or head taxes that's easy to count.

That being said, it still have problems.

Many people will just produce more children now that everyone have enough money without work.

Many immigrants will come just to get that basic income.

I think it can be solved by requiring new immigrants to "buy" citizenship. Having biological children can be taxed to. So like stocks, citizenship must be "earned" rather than given just based on countries of birth.

But this leads to another problem. Say government requires immigrants to buy citizenship, but doesn't require welfare recipients to buy citizenship for babies. Then welfare recipients will make more babies.

I am sure there are solutions.

Answer 7

but I'm not in any way a professional economist,

No need to idolize economists - most of them know far less about the world around us than you do. As long as you have common sense, you have the potential to be a far greater economist than any of those "professional" ones.

My idea is an 80% tax on all goods and services produced by automation broken into 2 categories:

The single biggest issue in your proposal is that you stand zero chance of making it work: for a given product or services, how do you propose to break it up into those two categories?

No complex rules needed, just some common sense.

Fundamentally, the issue with UBI, yours included, is that it is an entitlement (economist talking for other peoples' money, or legalized robbery). As with any other peoples' money, you run them out eventually: your most productive people will leave the economy, and you have to tax the next most productive group progressively more until you end up with a system of 100% UBI recipients. A utopia for the equality zealots where everyone is absolutely but equally poor.

This system has been tried before, by folks at Jamestown, and then the Russians, the Chinese, the Cubans and the North Koreans. The last 30+ years of human history is a thorough repudiation of that philosophy.

But hey, if someone wants so desperately to jump off a cliff, who are we to say that is bad for him?

:)