What would you do if you never needed to work again?
I don’t mean someday, or during retirement, or after hypothetically winning the lottery. I mean right now, in your current circumstances. What if, all of a sudden, you simply started receiving a check or a direct deposit every month that was enough to cover the rent, utilities, and other necessities of life for the average American? What would you do?
We are, of course, talking about what generally gets called universal basic income (UBI). In a world with no shortage of direct-payment and in-kind public assistance programs, the suggestion of UBI regularly gets trotted out as a simpler, more streamlined option. And to be perfectly fair, it probably would be, and the economic analysis to back up the claim is rather straightforward to run.
But that’s only the numbers of UBI. What would it mean, socially and economically, if such a program were actually instituted?
To return to the original question, what would you do if you never actually needed to work again? If the money to cover the basic necessities of life automatically populated into your bank account every month, what would happen?
The answer to that question is going to vary, depending on who’s answering it. What I would do won’t be exactly the same as what you would do. And honestly, the hypothetical question and answer are more of an abstract thought exercise than a scientifically sound research result.
But the subject of UBI never truly goes away, so it ought to be addressed. Entitlement programs—or redistribution or welfare or whatever you prefer to call it—like taxation, exist outside the capitalist framework. But they do influence the myriad signals and incentives that drive economic decision-making.
Having a baseline guaranteed income is, inevitably, going to change people’s behavior. And while it is very difficult to predict how something like that would influence any particular individual’s behavior, we can, to an extent, anticipate how it would affect behavior in aggregate.
Anyone can give an answer to my original question. Many people do so. They talk about having the time to finally pursue that lofty creative project or go back to school.
Those are compelling answers. But before we can take them into full consideration, we need to talk about preferences. Specifically, the difference between someone’s stated preferences and their demonstrated preferences.
Limited experiments in UBI have been conducted, and the results are somewhat mixed. But it could be argued that the largest, most comprehensive of these was never touted as a UBI experiment at all. During the COVID-19 pandemic, many people were legally compelled to stay home. Many in-person jobs disappeared, and not all of them could be transitioned to remote versions. In response, large expansions of unemployment benefits were authorized, direct-payment assistance checks were mailed out, and a great many other initiatives were implemented with the explicit goal of making it possible for people to live without needing to work.
These vast expansions of public assistance were never officially labeled as universal basic income, but that’s what they were, in practice.
And what the data reflect as the result of all that was not a marked uptick in university enrollment or new art. What we saw, once lockdown orders were lifted but expanded benefits still lingered, was persistently higher-than-average unemployment, simultaneously with high levels of unfilled employment openings. And that’s to say nothing of the increases in inflation.
This represents a disconnect between what many said they would do if they didn’t need to work and what they actually did when that circumstance arrived. This was a difference between stated preferences and demonstrated preferences.
In the modern age of digital transactions and, frankly, unprecedented luxury, it’s easy to forget that wealth—represented by currency—has to come from somewhere. The default state of humanity is not relaxing by the lake, eating berries. We live in a world of scarcity. We’ve done a tremendous job of taking scarce resources and turning them into abundance. But that transmutation does not automatically happen. It does not spring into existence fully formed and optimized for consumption. All of it takes work.
And work, as I’m sure I don’t need to tell you, is hard. By definition, it requires effort. Even that romanticized daydream of lounging by the water and eating berries would have required work. After all, the berries did not magically appear in your hypothetical hand. Someone would have needed to, at minimum, gather them from where they grew. And to help ensure enough berries, probably someone was doing some sort of cultivation or resource guarding. That’s work.
These days, that workload is remarkably small, all things considered. We have huge swathes of free time. We have enough resources to engage in leisure activities. We can, and do, pay money to be constantly entertained. Some of the biggest health issues plaguing the developed world are not hunger or disease but rather conditions arising from overeating and sedentary lifestyles.
Even so, we do still work. After all, production must occur before consumption can happen. And as we discussed in our previous installment, wages are the prices we charge in exchange for our labor. Profiting from that exchange—in this case, earning a comfortable living—is the natural incentive for being productive. And the simple fact that things cost money is another incentive to increase our labor’s productivity and, therefore, profitability. The income from wages is, itself, a price signal.
But if we disrupt that signal by resetting our zero to whatever a UBI program provides, it inevitably disrupts all the other signals buyers and sellers—of products, services, and labor—use to anticipate supply and demand. These disruptions ripple throughout the entire economy, falsifying information people need in order to make decisions.
These sorts of distortions happen with every market intervention, not just distributive payments. Whether those distortion effects are an acceptable trade-off or not is an individual determination. And, as mentioned above, UBI may very well be a less expensive alternative to the labyrinthine system of individual agencies and programs, each with its own set of restrictions and requirements, the American social safety net currently uses.
But before any such determination can be made, it’s important to understand the likely consequences, both positive and negative.
The money that a UBI program would pay out has to come from somewhere, too. Somebody, somewhere, worked to create the wealth that money represents before it was taxed away and redistributed. And we’ve already established that taxation changes behavior. Simply printing new money to pay for it comes with its own set of consequences, too.
Understanding economics, including capitalism, isn’t a shortcut to always knowing the right or wrong answer to a problem. But it does provide a toolkit for thinking about those problems effectively, especially the trade-offs and possible consequences of proposed solutions.
Learn more about capitalism here.
