Why Universal Basic Income Won’t Work

After I listened to this short clip on the Wall Street Journal’s website over the weekend, I felt compelled to write a short article around Universal Basic Income because I think it is a topic that you will see bandied about a lot more over the next five to ten years.  http://on.wsj.com/2tZbLPp Chris Hughes who is the cofounder of Facebook, is one of the driving forces behind this movement along with Bill Gates and other tech giants who are strong proponents of Universal Basic Income (UBI).

In his interview you can watch from the link I shared, Mr. Hughes says, “I think that something fundamentally in the economy has changed to create these winner take all markets, where a small number of hardworking people do very well, and nine out of 10 others are  also hardworking don’t enjoy the same opportunities.”  Mr. Hughes, I am sure they taught this at Harvard as standard course requirement but it is something called Capitalism.  Didn’t they teach you this in coding school.

As it stands today, really only one country is steeped in an exercise to see if Universal Basic Income will actually work. Finland launched a trial at the beginning of 2017 where 2,000 unemployed workers will receive 560 Euros (about $700 US Dollars) each month for two years.  Researchers will assess how the free money affects recipients’ incentive to work, and the Finnish government hopes it might reduce bureaucracy in the existing welfare system.  Netherlands, Canada, and other countries are starting to run some pilots as well.

So, what is Universal Basic Income? UBI is a financial model to provide all citizens of a country or other geographic area a given sum of money, regardless of their income, resources or employment status.  The purpose of UBI is to prevent or reduce poverty and increase equality among citizens.  Just so I can simplify this for you there is another word for this called Socialism or you as you may have heard before redistribution of wealth.

A long time ago, I got out of discussing politics.  When people ask me, “Which way do you lean Ted, Red or Blue?  I simply respond GREEN!”  The reason I answer that way is in my business people don’t give me a pass no matter whether you have a democrat or a republican in the White House, they want to make money, so it is our job to figure out how to make people money or protect their money under any regime.  UBI would be a massive implosion to our financial system and here are three reasons why it won’t work.

  • It absolves you of ownership – There is a stark difference between earning something and having something given to you. We know today, that the current generation is the quintessential ‘get a participation trophy’ generation when we ultimately know that is not what will happen in real life.  We forget how great our country is in terms of innovation and productivity, and when you start removing responsibility for people to be accountable for their actions, you immediately start to cut off part of the arm that creates the success we have had in our country.  If you asked yourself this question today, “What would I have to do tomorrow if I couldn’t meet my basic needs?” would you have an answer?  Learning from success and failure is the fabric of everything we stand for in our country.

 

  • It isn’t affordable – It’s ironic how many times we go through these exercises, but if our recent memory went through temporary case of amnesia we are now almost $21 trillion dollars of debt. Are we suggesting that we just start printing more money to provide a Universal Income Benefit or is this another ploy to place a higher income and estate tax on those that have more wealth.  According to Forbes, in 2015 out of more than 171,000,000 tax units 45.3% or 77,500,000 tax units will pay ZERO tax.  The fact that most of the tax is already paid by the top 10% makes it even more difficult for the math to work. As they say, you can’t get blood from a stone.

 

  • It won’t solve poverty – Most people like the idea of UBI because they think it will solve poverty. Remember, that businesses still need to be profitable which is why when minimum wages get raised so do prices as well.  Which is why you need to assess the real net effect across the board after those wages are raised.  Providing people a monthly stipend will then lend to the question of, “How much money should we give someone to maintain a basic standard of living?”  In that question, how do you assess for the location of where someone lives.  There is big difference between living in San Francisco and living in Fargo.  But, in all reality the more you give people the more they take.  We know that for those of us who run businesses and believe that free market enterprise in a GREEN environment is the way to go.  So, if you start giving people $1,500 a month, what happens then when they want $2,000 a month.  The point is that water will seek its own level, and people will spend more than you give them or raise their standards as they do today even without UBI.  And, it won’t solve the issue about the lower paying jobs that many people turn down today.

What’s most funny about this are people who have real means, suggest they want to fight the cause, but don’t trade in their own lavish standards to support the very causes they talk about.  What I suggest to Mr. Hughes is to a) donate all of your money to the UBI system, b) leave yourself with enough to make $75,000 a year, and c) then learn to live off that $75,000 a year so you can live like the rest of America as you see fit in your eyes.  Donating millions but still keeping the homes, the cars, the fine hotels, and all of the private jets doesn’t make you better because you say it in a video.  We founded this country on capitalism. That’s the simple answer where an economic and political system where a country’s trade and industry are controlled by private owners for profit, rather than by the state.  UBI is the antithesis of helping people learn the spirit of capitalism.

About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves

Hey!

My friends and family all think I’m a workaholic, but I say I’m just a guy that loves to help people do better in life.

My mother is still the only one that calls me by my real name Theodore Michael, my wife calls me Teddy, but for the rest of you it is just plain old Ted.

Ever since I was a little kid, I always loved money and being an entrepreneur. In fact, I still have cassette tapes of me talking to my grandmother at the age of five and my mother tells me all the time how much I played with money as a kid...

Read More About Ted Here

Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

Background and qualification information is available at FINRA's BrokerCheck website.

One Comment

  • Danny
    April 17, 2018

    I think this is an interesting article but I highly disagree with 1 parameter you have outlined of why UBI won’t work:

    1. (It absolves you of ownership) I disagree because you will have individuals who will take their $800/month UBI check and they will save $500/mo. They will find a used car that costs $3000 and pay for it with 6 months worth of savings. And now that person is an OWNER of a car instead of a Uber user who is a habitual renter of a car. Many houses today are rent to own, owner financed. So a wise person getting an UBI check can save up for the deposit on the house and then supplement their income by driving uber or lyft with the used car that they now OWN to pay the other bills associated with home ownership. Now, lets be honest – some recipients of UBI will spend 99cents of every dollar you give them and sit on their rear-ends forever. But many will use UBI to become owners thru savings and frugal living.

Leave a Comment