UBI for President

Jacob Falkovich18 Oct 2018 15:09 UTC
45 points
14 comments10 min readLW link

Cross posted, as always, from Putanumonit.

Epistemic status: I am not an economist, and neither is Andrew Yang. On the other hand, it’s not like the experts are brimming with great solutions to the problems discussed herein, or are united in consensus on the main issues.

Andrew Yang is running for president in 2020 on a platform of Universal Basic Income. Last week I got a chance to hear from Andrew directly and ask him a few questions about it. I came away cautiously optimistic about trying UBI (up from cautiously neutral), and massively impressed by Andrew Yang (up from not having heard of him). It’s time to talk about UBI, and it’s time to pay attention to Yang 2020.

UBI and the Labor Automation Tsunami

Yang lays out the case for urgent UBI on Sam Harris’ podcast, in an interview with Quillette, and in great detail in his book, The War on Normal People. I’ll try do justice to the idea with a brief summary.

Who is “the median American“? It is a person without a college degree, without much of a support network, and without $500 to spare in case of an emergency. She works in retail (4.3 million jobs) or a call center (2.5 million). He’s a fast food worker (3.7 million) or a truck driver (3.5 million). These millions of jobs are being automated today and will keep being so in the immediate future, along with warehouse workers, accountants, and radiologists.

Millions of Americans are about to meet the fate of the 2 million or so construction workers who lost their jobs after the financial crisis. What are those 2 million up to? In short: idleness, video games, Oxycontin, loneliness, despair. As their numbers swell, and McKinsey predicts that 15% of all jobs [1]. will be displaced by automation by 2030, this cheerful list may grow to include crime and rioting. What solutions are American politicians offering to this looming crisis?

Trump blames the cheating foreigners, even though the number of Americans who benefit economically from trade (roughly all of them) swamps the number of American workers who lose their job as a result of trade (a mere 90,000 a year). Bernie blames Amazon and Walmart, the two companies that besides providing massive consumer surplus are also the employer-of-last-resort to more than 2 million low-skilled American workers. Other politicians mumble about “retraining”, but current government retraining programs are both tiny and inefficient. There is no viable plan to scale them to millions of workers, and no reason to expect that they will work.

By and large, the mainstream position on labor force automation among US politicians is to ignore it. The worse the problem gets, the stronger the desire to ignore it grows.

Andrew Yang’s solution is to provide every adult American citizen with $1,000 a month, no strings attached. This will be paid for by a combination of a consumption tax (like a 10% VAT), reduction in other welfare payment (one can receive UBI xor existing welfare), and “additional revenues from economic growth”. I personally think that the latter is shorthand for “more taxes”, ideally, of the Georgist variety.

Here’s what Yang says will happen when every American gets $12k a year guaranteed:

  • People will be encouraged to work as UBI eliminates welfare cliffs and gives people the slack to move to better jobs /​ better cities.

  • People will start businesses and do creative, nonprofit and care work.

  • People will be happier and healthier with a solid safety net beneath them.

  • Bureaucratic overhead will be reduced because the one thing our government knows how to do efficiently is sending a lot of people checks each month.

Here a couple of outcomes that I worry may happen when every American gets $12k a year guaranteed:

  • Ultimately, a UBI is a transfer of money. The net recipients of that money will be the broke and unemployed (great), but also rentiers and landlords (not great).

  • Women will spend more time on housework and raising kids (great), but men will spend more time playing video games (not great?).

I asked Andrew about both points, and the extent of our disagreement seems to lie in different general models of economics and human behavior.

What UBI Buys

Andrew and I both noticed that Americans spend a lot of their income on housing, healthcare, and education – henceforth, HH&E. But we have different answers to why this is the case.

From what I gathered, Andrew’s basic model is that Americans spend a lot of money on HH&E because they (HH&E) are expensive. Under this assumption, if Americans had extra money they could then afford to spend it on other things that will make them happier. Andrew’s policy platform contains a lot of ideas to make HH&E cheaper. For example, regulating the ratio of administrators to students at universities, or single-payer healthcare with flat salaries rather than pay-per-service for doctors. With the extra income, Americans will get more and better services.

My model is that Americans spend a lot of money on HH&E because they (Americans) are rich. Under this assumption, if Americans had extra money HH&E would increase in price to absorb any extra disposable income. This is a somewhat counterintuitive model, and it is built of the following components:

  1. For measuring how much money people have to spend, Actual Individual Consumption(AIC) is vastly better than measures like GDP per capita.

  2. Going by AIC, Americans are way richer than the rest of the world – about 50% richer than most developed areas like Europe and Japan.

  3. Most Americans can afford a full suite of goods whose supply is not constrained: food, clothing, electronics, transportation, etc.

  4. Not every American can afford the expensive items in the above categories: organic quinoa, designer jeans, the latest iPhone, a new car. The difference between those and the versions affordable to every American: rice, H&M jeans, Nokia 2, a 2008 Toyota is almost entirely a difference of signaling, not of quality.

  5. Really, all Americans should read my guide to buying things smartly.

  6. HH&E all have their supply constrained in one way or another by the government: the number of houses built, the number of hospitals in a city and number of doctors credentialed, the number of accredited schools and teachers.

  7. HH&E is getting more expensive without getting better. Apartments in San Francisco, healthcare outcomes, skills acquired in school – none of them have improved much in the last few decades but all have multiplied in price.

  8. HH&E involves a huge amount of zero-sum signaling.

  9. Here’s a thorough analysis showing that US Healthcare costs are adequately explained by American’s extra AIC, and we should expect healthcare to be less of a zero-sum signaling competition than houses and schools. Especially schools.

Bringing it all together: the majority of Americans have more money than it takes to cover one’s non-HH&E needs. Whatever money is left over is spent by rich Americans on competing for a limited supply of nice neighborhoods, prestigious schools, impressive healthcare. The cost disease trickles down: if Columbia university can hire 1,000 administrators and charge $240,000 for a four-year degree that teaches few useful skills, lower ranked schools can also get away with more bloat, higher tuition, and less education. Rising rents in San Francisco push housing prices up 80 miles away in Gilroy.

So: a $1,000/​month UBI will probably increase the disposable income of most Americans, at the expense of the top 10-20%% who will pay a lot more in extra taxes. Giving money to the very poorest Americans will enable them to buy better food, clothes etc. But the extra money given to everyone else, which will be the majority of UBI, will go to landlords, school administrators, healthcare providers, and local monopolies – all without increasing the quality of HH&E services provided one bit.

Undoubtedly, both Andrew’s model and mine are simplistic, incomplete, and imprecise. Neither of us is dogmatically committed to either view, the true answer certainly lies somewhere in the middle, or even to the side. But on the margin, my model makes UBI sound a lot less attractive than it would be otherwise.

UBI and Work

Andrew Yang, citing the Roosevelt Institute think tank, claims UBI will increase the number of working Americans by 4 million. Unfortunately, that’s not what the Roosevelt Institute says: they actually put the number at 1.1 million [2], and even that is based on a macro model rather than on observed evidence.

The observed evidence is mixed, and very little of it is obviously relevant to basic income that is permanent, universal, and implemented in a giant and rich nation. Putanumonit raised thousands of dollars for a basic income project in Kenya, but that was designed to help Kenyans. The fact that a Kenyan starts working after getting UBI because he can afford a wheelbarrow to cart supplies doesn’t mean that an American truck driver who lost his supply-carting job to a robot will use UBI to find alternative employment.

Andrew’s story goes something like this: after losing his job, the truck driver is stuck. He doesn’t have spare money for training or relocation, and going on welfare limits his ability to move and try things, especially if it’s disability welfare. With UBI he could afford to move to a big city, pay rent and vocational school training for a few months, and reinvent himself as a plumber or A/​C repairman or stripper.

My story goes something like this: people work because they need money. If they need money less, they will work less. I’ll have to see a lot of evidence to contradict this simple story. Andrew himself agreed that for most people who drop out of the labor force, UBI will not pull them back in.

But as I wrote a couple of years ago: this is not a decisive argument against UBI. Working hours are f=”http<strong>://​benjaminrosshoffman.com/​​costs-are-not-benefits/​”>not a benefit to be maximized, they’re a cost. John Maynard Keynes famously predicted that we would all work at most 15 hours a week. He made that prediction shortly before working himself to death. But the reason we don’t work 15 hours a week is the weird equilibrium we’re in of what is valued by society.

Humans don’t intrinsically value “hours worked”. We value things like status, sex, community, pleasure. In modern society, we learned to associate a lot of this with work and consumption. This is especially true of men, which is why men left out of the work-consumption cycle fall into greater despondency than women.

Here’s Andrew:

I will say that if you dig into the data, you find that men and women experience idleness differently. […] The data shows that women who are out of work get involved in the community and go back to school and do things that are quite productive and pro-social. Whereas, men who are out of work spend 75 percent of their time on the computer playing videogames and surfing porn—and then tend to devolve into substance abuse and self-destructive behaviors. Men who are out of work volunteer less than employed men, even though they have more time.

Putting on the cynical evolutionary psychology hat I borrowed from Geoffrey Miller, I would guess that unemployed men volunteer less because volunteering doesn’t get them respected or laid. That’s the ultimate reason men do things (don’t ask me how it goes with blogging).

But putting on my optimistic evo-psych hat I notice that 20,000 years ago Homo sapiensmales competed for sex and status by telling stories, or seeing who can throw a rock farthest, or painting hands on the walls of a cave. This can probably be approximated today by playing basketball or backgammon with your buddies, or by competing for karma on a Dunbar-sized subreddit. If we stop denigrating people who do this, their lives may not be so miserable. I think that a lot of the “substance abuse and self-destructive behaviors” follow not from playing video games, but from feeling guilty and shamed over playing video games. A safety net of social respect can be as important as a safety net of cash.

Of course, if everyone played The Witcher 3 all day there would be no one to develop The Witcher 4: Witcherer than Ever. Society needs people to be productive to grow and prosper. But not everyone can be equally productive.

The median truck driver is 49, high school-educated, and has few skills other than driving a truck. It seems somewhat arbitrary to blame him (truckers are 94% male) for not guessing 25 years ago that trucking will get automated before whatever other jobs he may have chosen. The US has massive reserves of productivity and growth in the millions of skilled immigrants who would come given the chance, and in preparing the next generation for a 21st-century economy. As one of the former planning to have some of the latter, I can afford to pay for some trucker-wireheading.

Bottom line: I’m not very optimistic about UBI as a panacea for those left behind by automation, but I think it’s probably worth the experiment. Despite the potential benefits, no other country seems willing to take up the gauntlet. Americans can afford it, and it’s not certain that we can afford to continue ignoring the problem of labor automation.

Putanumonit Endorses Yang 2020

Ironically, I found almost everything else about Andrew Yang more impressive than his defense of UBI.

Yang struck me as thoughtful, curious, and humble, and yet with enough charisma to not let those three traits entirely submarine his political prospects. He’s a second-generation immigrant with no whiff of identity politics. His background is in social entrepreneurship: he created and sold an education company, then founded a non-profit that creates jobs in cities like Cleveland and Pittsburgh.

More important than Andrew’s personality and street cred are his politics. Yang is liberal but pro-business and skeptical of government’s ability to do many things well aside from cutting checks and passing simple regulations. The 71 non-UBI points on Yang’s policy platform can be described as “the most sensible thing that can squeeze inside the Democrat Party Overton window, erring on the side of caution and incrementalism”.

And Yang has a plan – to get into the national spotlight by sneaking up on Iowa.

The long tortuous process of American presidential elections starts with the Iowa caucuses. “Caucus” means that instead of just casting a vote, Iowans have to gather somewhere and yell at each other for a few hours; last time out only 170,000 people bothered showing up. This means that 30,000 votes or so may be enough for a top 2 or top 3 finish, hopefully sparking a positive cascade of media coverage and popularity.

In Andrew’s words: “Any time 50 Iowans gather in a room and speak the words ‘Basic Income’, I appear in a puff of smoke to tell them about it.” The message is well received in a purple state with an economy based on manufacturing and agriculture.

Will this strategy work? Most people you know will almost certainly not become the president, and that is probably true of Andrew Yang as well. And yet, Yang got an avowed political passivist fired up about his candidacy enough to write 3,000 words about it and encourage all of you to spread the word. I do this for two reasons.

The first comes from Eliezer Yudkowsky, who asked us to Stop Voting for Nincompoops.

I seriously think the best thing you can do about the situation, as a voter, is stop trying to be clever. Don’t try to vote for someone you don’t really like, because you think your vote is more likely to make a difference that way. Don’t fret about “electability”. Don’t try to predict and outwit other voters. Don’t treat it as a horse race. Don’t worry about “wasting your vote” – it always sends a message, you may as well make it a true message.
Remember that this is not the ancestral environment, and that you won’t die if you aren’t on the winning side. Remember that the threat that voters as a class hold against politicians as a class is more important to democracy than your fights with other voters. Forget all the “game theory” that doesn’t take future incentives into account; real game theory is further-sighted, and besides, if you’re going to look at it that way, you might as well stay home. When you try to be clever, you usually end up playing the Politicians’ game.
Clear your mind of distractions…
And stop voting for nincompoops.
If you vote for nincompoops, for whatever clever-sounding reason, don’t be surprised that out of 300 million people you get nincompoops in office.
The arguments are long, but the voting strategy they imply is simple: Stop trying to be clever, just don’t vote for nincompoops.
Oh – and if you’re going to vote at all, vote in the primary.

In my years in the US, I have seen several dozen presidential candidates. I think that Andrew Yang is the first one that isn’t a nincompoop.

The second reason comes from Milton Friedman (who, by the way, made the case for a form of UBI 50 years ago).

Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.

This I believe is Andrew Yang’s basic function: to keep the ideas of UBI and sensible Democrat-tolerable economic policy alive and available for when the crisis comes. Even if Yang doesn’t make it all the way to the White House, there is probably no better way to get his ideas out there. And with the crisis of automation and unemployment coming sooner rather than later, we are going to need those ideas.

[1] Yang’s website states that: “The smartest people in the world now predict that a third of all working Americans will lose their job to automation in the next 12 years.” Yang also mentioned the number of displaced jobs as 30% on Sam’s podcast, and said that he got this figure from the McKinsey report on the future of work.

However, the report only estimates the number of jobs that are potentially replaceable, and gives a range of 0-30% with 15% being the median estimate.

[2] I found this report by the Roosevelt Institute modeling the macroeconomic impact of UBI. Table 3 shows the potential labor force increase under various UBI scenarios. The relevant scenario is number 12: $1,000 a month funded by increased taxes. The estimated impact of scenario number 12 is an increase of 1.11 million jobs. 4 million extra jobs will only be added if UBI comes entirely from deficit spending.

I didn’t expect that when writing a column in praise of Andrew Yang I’ll end up calling him out for misreporting numbers, but the priorities of Putanumonit are clear: truth in numbers first, politics fifty seventh.

Jacob Falkovich18 Oct 2018 15:09 UTC
45 points
14 comments10 min readLW link