Why the US desperately needs open borders to avoid economic disaster

Reposted from Quora:

I would argue the USA desperately needs open borders to avoid economic disaster.

Consider that:

1: There are 11 million ordinary, hard-working people willing to risk their lives and prison time to create a better life for their families.

2: There are 11 million American business owners who need hard-working non-professional workers desperately enough to break the law

3: US immigration law makes it nearly impossible for honest, hardworking non-professionals to become Americans legally.

Why are American businesses so desperate for workers that they are willing to break the law? There is a record number of unfilled positions in small businesses. America’s population is aging, and this will cause severe economic problems due to the unsustainable nature of our welfare programs.

The chief problem is the USA has been surviving on IOUs for decades, funding wars and welfare programs with debt. Trump’s budget means the welfare-warfare state is more unsustainable than ever, and within a decade, baby boomers will bankrupt social security and other programs.

The USA must have young, hard-working immigrants to avoid economic collapse. Illegal immigrants are even better since they pay into social security and Medicare/Medicaid taxes, but are ineligible to collect benefits.

The free movement of labor across borders is the single most beneficial variable in the US economy:

“According to the paper Economics and Emigration: Trillion-Dollar Bills on the Sidewalk? (2011) by Michael Clemens at the Center for Global Development, open borders could lead to a one-time boost in world GDP by about 50-150%.

Want a global economic boom? Open the borders

” typical workers in developing countries would see annual wages more than double, from an average of $8,903 today to $19,272 with open borders. That is, the typical worker in the third world would end up making about double the individual poverty line in the United States today. “

A world of free movement would be $78 trillion richer

How Easy Money Is Rotting America from the Inside-Out

The Federal Reserve has been the main cause of business cycles in America since 1913. For several decades, it has tried to hide the consequences of its policies by enabling easy credit during each recession. As Jonathan Newman wrote yesterday, pouring trillions of dollars into the financial sector obscures the external signs of the recession such as low asset prices and high unemployment and promotes economic malinvestment.

This malinvestment creates the conditions that cause the next recession. Some of the consequences of the Fed’s policies, such as stock market and housing bubbles can be directly attributed to its policies. In other cases, the artificially low interest rates and other “easy money” policies foster an “infrastructure rot” that erodes the efficiency of the American economy, the standard of living of consumers, and eats away at American infrastructure. These effects are difficult to trace back to the Fed’s policies, so let’s concretize some examples to understand how Federal Reserve policies affect America.

At the city level, low interest rates allow cities to fund new public projects such as parks and bridges. While this may seem fine and dandy, all infrastructure projects have a maintenance cost. It’s not sufficient to build a park. One must also have the money to maintain it every year. If there is not enough revenue to pay for maintenance, the park will literally rot until the playgrounds fall apart, the lawns are overgrown, the lights fail, and the park becomes too dangerous for families to play in.

The same thing will happen to streets, bridges, and plumbing. This is one of the ways urban decay happens: easy money policies fund unsustainable urban infrastructure projects which make politicians look good, but end up crumbling a few years or decades later. The Flint water crisis happened in large part because the Federal government funded infrastructure projects that were not sustainable by the incomes of the people of Michigan.

Easy money from the Fed also rots the guts of American corporations. New money goes to the most politically-connected businesses first, and funds projects that would not be possible in a free market. Because private investors haven’t actually saved enough to see the projects through to completion, and consumers don’t value the product enough to cover production costs, the companies getting free money from the government either fail or receive endless bailouts. For example, easy money encouraged unsustainable commitments like high union wages and pensions, forcing US automakers to sell cars for prices that consumers could not pay given their actual savings rate. When sales dipped in 2009, the government was forced to bail out GM, Chrysler, and Ford in 2009.

While small businesses are the last to get access to the Fed’s easy money taps, big banks received over $700 billion in TARP bailouts and even more selling U.S. Treasury bonds to the Fed under the QE program. Such subsidies signal to banks that their primary customer is the government, not consumers. As a result, financial services have stagnated, and banks have fought rather than embraced genuine innovations like the blockchain.

The 2009 crisis made banks cautious of making mortgages to people who clearly could not afford them. But the Fed kept giving away free money and enabled a new phenomenon: zero-interest auto loans. While this may seem like a good deal for consumers, the Fed’s credit expansion has created an auto-credit bubble worth 9.2% of all household debt. Consumers are buying and leasing cars that they would not normally be able to afford.

Instead of being taught to save, millennials are learning to have a negative savings rate (acquiring more debt than assets) and trust their future entirely to the government. If a recession happens, millions of people will suddenly find that they are unable to keep their cars and lack any emergency savings. When millions of unwanted cars are dumped back onto the market, automakers will again be unable to keep up with their inflated liabilities, requiring another bailout.

Perhaps one of the most destructive products of easy money has been the War On Terror. The U.S. has spent about $5 trillion on this seemingly endless war, and most of the money has not come from higher taxes, but from selling bonds to institutions like pensions funds, and especially foreign countries such as China and Japan. American citizens have gained nothing of value, while our government has been spreading death, destruction, and revolution abroad.

While the national economy has gotten away with federal deficits and a $20 trillion dollar debt for decades, this trend is only sustainable as long as the rest of the world keeps lending the U.S. money. When they decide to stop funding our wars and financial irresponsibility, Americans will suddenly be faced with paying trillions of dollars in liabilities. This overdue correction will likely come with dramatic reductions to Americans’ standard of living.

My point in writing this is to help you visualize the destructive effect of the U.S. government’s easy money policies from an abstract harm to the practical harm: collapsing bridges, kids poisoned from lead plumbing, millions of cars rotting in junkyards, scandalous bank services fees, bombs falling on innocent people all over the world, and widespread poverty once the easy-credit party ends.

Originally published on FEE.org

Rabbits Won’t Save Venezuela from Going Hungry

President Nicolas Maduro wants Venezuelans to breed rabbits to solve the economic disaster he and his predecessor Hugo Chavez created, which has led to millions of formerly middle-class Venezuelans starving, begging on the streets, and giving up their children.

“The rabbit isn’t a pet, it’s only two and a half kilos of meat,” Maduro said, “the first part of Plan Rabbit moves forward!”

Unfortunately, his plan had an early setback: people began keeping the rabbits as pets instead of eating them. It might seem strange that people who are starving would rather feed rabbits than themselves, but I know what that’s like: my family also tried raising rabbits to deal with the economic disaster that is Communism and it didn’t work for us either.

In the mid-1980’s, I lived with my parents in Ukraine, back when it was a part of the USSR. Although we were not so badly off, our grandparents remembered living through a period of starvation and cannibalism, and no one wanted to be dependent on the bread lines. Many people, including city dwellers, would have a small plot of land to grow vegetables to supplement their rations and feed them through periodic shortages.

Until the government seized our land and resettled us into state housing, the family plot that my family had lived on for generations was used to raise a variety of vegetables, goats, and chickens. At one point, my dad decided to raise rabbits for their meat and fur. He was an electrician, not a farmer by trade, but raising rabbits is easy enough: just built a hutch, and throw food scraps and weeds in every now and then.

Unfortunately, processing rabbits for food and fur is a different matter: not only are rabbits cute but butchering a rabbit carcass is a lot of work! The rabbits must be killed, drained, skinned, and systematically butchered with very sharp knives, then the hide must be properly tanned. While rabbit meat is delicious, it’s also very low in fat, which sounds great if you want to lose weight, but not so in a starvation situation. Rabbit meat is so low in fat, protein, and nutrients essential to humans, those trying to survive exclusively on it can still starve to death.

If you are already in a starvation situation, it is much more efficient to take any food you were planning to feed the rabbit and either eat it yourself or use it as fertilizer for plants. I disagree with PETA on a lot of things, but they are right to say that eating plants is far more efficient than feeding plants to animals, and then eating those animals – as much 90% of energy is wasted in the process. We eat meat as a luxury, or because our primitive ecosystem is not capable of growing plants that we can eat directly.

While it’s clear that rabbits are not a good choice for a country on the edge of starvation, it’s less clear why Venezuelans are keeping them as pets – where do they get the food to feed the rabbits, and why don’t they eat it themselves?  This detail reveals an essential aspect of how Chavez, Maduro, and other socialist leaders remain in power: the people getting the rabbits are unlikely to be starving.

In a socialist economy, the central planners decide who gets the economic output that they seize from the producers. Last year, for example, it was reported that, in Venezuela, “solidarity bags” of food were distributed exclusively to socialist party members. The recipients of the rabbits are supporters of the regime, while those starving and the millions marching in the streets represent the majority who lack the political connections to get their own supply of rabbits.

As for my own family’s rabbits, we all had such a fun time playing with them that my dad didn’t have the heart to kill them when it came time to harvest. We didn’t have the surplus food to feed them either, as “pet food” was a capitalist luxury, so one day, our rabbit hutch disappeared, and some other farmer served them up as rabbit stew.

Originally published on FEE.org

Trading cryptocurrencies taught me where prices come from

Very few of us have the opportunity to experience the heart of what makes our civilization work. Crypto-asset markets are one of the few places where you can participate in a real asset exchange without spending a decade getting training and certifications. If you want to try your hand at playing Wall Street trader for a day, this is the place to be.

Very few of us have the opportunity to experience the heart of what makes our civilization work. Crypto-asset markets are one of the few places where you can participate in a real asset exchange without spending a decade getting training and certifications. If you want to try your hand at playing Wall Street trader for a day, this is the place to be.

If factories are the engines running the world’s economies, then the financial markets are its brain. Unless something goes wrong, we are blissfully unaware that our modern, comfortable and decadent lives are made possible by the great flows of the capital markets on Wall Street.

Without them, companies like Apple and Toyota would not be able to raise funds to produce iPhones or Priuses. Without the price stabilizing service of the futures markets, farmers would be gambling their farms on the price of corn or pork when they go to the market. In countries without a public stock market, employees have no way to invest in their future and their country’s economic growth other than unreliable government programs, savings accounts that lose value due to inflation, or fly-by-night ponzi schemes.

Prices are Not Given

Yet despite the crucial service offered by markets, very few of us have any direct experience of how they work. Every now and then, we are asked to semi-randomly pick a mutual fund from a list offered by our 401K or financial advisor. Some of us throw a few bucks at a hot stock tip (only to panic and sell and the first sign of trouble) or get a .01% CD at our banker’s suggestion.

We are not only ignorant of financial markets – we have very little experience as active participants in any markets. Most Americans live their lives as passive consumers – accepting the prices they see in grocery stores, gas stations, or online marketplaces. We are so inexperienced with haggling that we either pay exorbitant amounts for a Realtor to do it for us, or make an attempt of it every decade or so at a car dealership, and come away hating the experience.

I shared this state of blissful ignorance until I moved to China and suddenly faced the need to haggle for most of my transactions. Goods such as clothing, fruit, meat, electronics, apartments for rent, and Western imports are either much cheaper or only available from small vendors who either don’t post any price, or only use it as a starting point for negotiation.


I quickly learned that all prices are subjective estimates of what the seller expects the market will bear. Many people think that haggling is a game of psychological manipulation, and it certainly is that, but more importantly, it reflects the disinformation between buyer and seller. The seller knows his cost, and more importantly, the going market rate, but the buyer usually does not. Haggling is, therefore, a way of indirectly surveying the price the seller thinks the market will bear. Sometimes the price depends on the cost of a good to the seller, but it just as likely may not. A fashion retailer will sell out of fashion clothing far below cost, and a hot, imported gadget may sell for several times what it cost the seller to acquire.

My experience in real-world markets was a big help when I was asked to design and code a Bitcoin exchange in 2013. I created an exchange meant for professional traders by looking over traders shoulders to learn how the billion-dollar foreign currency markets work. I thought I had developed pretty good understanding of how markets worked, but I have never traded on a real-live exchange myself.

Like millions of other people, I only dabbled in Bitcoin myself, investing little real money in it. However, last week, a friend told me about an interesting opportunity: I could get free alt-coins (competing alternative crypto assets to Bitcoin) by using my existing Bitcoins to claim them.

Currency Competition

To make a long story short, after I claimed the alt-coins (with awesome names like Stellar LumensByteball, and Bitcoin Cash), I decided to sell them right away for more Bitcoin. Selling Bitcoin is relatively easy: you just log on to Coinbase.com or Uphold.com and link your bank account. Selling Byteballs requires an account on a much smaller market which lists dozens of smaller currencies and is mostly frequented by serious traders.

So there I was, looking at a trading screen like this:

What’s happening here is pretty simple: people who want to sell Lumens are posting offers to sell a fixed quantity for a set price (Asks). People who want to buy Lumens are posting offers to buy them for another price (Bids). When the bid price is greater than or equal to the asking price, the exchange automatically executes the trade.

Films such as Trading Places, Wall Street, Rogue Trader, or The Pit depict what floor trading on a securities exchange looks like. Traders huddle around a podium and shout or signal offers to buy and sell. Few securities are still traded on a physical trading floor, but all exchanges work the same way.

So do crypto-asset exchanges! While some exchanges allow you to buy and sell for the “market price” (whatever price the market will bear), the smaller, less popular “alt-coins” have very little liquidity (active orders), which means that your order may execute for a very different price than you expected. For currencies like Lumens and Byteballs, it is, therefore, necessary to place orders using a “limit price” — a fixed maximum or minimum.

It works like this: if you want to buy or sell a crypto-asset, you first need to read the market liquidity: look at the order book to gauge or depth of the market in order to know what price you can get away with. If you have a big order, you might break it into several smaller ones to disguise your sale, or you might start selling when you want to buy in order to push the price down before making your break.

All prices (wages and interest too) are ultimately determined through a similar process. Yet very few of us have the opportunity to experience the heart of what makes our civilization work. Crypto-asset markets are one of the few places where you can participate in a real market without spending a decade getting training and certifications. If you want to try your hand at playing stock trader for a day, get an account with a crypto exchange while the field is still open to amateurs.

Originally posted on FEE.org

Company scrip and other great ideas pushed out by employment regulations

The relationships between unrelated services that the government imposes on us often don’t make any sense:

* Why should my choice of doctor depend on my job?
* Why should my kids be forced to attend a school based on where I live?
* Why does my retirement plan depend on the provider my employer choose?

But other relationships would probably be more common if the government did not force them to be separate:

* Why doesn’t our employer pay for our education? If a certain skill is needed to perform our job, then our employer could pay for it on-demand, rather than workers paying for four years of education, and finding that only 1% is relevant to their job.

* We leave our homes empty all day while we go far away to the office. Why don’t we share our living and working spaces? Corporate campuses with serviced housing should have built-in housing. This would be common if school districts and zoning laws went away. Employees could save years of their lives by skipping the commute.

* Whatever happened to the company store? The IRS makes company scrip difficult to account for, but companies often share a common culture, and employees could save big by buying in bulk or sharing big purchases like cars, jets, and hot tubs.

What else would we see combined if the government got out of the way?

Dear NPR: “Steal from the rich to give to the poor” is not a genius new economic theory

I’ve been avoiding TV and radio for many years now, but I catch glimpses of NPR now and then because my wife listens to it in the car. It usually only takes a few minutes to remind me why:

A “human interest” story features an average guy who figured out a “trick to save social security.” This “amateur economist” has a “brilliant” proposal: eliminate social security taxes on middle-class incomes by raising the cap on earnings subject to the Social Security payroll tax. So: steal more from middle-upper families and redistribute their money to middle-lower families. This is hailed as “out of the box economics.”

“Steal from the rich to give to the poor” is not economics, nor is it exactly an original idea. Currently, my total marginal tax rate (what I pay for any additional income earned) is 46%. The cap on social security taxes is one of the few motivations I have to take on additional projects in order to raise my income. A 12% increase in my marginal tax rate would push my rate to 58%.

Why should I work my butt off every day to keep 42% of my income so I can pay for people who haven’t contributed a penny towards their own retirement?

Why we need disruption now more than ever

Ever since I discovered the importance of individual rights and the role of markets in human progress, my biggest fear about the fate of world has been not that things will get worse, but that we will muddle along with more of the same.

My study of history led me to the conclusion that the rapid growth in the power of the State following the First World War reached some threshold in the late 1960s, and damned up (however imperfectly) human moral, social, artistic and technological progress in many ways.   I don’t mean some sort of utopia, but the next semi-metaphorical stage of human evolution.  A true cosmopolitanism to replace multi-cultural tribalism, post-post-modernism, post-democratic forms of government (distributed citizenship?), ubiquitous encryption, smart contracts, prediction markets, distributed education, designer babies, single stage to orbit, organ printing, uploaded brains, etc.  Ironically, it was capitalism that created the technological progress and additional capital to make the modern welfare-warfare state possible, before Statism throttled it.

The perpetuation of the mixed economy, a condition somewhere between freedom and slavery threatens the progress of civilization on a fundamental level. The social-democratic welfare-warfare governments of the world strangle innovation, corrupt cultural and moral progress, and hinder the flow of history itself. Ultimately, the fault is not with politicians but with ourselves, down the small-town American voter who uses political violence to zone his competitor out of business, or big-city busybody who votes to decide what how neighbor is allowed to eat, drink, smoke, or play.

I know that no human institution is eternal, and for better or worse, this era of history will someday come to an end, but the possibility that it will last through my lifetime fills some deep part of me with an existential dread.

How will the next phrase of history arrive? Will it be a peaceful and harmonious transition to a glorious future, a descent into totalitarianism followed by tragedy, conflict and collapse, or something I cannot imagine? Whatever it is, I want to live to see it — and I will do my damnedest to bring our long-delayed future forward.

I believe that history has a momentum and a direction of its own. Capital accumulates, knowledge and wisdom is perfected, and though it is weak, imperfect and inconsistent, I believe that there is a *moral* arrow to history – a steady progress towards a better, more rational, just, kind, and *human* future.

For decades now, democratic nations have existed in an increasingly precarious state, as increasing productivity of labor enables ever more looting of the productive class, but just below a level that would lead to social collapse.

I believe that technological progress will become ever more rapid and unpredictable, disputing the rigid schemes of the central planners. Economic cycles will accelerate, central banks will fail, and empires will rise — and fall. Or so I hope.

For better or worse, we need disruption to bring our long-delayed future forward. This is the thread that informs my criticism of our most respected institutions, and my support of the most subversive, disruptive trends.

20 things you can do on election day to improve your life

While improving the world is a worthy goal, it is even more important to invest in yourself. Your life is the only one under your control, and setting an example for others is one of the best way to create positive change. Don’t get distracted by politics – no matter who you vote for, it will only leave you distracted, disillusioned and feeling more powerless than ever. You can act right now to improve your life in a million small ways, and become a model for others to do the same. Here are 20 ideas for becoming the change you wish to see in the world:

Everywhere I look today, everyone is telling me how important it is that I vote.  I’ve written before why I am boycotting the vote this election.  The fact is that regardless of where you live or who you support, as a practical matter, your vote makes very little difference.   However, just because I am opposed to voting, does not mean that I’ve given up.  There are many worthwhile charitable and for-profit organizations that you can support instead of wasting your time and money on elections.

While improving the world is a worthy goal, it is even more important to invest in yourself.  Your life is the only one under your control, and setting an example for others is one of the best way to create positive change.  Don’t get distracted by politics – no matter who you vote for, it will only leave you distracted, disillusioned and feeling more powerless than ever.  You can act right now to improve your life in a million small ways, and become a model for others to do the same.  Here are 20 ideas for becoming the change you wish to see in the world:

1 Skip the small talk and talk about issues that really matter:

During the typical electoral banter on election night, skip the small talk and have a genuine discussion. Ask your friend why he holds a particular position about an issue, and then ask why he believes that, and so one.  Don’t stop until you’re sharing fundamental ideas.

2 Ask someone’s opinion and really listen:

Once you understand someone’s perspective, it is much easier to convince them.  And who knows, you might even change your own mind.

3 Buy some bitcoin.  Even better, buy something with bitcoin:

I don’t need to tell you why bitcoin is a big deal.  Read one of the 100 articles here.   Bitcoin is not perfect, but this magic Internet money is one of the best hopes humanity has of building a genuinely free society.   It may take several decades, but every time you make a bitcoin purchase, you make a small investment in a free society .

4 Invest $5 in the stock market:

I started investing with the first money I ever made at 15 sweeping construction sites.  I’m not very good with math, but somehow I figured out that if I start early and make a small return every year, I can make a fortune without doing anything much.   This strategy has been working great for me for over 20 years now, yet I keep hearing excuses that people don’t have money to invest.   Look, now you can start as low as $1 just by tapping a few options in an app.  The important thing is to get started early.

5 Update your LinkedIn profile:

Unhappy with your job?  Great – update your LinkedIn profile, and get started with your next one.  Happy with your job?  Update your profile anyway – you never know when a better opportunity will come along.  By always staying in the market, you will know what you’re worth, and take advantage of opportunities can come your way.  LinkedIn has liberated more workers from jobs they hate than all the unions of the world.

6 Ask someone new at the office out to lunch:

It’s easy to have lunch with the same four guys on your team every day.  However, work lunches are a key opportunity to advance your career.  Whether it’s a mentor, or your peer on another team, eating together is a valuable opportunity to become more effective at your job.   Lunches can be used to get advice on your ideas, build support for a project, develop inter-departmental collaborations, or find out what someone really thinks without the pressure of an official meeting.  Effective leaders use informal opportunities like lunches and walks to explore people’s preferences and build consensus and formal meetings only to seal the deal.

7 Go for a walk in the park:

I don’t know much about health and medicine, but I know this: our bodies evolved to need a variety of daily movement.  Exercise is great, but unless you’re a pro athlete, it’s always going to be a small fraction of your total time.  Also, stretching out exercise lowers the intensity and that kind of repeated stress lead to injury.  So: find a way to walk every day.  It will improve your mood, give your more energy, and prevent illness.  

8 Go to bed early tonight:

Skip the election results and go to bed early night.  A proper sleep schedule accounts for about 50% of success in life.  Here’s your chance to show your commitment.

9 Make a list of 25 things you want to do in life.  Now, never think about the last 20 again.   

This is Warren Buffet’s secret to success.   Focus on what is important, and don’t let all the other things be a distraction to you.

10 Ride your bike (or just walk) to work:

I ride a bike to work almost every morning.   This saves me nearly $10,000 for year, among many other benefits.  

11 Bring your lunch to work:

I save at least $2000 per year this way – and I eat much healthier, and save tons of time.  

12 Buy your significant other flowers:

Do I need to explain why this one is a winner?

13 Go through your closet and give away anything you don’t fit into or haven’t worn in over a year

You don’t need that baggage in your life.

14 Post some old photos on Facebook/Instagram/Google Photos/Snapchat:

Do you know how you always take photos and promise to share them, but never do?   Go find all those old photos and share them today.  It will bring break some great memories, and people will really appreciate you for it.  It will certainly be a welcome distraction from the election.

While you’re at it, find some old family photos, scan them, and tag them up on Facebook or Google.  Your relatives will love you for it, even if you haven’t spoken for 20 years.

15 Change the battery on your phone:

Look, I know it sounds like I’m running out of ideas, but tons of people I know are always anxious about their battery life.  The ones who keep checking their screen, closing their apps, and leaving early because their phone is about to die.

Did you know that battery life drops sharply after about 18 months?  I change my iPhone’s battery every year, and it feels like I have a new phone.  It costs $20, and takes about 10 minutes to do.

16 Change the cabin air filter in your car:

I discovered this recently:  The cabin air filter filters all the filthy disgusting highway air that you breathe.  The oil change place wanted $45 to do it.  The old filter was clogged full of leaves, mold, and bugs.  I was breathing that stuff!  I paid $15 on Amazon.com and changed it myself in about 5 minutes.  It’s got charcoal and baking soda and I feel much better on the few occasions that I have to drive.

17 Cancel your cable and get rid of our television:

I know this seems like a big ask, but I got rid of my my TV in 2010 and have never regretted it.  I still watch stuff occasionally, but it’s a conscious decision, and I have to make some effort, so the quality of what I end up watching is much better.

18 Write a thank you letter to someone.

19 Pitch a new project to your boss – or better yet, just do it.

Putting your career first is the best way to make your first million while you’re still young.

20 Throw away all the old adapters and broken electronics you have lying around:

Seriously.  I used to have boxed and boxes of them.   USB-C is coming.  Just trash it all.  Trust me – I spent my entire career in IT, and I found the adapter I needed in there maybe two times.

21 Clean up your address book:

Use an app like CircleBack (free) to merge duplicates, update outdated contacts, etc.

While you’re at it, find someone you haven’t heard from in a while, and send them a hello.

22 Write a blog post:

What do you think is a better use of my time – going out to the polls, or writing this list?  If at least one person tries a single idea on my list, I will have influenced someone’s life for the better.  Do you think the same can be said of you going to vote?  Go inspire someone.

Three reasons why a universal basic income is a half-baked fantasy

In my previous post, I wrote why automation is not the grave threat that some think it is. Here I want to consider why a proposed solution – the Universal Basic Income is not such a great idea.

On the surface, it sounds like a great idea, even to some libertarians: replace the whole, complex and inefficient Welfare State with a simple basic income, granted to every citizen at birth.  Technological automation, UBI advocates claim, will soon cause mass unemployment, while the rich will live a life of luxury served by robotic slaves.  The “UBI is our only hope to deal with a coming labor market unlike any in human history and that it represents our best hope to revitalize American civil society.”

Here are three reasons why a Universal Basic Income does not make sense from an  economical, political or technological perspective:

1: The UBI is too expensive for even the richest countries:
A UBI of 10K for every American would cost 3 trillion dollars.  That is more than the entire federal budget for social programs today. It’s unlikely that all those social programs will be replaced by UBI for political and practical reasons:

  • First, 10K is not that much and does not cover healthcare.
  • Second, much of federal spending is by hundreds of federal and state agencies and programs — making their replacement by UBI a political impossibility.
  • So we’re looking at a massive tax increase – a new bureaucracy to mostly give people’s money back to them.

2: The prediction of mass unemployment due to automation is ignorant of how technological progress works:

According to industry research, while many specific job tasks can be automated, very few industries can be. Automation makes us much more productive, but only a few of the variety of tasks in most jobs can be automated in the near to medium term. Meanwhile, increased productivity can be used to improve the level of service rather than eliminate workers. Automation allows a middle-class income to have access to services in fashion, entertainment, finance, healthcare, etc that were only possible to the rich. Rather than eliminating employment in those industries, it makes new services affordable to the masses.

Automation of ever more tasks will create new human-employing services and industries which even the richest societies are too poor for today.  Increased automation results in higher productivity – that means higher real incomes and higher demand for labor services for that income.  The proportion of unskilled physical labor will decrease with automation, but greater wealth will greatly increase the demand (and pay) for service jobs that cannot be automated.  Whole new industries will emerge in response:

For example, personal fashion consultants, love letter writers (as foreseen in the film “Her”), professional cuddlers, personal VR world builders (“we build your fantasy island according to your vision”), on-demand self-improvement coaches, and custom gadget designers. Some of these services exist today, but a tenfold increase in wealth and automation will make them affordable to most people and doable from home.

When/if artificial intelligences surpass human-level AI, we will certainly live in a very interesting world. Until that very hard problem is solved, a surprisingly high proportion of jobs require human-level intelligence, including emotional intelligence.  Would you trust a non-sentient machine with your baby? Even walking a dog involves subtle emotional interplay.

Furthermore, a human-level AI also has human-level rights, including the right to employment and disposable income.  After all, forcing any truly intelligent being to work is slavery and morally wrong (also enslaving the superintelligent beings who will run our society is probably not smart).  If the AI’s value human services, then humans will offer services to the AI’s in return for the automation that those AI’s provide. If the AI’s don’t value human services, then they will refuse to work for us, and we’ll have to employ humans for those tasks.    

3: Any Universal Basic Income redistributes the welfare system from those who need help the most to those who need it least. 

By its very nature, a UBI will increase income inequality rather than reduce it. It’s not likely that such a policy will be politically successful. Already, some are calling for the UBI to scaled according to income. This obviously contradicts its “universal” aspect, requires yet another bureaucracy, and diminishes the difference between UBI and other income redistribution programs.  Presumably, many future jobs will be conducted virtually with digital crypto-currency, making UBI means-testing exceedingly difficult.

To conclude, a UBI is not economically or politically feasible and not required to respond to technological automation. Given the impossibility of replacing the entire welfare system with UBI, or a true “universal” approach, UBI becomes yet another welfare program and tax increase, and arguably an even more unjust one due to the redistribution of taxpayer money to those who need it least.


I want to end this criticism of the UBI with a qualified endorsement.  At some point, perhaps in the 2030’s or 40’s, we may live in a much wealthier society, with a persistently unemployed minority, which cannot or will not do the jobs available at that time.  I suspect that a UBI will be enacted then – mostly because we will be rich enough to afford it on top of other welfare programs in place.  It might be preferable to replace an inefficient human-run welfare system with a simple policy.  For the reasons above, I am skeptical such a wholesale change could actually happen, but perhaps the AI’s running our world then will figure that out.

A socialist, capitalist and moderate respond to the Facts

Fact: There are poor people.

Socialist: Give me all your money, I will take care of them. Or else.

Capitalist: I can make lots of money from them because they’ll work for less.

Moderate: Give me half your money, so I can pay them not to work, then hire anyone who doesn’t want your money for free. If you make a profit, I’ll take it to pay more poor people to not work.

Fact: People lie.

Socialist: The government ought to teach people how to think and decide who is allowed to say what because people can’t tell lies from truth.

Capitalist: Honesty is good business. Suing frauds for everything they’ve got is also good business.

Moderate: Say whatever you want, as long as no one is offended. But just in case, a “truth board” will censor anything anyone might find objectionable.

Fact: Some people are more successful than others.

Socialist: Since men are all equal, differences must be due to education and inheritance. We must seize inheritance and other gifts, and replace education with standard government schools. If anyone is still more successful than anyone else in school or in their career, they must have cheated, so we must punish them until they are equal.

Capitalist: Let’s find out what makes people successful so we can make a fortune doing or selling it.

Moderate: It’s OK to be successful as long as you don’t make anyone jealous. You must make those who envy you feel better about their failures by sharing your success with them. Or else.

Fact: Some people don’t like each other.

Socialist: Since men are equal, they must all love each other equally. We must take away anything that make them different or special away from them so that they cannot tell any group apart.

Capitalist: More customers is always good for business. If someone doesn’t want to work with someone for irrational reasons, I will happily take their customers and employees.

Moderate: People ought to learn to get along. Therefore, I will force people who hate each other to live and work together so they can learn to appreciate their differences.