What Problem Does UBI Solve?

Ask ten different people what problem Universal Basic Income solves, and you’ll get ten different answers. Scott Santens could probably give you a hundred. This is understandable: A world with UBI differs from today’s world in innumerable ways, and it’s actually quite difficult to imagine a problem that UBI would not at least help with. It is money, after all. Money solves lots of problems.

It’s not that any of the usual answers are wrong, per se. Poverty, inequality, exploitation, technological unemployment, homelessness, adults having to live with their parents, addiction, depression, crime, overwork—all of these and more would be massively reduced if not solved outright by a UBI. But these problems also have other, more direct solutions. We have unions and labor protection laws to prevent exploitative working arrangements. We have law enforcement to deal with crime and narcotics distribution.

What if we reframed the question: What problem does an engine solve? Well, we don’t normally think of an engine as solving a particular problem. But we do think of it as serving a vital function, without which a vehicle is going to have a lot of problems.

The function of UBI is to supply people with money.

It sounds weird, but why? It sounds weird because we’re used to thinking that people are supposed to supply their own money—by earning it. When pundits talk about fixing the economy, they’re not usually talking about providing cash; they’re talking about providing opportunities. It’s like we’re trying to use the employment contract as the social contract. We want people to have the best overall deal possible, and we assume that the way to achieve that is to provide more and better jobs.

We’re used to thinking of more jobs and higher wages as unambiguously good. But wages shouldn’t be primarily about supporting consumer income—their true purpose is to incentivize labor. Wages are the portion of income that we make conditional as a way of compelling people into the workforce. This coercion is a necessary evil, because we need people to work. But as technology reduces the amount of labor we actually need, the coercion becomes less necessary. The problem is, without another source of income, we’re forced to keep people employed—needed or not—just so they can get paid.

This is not only a humanitarian issue; it’s also a matter of economic efficiency. And really, economic efficiency serves human prosperity, because the economy is the ultimate human welfare machine. The aim of economic policy should be to help the economy serve us as efficiently as possible.

Like any machine, the economy has inputs and outputs, and its efficiency is defined in terms of what we get out versus what we put in. The outputs of the economy are goods and services, whether purchased by the government, firms, or consumers, and its inputs are things like land, energy, raw materials, and crucially, labor. Businesses succeed by minimizing inputs while maximizing output, and that’s good because we want them to use resources efficiently. It means the incentives of the private sector are aligned with what we want from the economy as a whole: more goods and services for less resource use, especially when the resource in question is our time on Earth. There’s just one problem: Jobs are where our money comes from.

What happens when the economy as a whole uses labor more efficiently? Well, greater efficiency means more output per input, so greater labor efficiency means the economy is making more stuff, using less labor, or both. But how can this be if the wages from labor are what buys the stuff? Greater output means consumers need more money with which to buy that output, but wages are decreasing. Tying consumer income to wages means the economy always has to employ more people in order to make more stuff, regardless of whether that labor is required for the production itself.

The inevitable result of using employment as financial sustenance is that we end up cultivating employment. In a world where people don’t eat if they don’t work, it becomes very important to make work for people. The more labor-efficient our technology becomes, the more we are forced to generate make-work to prop up consumer incomes.

It’s no good making a lot of stuff if people can’t buy it. The economy can’t produce goods or services that people lack the money to buy. Supply and demand have to be balanced—we can’t buy what we can’t make, and we can’t make what we can’t buy. The economy’s maximum output will be bottlenecked by whichever is lower, productive capacity or spending power. By relying on jobs for the dual purpose of producing stuff and supplying the money with which to buy it, we’ve made it impossible to increase output without also increasing wages. The result is an economy that overemploys and underproduces.

One of the great dilemmas of economics is that, on the one hand, we hate exploitation, but on the other hand, if we don’t exploit people, then nothing gets done. We need financial incentives to funnel people into the labor market, or else toilets don’t get scrubbed and stuff doesn’t get made. Labor efficiency, by definition, is what frees us from this dilemma: It lets us have it both ways, making more stuff and making people freer. The more efficiently we can exploit people, the less we have to exploit them. The reason why technological progress has not delivered us from perpetual toil, the reason why money enslaves instead of emancipates, is that we don’t have UBI.

Money does not have to be like this.