Over the years as my fascination and obsession with bitcoin has deepened, I’ve come to view a lot of other aspects of society and governance through a bitcoin lens. While in many cases that can be most easily described as having a libertarian viewpoint, I am not an anarchist who believes that we should get rid of the government or completely burn down the current system. That said, few things induce outrage for me like seeing the ways that government policy incentivizes bad outcomes for society.
After spending a few weeks in the US this summer, I finally moved off of the fence about Universal Basic Income (UBI). For those who don’t know about it, UBI is an idea to send identically-sized payments from a government to all of its citizens, regardless of their economic status. On the surface, this might seem as anti-libertarian as it gets. And in fact, I had quite a few doubts about its efficacy.
For this newsletter issue, I’m going to divert from the usual bitcoin talk to instead present the reasons why I’ve come to believe UBI, like bitcoin, represents Proof of Progress for society.
Bad Incentives = Bad Outcomes
I used to think economics was impossible to understand for regular people (like me) without any formal education on it. But as I’ve discovered in the last ~5 years, economics is not the science of rockets. Ultimately, the point of any economic policy should be to incentivize the outcomes that are the best for society. In other words, expect people to behave in their own self-interest and design systems that turn that individual self-interest into positive outcomes for as many participants in the system as possible.
You might be thinking, “but economies are super complex, how can we just boil it down to something so basic?” Well, the reason I’m talking about “Proof of Progress” and not “Proof of the 100% Perfect Solution Forever” is that frankly there is a lot of economic policy today which quite clearly doesn’t satisfy even this very basic incentive alignment.
When it comes to modern society, two glaring examples of poor incentive structures are the minimum wage mandate and unemployment programs. Both of these policies seem like they are coming from a place of compassion for the poor, and I think it’s fair to say that many of the people who support them are well-intentioned. However, the reality is that minimum wage hurts small and medium businesses while also making it more difficult for unskilled workers to find jobs at all, while unemployment programs as they are currently structured incentivize people to stay unemployed unless they are capable of getting a relatively high-paying job.
I know a couple of people who have been receiving more money from unemployment checks since the pandemic started than they were earning from actually working pre-pandemic. I am happy for those people on an individual level, because it’s not very often that the government’s policies help low income people. In fact, I would encourage them to continue doing whatever gets them the most money for as long as possible, whether that means unemployment checks or actually working. From a societal perspective, however, this seems like the perfect way to ensure that small and medium businesses struggle to hire affordable workers and general productivity goes down due to so many able-bodied people not working. Uber and Lyft were significantly worse services during my past two trips to the US than anytime I ever used them prior, and that’s undoubtedly because of the incentive for people to not earn any income in order to keep qualifying as unemployed.
And finally, this brings me to the obvious reason why UBI can be progressive for society.
UBI Creates Better Incentives and Freer Markets
The most common criticism I hear of UBI is that it will enable lazy people to sit around on their couches playing video games and watching Netflix all day without working. At first, I thought that was a big problem too.
Nowadays, I still think there may be a small subset of the population that is able to work but will avoid doing so if they don’t have the financial need. However, I don’t think this is actually that large a portion of the population. Sitting around all day doing nothing and not making any money sounds like a depressing existence to me, and I’m pretty sure most people would agree. One of the hardest times of my life was the first half of 2017 when I decided not to get a corporate engineering job but didn’t know what else to do. I was studying Chinese, taking some beginner coding classes, working out, and still feeling like a complete loser because I wasn't earning any income.
When I started working online, I was making maybe $4-8/hour on average as I was trying to build up some work experience and get positive reviews on my freelancer profile. And I felt astronomically better making that paltry sum than not working and making money at all. I don’t think I’m unique in this.
But I suppose my belief that the vast majority of people will not default to being lazy, unproductive slobs with UBI can be considered a personal opinion. Fortunately, it isn’t the main reason I started believing in UBI.
The real reason that I think UBI is Proof of Progress is that it eliminates the malincentives of the current unemployment system. Specifically, UBI eliminates the incentive not to work part-time jobs or low-wage jobs since doing so would result in taking home less money relative to unemployment checks.
In a UBI world, both unemployment and the minimum wage could be abolished. The bureaucratic bloat of maintaining those programs and the negative consequences of them would be eliminated. In their place, we would have a much more “free” labor market. With people no longer forced to work in order to meet their basic needs, all of the other factors come into play.
- Is this work enjoyable and fulfilling?
- Does the money I get paid from this work improve my life enough to justify the time I spend doing it?
- Does my employer treat me well?
- Are the people I work with pleasant to be around?
These are all factors that matter to people who have leverage. As I’ve built skills and knowledge in the bitcoin industry, these factors have become more important to me than money. But that’s only because I have enough money to not have to worry about money.
What’s really interesting to think about is that these factors could actually lead to a substantial repricing of different types of labor in a UBI-economy. When most people want to work and make extra money, but nobody needs to work and make extra money, the social value of different jobs may actually be better reflected in the wages those jobs pay. In other words, the market with its hundreds of millions of participants will be able to do what markets do and organize us in a way that benefits the masses. I’ve never seen this articulated better than by Matt Ridley in The Rational Optimist: How Prosperity Evolves.
“The market system makes self interest into something thoroughly virtuous.’ This is the extraordinary feature of markets: just as they can turn many individually irrational individuals into a collectively rational outcome, so they can turn many individually selfish motives into a collectively kind result.”
― Matt Ridley
We need people to be garbage collectors, janitors, and bus drivers, but those jobs don’t require years of education and skills. In a truly free labor market, the wage is the main factor that could incentive people to do these jobs rather than much more enjoyable and fulfilling work. If nobody needs to do those jobs to make a living, then people will need other incentives.
Furthermore, part-time work could become much more common. Today, somebody who’s receiving unemployment checks has no incentive to take a low-paying part-time job because it will result in their unemployment decreasing or being taken away but they won’t be making enough from the part-time job to get by. With UBI instead of unemployment, any money made from working is extra, so if you are motivated to have more money then part-time jobs can only help.
Finally, a point that a friend mentioned to me which I found interesting is that one of the critical components in truly free markets is the ability to not trade if one doesn’t see a good reason to do so. In fact, this is perhaps the most fundamental choice people have in markets to begin with. Imagine that everybody in the US was forced to spend $1000 on Black Friday. Without the option to simply not buy anything, stores would be incentivized to put out more low quality items because they know they will have to be bought. To quote my friend:
“I was trying to find a technical word for this situation the other day (something in the ballpark of “captive market”) but couldn’t, possibly because it’s such a contrived situation in literally any other market except for labor.”
Indeed, while I was once worried about people being lazy and not working at all in a UBI world, I now see that as perhaps the greatest feature of UBI. Not because I want millions of people to just stop working, but because I want people to be better incentivized to do whatever work they do. By giving people the choice to not work or the choice to just work part-time, I believe the labor market would be far more likely to turn many individually selfish motives into a collectively kind result.
The Slippery Political Slope
The one thing that took the longest for me to get over when it comes to UBI is the thought that politicians will just “buy” votes by saying that they will raise the monthly payment amount. This seems like a slippery slope politically.
What changed my mind on that is not so much that I think it isn’t true, but rather that I think it’s a better slippery slope to be on than the one we already find ourselves sliding down. The US (and just about every other) political system is quite obviously corrupt, and it runs deep in both parties.
Why is it that practically every piece of legislation that goes through Congress is thousands of pages long and gets completed just hours before it’s sent to vote? No member of Congress is reading that whole thing. The “stimulus packages” were the same… thousands of pages long and full of things that had nothing to do with economic relief for the American people. It could have been a simple one page bill that said checks would be sent to every tax-paying American citizen.
Just like our convoluted tax policy that allows millionaires and billionaires to exploit loopholes so that they can pay less than the working class, today’s entire political system is too complex for anybody to really understand it, and that makes it a lot easier to hide inefficiency and corruption.
My favorite thing about UBI is that it’s SIMPLE. We don’t need thousands of social workers checking on people to see if they’ve been applying for jobs they don’t actually want so that they can keep getting checks. We don’t need minimum wage laws that differ from one place to another and have tons of (hopefully unintended) negative consequences for small businesses while causing inflation of goods and services that disproportionately impacts low-income families. And we don't need convoluted legislation that can hide inefficiency and corruption.
We can replace all of today’s bureaucratic bloat and poorly structured policies with a super simple system that can be almost fully automated and would be very difficult to exploit.
Will politicians promise to raise the UBI amount in the hopes of winning votes? Yes.
Is that any worse than what politicians already do and have been doing for as long as I can remember? No.
Money and special interests have already infiltrated every crack and crevice of American “democracy”. Everything about political campaigns is aimed at “buying” votes in some way or another, and it seems very few of the things politicians promise ever actually get delivered. UBI doesn’t take us off the slippery slope we’re already on, but its sheer simplicity makes it a less dangerous slope than today's.
Bottom Up Inflation Better Than Top Down
One more thing that I’ve thought was a downside to UBI for a long time was that it would very likely cause higher inflation. And much like my realization about the slippery political slope, I haven’t changed my mind about the original thought, but merely put it into better context.
Assuming that the majority of currently employed people would remain employed after UBI is implemented, lower and middle class people would most likely have more disposable income overall. If this leads to more consumption as I strongly suspect it would, that would then cause an increase in prices for consumer goods and services. (More consumption = higher demand = higher prices when supply is held constant).
We are already seeing massive inflation today, the difference is that the CPI is the last place that we see it reflected because most of the new money being printed and injected into the economy is entering at the top. Therefore, instead of consumer goods and services inflating, we’re seeing it much more in assets like stock portfolios and real estate. I strongly believe this “top down” inflation is bad for the lower and middle class who are furthest away from the money printer (i.e. have the least access to cheap credit and own the fewest assets). There’s even a name for it, the Cantillon Effect.
Ultimately, I have little hope of the US government becoming fiscally responsible anytime in the near future, as neither of the two major political parties seems at all interested in cutting spending. As I’ve stated in this newsletter before, I think the only politically acceptable way out of our current predicament of unsustainable debt is to print more money to devalue the debt. So if the question is not between fiscal responsibility and irresponsibility, but rather simply who gets the money, I strongly prefer UBI to something like QE (Quantitative Easing) and bailouts for the banks and corporations.
If we’re gonna call it like it is, I can summarize with this: I prefer UBI-socialism to Corporate Socialism because at least UBI leads to a freer labor market and decreases bureaucratic bloat.
And on that note of inflation, I’ll finish this newsletter with the same thing I was saying to people in March 2020 when the first quasi-UBI covid relief checks were being sent out.