So how do we build a better labor market, a fairer economy and a more robust social safety net? Should UBI or what Varoufakis calls a UBD (universal basic dividend) be part of it?
My conviction is that our main objective should be to fight poverty and guarantee decent living standards for those at the bottom of the distribution. The problem with UBI is that it does not target these citizens.
Imagine we are paying $1,000 a month to every adult in a country. The $1,000 going to those above median income will not help reduce poverty. It is not even a well targeted transfer, since these individuals are simultaneously paying taxes and receiving lump-sum money; it would be better, from the viewpoint of economic efficiency, to reduce their marginal tax rate slightly rather than handing them a $1,000 transfer.
But neither a transfer of $1,000 to those earning above the median nor devoting this amount to reduce their marginal tax rates are good uses of government funds. Rather, the social safety net would be stronger if those funds were also used to bolster the living standards of those in the bottom 20 or 30% — for example, in order to achieve a minimum income of $2,000 a month for every adult.
What about creating transfer-induced poverty traps, some might worry? The concern here is that a transfer of, say, $2,000 a month for adults with the lowest earnings may discourage job-seeking, because as earnings increase, transfers will cease. This is the reason why transfers to the non-employed and low-earners should be supplemented with negative income tax systems, such as the Earned Income Tax Credit (EITC) in the US. A well-designed scheme would subsidize earnings around the “notch” where an individual or household starts earning the minimum income, so that they continue to be incentivized to find work and increase their take-home pay when possible.
What about encouraging employers to pay higher wages to workers? This is another important policy objective, especially as good jobs for workers without postgraduate degrees are becoming increasingly scarce. But there is no evidence that UBI would have any such benefits, and we have already tried and tested tools for achieving these objectives: minimum wages and protection for workers, so that they can have a voice and bargain for better pay and working conditions. It is not only that UBI is not well-calibrated to achieve our main objective; it also obscures the policy priorities. Ensuring that there is a decent supply of good — high-wage, stable and career-building — jobs for workers without postgraduate degrees should be the main priority for the next decades. This is even more challenging when we add to the mix the necessity to reduce carbon emissions, as this means the elimination of jobs in mining and the traditional energy sector. The battle for UBI would distract from this focus — a particularly important concern, since UBI is often marketed as a response to the inevitable disappearance of jobs.
What about the “two birds with one stone” justification — tax wealth and profits and use the proceeds for UBI or UBD? Yet there is no reason to tie where tax revenue comes with how this revenue should be used. If there is a good justification for taxing profits and wealth, we should do it, and then deploy the revenue in the best way we can.
Many corporations have excessive profits because they avoid taxes or find regulatory loopholes. The best way of dealing with this is to improve regulation and tax enforcement. The excessive power of capital over labor is often rooted in and further feeds into low taxes on corporate profits and capital. As I have argued elsewhere, there are strong reasons for increasing corporate income taxes, which, if designed well, can do more than preventing excessive profits fed by tax dodges; it can also level the playing field between capital and labor, and discourage excessive automation. There is nothing inevitable about a two-tiered society, in which a small minority with post-graduate degrees, specialized skills and entrepreneurial opportunities have all the earning capacity and command all social status, and the rest are increasingly seen as marginal and dispensable. UBI adds to this narrative, even if unwittingly. It admits defeat and signals that economic contribution and tax revenue will come from an increasingly small fraction of society and we just have to find a way of redistributing it to the rest.
This is the wrong vision. We can and should create higher-quality jobs and a fairer economy, where the vast majority of people can meaningfully contribute to economic surplus and the common good. But this necessitates a radical overhaul of the welfare state and our tax codes, and, as importantly, a huge redirection of technological change away from ceaseless automation towards supporting and furthering human productivity. We should focus on these challenging priorities, not get distracted by a UBI debate, which, at best, can further cement a dystopian two-tiered society.