Does Universal Basic Income Make Sense Economically?

I’ll admit that the link between the economy and Universal Basic Income (UBI) seems far-fetched at first.

Unfortunately, both are intrinsically connected.

Before we dive into it, we need to understand what is UBI and how runs the worldwide economy.

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What Is UBI

UBI is the fairy-tale idea to give everyone a guaranteed sum of money every month.

Doesn’t matter if you work, are unemployed, retired, or if you’re just a student.

Its purpose is to make sure that everyone has their basic needs covered no matter what happens in their lives.

UBI money is free. You could do anything with it, including buying Telsa stocks on Robinhood.

While the intentions of UBI are honorable, our society, as it exists, isn’t yet ready for it.

Here’s why.

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The Wealth Of Nations

Did you ever wonder what’s the difference between rich countries and poor countries?

The narrative on the left says that rich countries are rich because they steal from poor countries.

The narrative on the right says that rich countries are capitalist countries where people work hard and poor countries are socialist countries where people do nothing.

Neither of these ascertainments is true.

There are rich countries that don’t steal from anyone (Singapore, UAE, South Korea, Denmark, Algeria, Botswana, Uruguay, etc) and there are poor countries where people work extremely hard.

So, what makes a country succeed?

According to 18th century British Economist Adam Smith, rich countries are countries that produce a lot of valuable output.

This is what makes them rich.

Let’s have a look at the top producers in the world for various goods (China and India should be dismissed due to the size of their population skewing the data).

Rich countries are rich because they produce a lot of stuff that happens to be valuable.

Countries that produce a lot enrich their population since:

1. They can use what they produce.
2. They can trade their output against other goods with other countries.

So, who exactly produces all of this stuff?

Well, people.

Workers.

You and me. Economic production solely rests on human capital.

Without people, there would be no one to produce.

Capitalism is based on the idea that you can consume only as much as you produce, which is logical and fair.

This is why you earn a salary after you’ve worked. The salary not only enables you to consume, but it also prevents you from consuming too much.

Simply put, you can’t consume what you don’t produce (you can’t eat the apple if you don’t grow the tree).

Rich countries are rich because workers work hard to produce goods and services which in turn creates wealth and abundance.

That was the world up until 2020.

When the virus hit, not only everyone stopped working, but a lot of people got money to spend on stuff they hadn’t earned the right to consume.

What happens when you live in an economy that consumes more than it produces?

Let’s find out.

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Why Everything Is Lacking

According to economics, a society that consumes more than it produces experiences inflation and shortages.

It makes sense.

If the baker produces 10 pieces of bread and 11 people want to buy, he will increase his prices.

In practice, this is exactly what happened.

The White House, SourceToday.com, Bloomberg, and Accenture explained that shortages and inflation in 2021 were mainly caused by the supply chain mess, but it is Forbes that gave explained why there was a supply chain mess in the first place: no one is working.

When Covid hit, companies closed and sent everyone home while containers were shipping medical equipment and masks where they normally don’t navigate to so much (Africa, South America).

During the worldwide lockdown of March-April 2020, the worldwide economy froze.

Then huge financial stimulus from the US and Europe got people to spend money they hadn’t earned.

They started buying a bunch of goods without producing anything in return.

Since no one wanted to repatriate the containers in Africa and South America because it was too expensive due to a shortage of (people operating) ships, containers started to lack.

Everyone had difficulties exporting.

The shortage of factory workers slowed down the production of everything. Meanwhile, people consumed more than usual.

When you are not producing, you’re consuming. And the other way around.

If we zoom out and look at planet Earth, what do we see? We see a society that consumes what it produces. No one is shipping iPhones from Mars when they lack.

If you consume what you produce and one day, you stop producing it, can you actually consume it?

No.

The lack of people is the primary factor that broke the supply chain.

When people consume more than they produce, producers raise their prices — this is the phenomenon of inflation.

In a normal healthy economy, consumption would slow down as production would increase, and prices would eventually fall back to normal.

But when you give people free money, two phenomenons happen simultaneously that send inflation through the roof.

1. They work (produce) less
2. They consume more

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How UBI Intervenes

So, what’s UBI has to do with all of this?

UBI is an economic disruptor. It’s the grain of sand that paralyzes the economic machine.

UBI enables people to consume without producing anything in return.

In other terms, it creates a class of consumers that don’t work and exploits producers that do work.

When you buy an iPhone with your UBI money, someone else produced it.

Why wouldn’t you give them back anything in return since they made this iPhone for you?

Pushing this logic further, let me ask you a question.

If you have the right not to work and consume the work of others, why wouldn’t they have the right to do so as well?

And if everyone stopped working altogether, what would happen?

No need to imagine it since this is what happened in Russia in the 1930s and in China in the 1950s.

Bread lines. Shortages of everything. Hunger. Famine. And dozens of millions of people died.

Your work matters. It saves lives. This is why we can’t have you do nothing.

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To Conclude

At the beginning of the article, I said that our society wasn’t yet ready for UBI.

“Yet” is an important word.

When mankind will be able to produce goods and services cheaply and without human input (with robots, I presume), then will we be able to think about UBI.

But in the meantime, we can’t because this isn’t fair, and this can’t work.

If some people are allowed to live without doing anything, then why should the rest go to work?

To feed those that sleep in?

Believe it or not, this system actually existed at some point.

It was called feudalism, and it didn’t work great.

When people produce more than they consume, wealth becomes scarce.

When people don’t work, societies collapse.

If you don’t make stuff, there is no stuff .— Elon Musk

This is what we’re witnessing at the moment.

The UK isn’t lacking gas. It’s lacking drivers to deliver the gas.

The US isn’t lacking electronics. It’s lacking workers to work in the port (and a few factories).

If everyone’s on vacation, everyone goes hungry.

This is why work is important.

And why UBI will kill us if we implement it now.

Photo by Sam Solomon on Unsplash