Universal Basic Income Made Easy: Applied Markonomics101.
One of the more controversial topics on various internet sites, and one threatening to go Full Mainstream, is a financial engineering plan commonly known as “Universal Basic Income” (UBI). While there are many hoped for “societal benefits” from the implementation of UBI, this analysis doesn’t consider them for the moment. It focuses only on Dollars and Cents.
From the First Law Of Markonomics101:
“It’s Always About the Money, NOT the Principle”.
To describe anything as “Priceless” is to not understand the basic function of Money, which is to quantify the RELATIVE and ABSOLUTE value of everything by a common denominator: the Dollar, the Euro, Gold, or even Bitcoin. NOTHING is “Priceless”, even a human life. Courts and juries routinely assign a Dollar value to injuries, death, and even emotional “pain”. (https://markonomics101.com/2018/07/08/the-9-laws-of-markonomics/).
What is Universal Basic Income?
Universal Basic Income is a monthly allowance paid in cash to every resident of a country. UBI in the United States, as currently conceived, seeks to provide each Resident with $1,000 per month or $12,000 per year.
The Inescapable Math.
The United States has 325 Million residents. If each received a UBI of $12,000, that would require the creation and distribution of $3.9 Trillion PER YEAR (325 Million times $12,000).
Compare this to:
U.S. Money supply M1 of $3.7 Trillion (https://www.federalreserve.gov/releases/h6/current/default.htm). (M1 is the total value of currency in circulation plus checking accounts.)
Total US Government National Debt of $21.5 Trillion.
Current Annual Gross Domestic Product of $20.5 Trillion.
Annual Federal Taxes Collected of $3.4 Trillion.
Annual Cost of Medicare/Medicaid ($1.09 Trillion) plus Social Security ($.98 Trillion) plus Military ($.62 Trillion) equaling $2.69 Trillion in total (http://www.usdebtclock.org/).
A UBI of $3.9 Trillion per year would exceed the size of the number 4 Economy in the World, Germany. Only the U.S., Chinese, and Japanese economies would be larger (https://www.investopedia.com/insights/worlds-top-economies/).
If UBI is enacted, it would certainly cost much more than the $3.9 Trillion cited above, since such an undertaking would require the establishment of an enormous bureaucracy. The 3 largest components of spending, Medicare/Medicaid, Social Security, and Military, add up to substantially less than UBI and already take into account administrative costs. For now, let’s use 15% of the program cash flows as the administrative cost. Whether it turns out to be higher or lower doesn’t matter. What does matter is this ambitious plan will entail substantial administrative expenses that need to be considered.
When we factor in the administration, UBI’s costs will increase from the initial paper transfer of $3.9 Trillion by the administration cost of $585 Billion (15% times $3.9 Trillion) for an annual total of $4.485 Trillion. Now that we’ve defined the enormity of the cost, the important question becomes: HOW to pay for it and by WHOM?
If all 325 Million residents are obligated to pay, then each would owe $13,800 ($4.485 Trillion/325 Million) versus the $12,000 they received. The average resident must lose because now they are also paying for the new bureaucracy.
If all 120 Million Taxpayers are obligated to pay, then each would pay an additional $37,000 in taxes versus the $12,000 they received. Their tax obligations would increase from $3.4 Trillion to $7.9 Trillion ($3.4 Trillion plus $4.485 Trillion), an increase of 132%. Some taxpayers will be put in marginal income tax brackets of greater than 100%, a level at which additional hours of work return less than the incremental taxes owed.
If UBI is financed with borrowed money, the National Debt will DOUBLE in less than 4 years. The deficit, now running at $800 Billion annually, would explode to $5.3 Trillion ($800 Billion plus $4.485 Trillion) in the first year alone. The largest holders of National Debt are the public through their purchases of Treasury Bills and Treasury Bonds and various agencies of the Federal Government (https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124), such as the Social Security Administration. In other words, “We The People” will be Borrowing From, AND Lending To, “We The People”.
If UBI is financed with NEW printed money, M1 will double in less than 10 months. Everyone will have more dollars but each will be worth less and less as the endless devaluations begin. Since this new cash stream does NOT result from new goods being produced, the number of dollars needed to purchase the same number of goods goes up.
Hyperinflation is therefore inevitable. In Venezuela, now suffering from hyperinflation, the value of the Bolivar is less than that of toilet paper. Each roll goes for 2.6 million Bolivars. Essentials like food, require mountains of paper for even the smallest supply. For more on how Venezuela has been affected by “too many dollars chasing too few goods”, please see (https://www.zerohedge.com/news/2018-08-27/10-shocking-photos-show-value-gold-currency-devaluations).
The mere creation of a cash stream cannot, nor will not, create a single job, produce a single widget, nor “Create Prosperity”. UBI moves paper but does NOT change what that paper buys. It puts money in one pocket, takes from a different pocket and has no “NET” discernible beneficial effect. UBI is deceptively appealing to prospective Recipients who anticipate a well-defined “Freebie” ($12,000) without considering the substantial “Price Tag” on themselves and Society.