Why Elon Musk Thinks Governments Will Be Forced to Implement Universal Basic Income

Monday, February 26, 2018
Fatou Darboe

Elon Musk, at the World Government Summit in Dubai, spoke on some big and important topics about the future of work as well as the future of humanity. 

He notably spoke on Universal Basic Income or UBI (the idea or policy that everyone gets a paycheck from the government to spend how they wish) and said that it is one of the most viable solutions to the rise and threat of robotic automation. 

But is the threat of automation in the workplace real? And how would UBI help us to prevent the breakdown of our traditional economy? Could Elon Musk be right?

Let’s seek to answer those questions here.

Automation and Its Impact on the Future of Work and the Global Economy

Automation on large scales will arguably change everything. In fact, the term that is being thrown around quite a lot lately is the acceleration of the “post-scarcity economy.” 

That is quite a scary yet interesting term. It means that money wouldn’t matter in the near future and that the world economy will totally collapse.

So what exactly is post-scarcity? 

Post-scarcity is an economic theory that states that a large plethora of goods and commodities can be produced without, or with minimal human labor. The consequence of that would be that goods will become cheaply or freely available.

That is in stark contrast to our traditional economies. Our traditional economies function well because goods are rare — they are not infinite. 

For example, food is not infinite, because if it was, it’d be free or at least cheaper than it is today.

If demand is any figure and the supply is unlimited, you cannot control the demand or supply of that thing. So what does a supply and demand curve mean in that situation? 

Basically, nothing.

In that system, traditional economy does not work.

Post-scarcity is a topic we all should take seriously and try to understand its fundamental concepts and implications. 

That is what Elon Musk is urging us to do. He is also urging us to look for viable solutions to it now.

How Dire is the Situation?

Humanity is a long way from robots completely taking over. We won’t have post-scarcity systems for a long while yet but we are about to make giant leaps forward. 

Adaptation of automation in the workplace will be slow but inevitable. 

Robots will replace us. Our jobs are not safe. Even if you’re a lawyer or nurse or doctor or designer or teacher.

When Musk was asked about the challenges that civilization is likely to face in the near future, he immediately spoke about the real threat or artificial intelligence (AI). 

(The following chat transcript is from Futurism)

He said, “deep artificial intelligence, or artificial general intelligence, where you can have artificial intelligence that is much smarter than the smartest human on Earth, this is a dangerous situation.”

He then cautioned on advancing AI research: “I think we need to be very careful in how we adopt artificial intelligence and that we make sure that researchers don’t get carried away.

Sometimes what will happen is a scientist will get so engrossed in their work that they don’t really realize the ramifications of what they’re doing.”

He then expressed concerns that autonomous technology will impact jobs and the future of work; and that we will probably have massive-scale intelligent automation in the transportation sector fairly soon: 

“Twenty years is a short period of time to have something like 12-15 percent of the workforce be unemployed,” he said, pointing out the extent of how automation will disrupt car-based transportation specifically.

If self-driving cars take over, 20% of all jobs may disappear in a single swoop. Yes, there are that many jobs in the transportation sector. 

Many service industry jobs are easy to automate so they will get swooped out as well. 

Tens of millions of jobs could be lost in a single swipe. Even if it takes a couple of decades, there is no single economy that can sustain that.

If we have 30 or 40 percent unemployment, no traditional economy can survive. If that many people are unemployed, they won’t have enough money to buy anything. 

That then disrupts the demand for goods, and in turn, unemploys everyone else. When this happens, inflation bursts and money consequently has no meaning and our entire economic system shuts down.

So to answer the first question, yes, the threat of automation in the workplace is very real.

Is UBI a Viable Solution?

But first, what exactly is UBI?

UBI is an unconditional cash payment issued by the government, at fixed intervals, to all citizens, regardless of their financial or employment status. 

What is universal basic income? from CNBC.

The disruption (from AI and automation) will sweep across various other industries and Musk proposes that governments must introduce a UBI program to stabilize the markets. 

He said, “I don’t think we’re going to have a choice. I think it’s going to be necessary. There will be fewer and fewer jobs that a robot cannot do better.”

And Musk believes the issue goes way deeper than that: “[The] much harder challenge is: How will people then have meaning? A lot of people derive meaning from their employment. 

If you’re not needed, what is the meaning? Do you feel useless? That is a much harder problem to deal with. How do we ensure the future is a future that we want, that we still like?”

The good thing is that we are thinking about those questions and trying to come up with effective and efficient solutions to those problems.

Many of the suggestions for UBI are tax robots. The basic idea is that revenue lost for the huge amounts of unemployment can be replaced by robots. 

Business will still experience a net gain as money will keep flowing into people’s pockets so they can keep spending. 

Many estimates show that robots will be able to pay for themselves more than a dozen times over. So companies wouldn’t lose much money.

That certainly seems like a viable solution as it keeps a lot of markets and companies afloat. 

As UBI discussions go more in-depth, several countries and institutions have already started their own pilot programs to test the viability of the policy or economic model.

Finland started pioneering the program last year. It was launched by Kela, the federal social security institution. It gives out €560 ($692 USD) a month, tax free, to 2,000 citizens that are chosen randomly.

Image credit: The Economist

eBay founder, Pierre Omidyar’s investment firm has already given $493,000 to help fund a UBI program in Kenya.

The Alaska Permanent Fund (AFP) is the only fully working UBI program in the world today. It was created in 1976 to provide dividends to permanent residents of the state. It is completely funded by oil revenues.

There may be sufficient data from these trials in a couple of years for us to determine whether or not UBI is an effective, practical and viable solution and whether or not Musk is correct.

Some institutions, using current reports from UBI trials, have put forward plans and proposals to fully implement UBI in certain countries.

A leading think tank, the Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) proposes that everyone in Britain who is under the age of 55 should be entitled to £10,000 ($13,972 USD) from the government.

Image credit: Rose Law Group Reporter

The report claims that those payments could lay the foundation for a future basic state wage for all British nationals.

The RSA said that paying people under the age of 55 £5,000 ($6,984 USD) every year for two years would fuel innovation, nurture retraining and help people who have caring responsibilities to be in a better financial position to carry out those responsibilities.

“The simple fact is that too many households are highly vulnerable to a shock in a decade of disruption, with storm clouds on the horizon if automation, Brexit and an ageing population are mismanaged,” Anthony Painter, director of the RSA's Action and Research Center, told CNBC.

He continues, “without a real change in our thinking, neither tweaks to the welfare state nor getting people into work alone, when the link between hard work and fair pay has broken, will help working people meet the challenges ahead.”

Most benefits would be cut by the scheme but the RSA said that the dividends would support people through the dramatic changes that will take place in the workplace over the next decade.

The think tank put forward a suggestion that there should be a sovereign wealth fund pool that would be invested in order to make a profit. 

Their suggestion is not quite new. 

A similar basic income payment is already underway in Norway, Finland and Alaska. 

Canada also gives basic income to those who were either unemployed recently or on low income. 

Elon Musk, not surprisingly, publicly supports those schemes.

And he is not the only prominent business leader to publicly support UBI. Richard Branson believes that the government has an obligation to give everyone a paycheck, whether or not they have a job.

Branson, just like Musk, believes that UBI is a way to protect people who may lose their jobs to automation.

Facebook CEO, Mark Zuckerberg, has also backed UBI publicly. During Harvard University’s commencement address, he said, “We should explore ideas like universal basic income to make sure that everyone has a cushion to try new ideas.”

Image credit: CNBC

So why has UBI been put forward as the most effective solution to our post-scarcity economy fears?

That is because UBI  is not just a way to give workers who may be put out of work fairly soon, financial security; it will also help to lessen income inequality. 

Supporters of UBI say that it alleviates poverty and income inequality, boosts employment and skills training, and appreciates typically underpaid or unpaid roles like homemakers and caregivers. 

They also say that it improves the health of the beneficiaries and empowers women.

Let’s take a more analytical data-driven look at some of the reasons why proponents of UBI, like Musk, wholeheartedly back the scheme.

UBI Reduces Poverty and Income Inequality

Alaska was ranked 30th (out of 50 states) on income inequality in 1981. It jumped to number 2, 16 years later, in 2015. The reason for that is because of the implementation of its UBI program in 1976.

Image credit: AFKInsider

A UBI program, The Basic Income Grant Coalition, was trialed in Namibia from 2007-2012. The results were that it reduced household poverty rates from 76 percent to 37 percent after just one year. 

Childhood malnutrition rates also dropped from 42 percent to 17 percent in just six months.

Scott Santens of the Economic Security Project said that a UBI of $1,000 per adult and $300 per child would completely stamp out poverty in the U.S. 

John McArthur of the Brookings Institution said that 66 countries in extreme poverty can actually afford UBI in order to eradicate poverty.

UBI Improves Health

Early results from Kenya’s ongoing UBI trial reports increased happiness, life satisfaction, as well as reduced stress and depression rates.

UBI was trialed in India for one year (2013-2014). Beneficiaries reported an improvement in their general health as the funding enabled them to afford medicine, proper sanitation; and they got access to clean water, ate more regular balanced meals and reduced their anxiety levels.

A UBI trial, called Mincome, in Manitoba, Canada in the mid-1970s found that hospitalizations for accidents, injuries and mental health diagnoses waned during the trial period.

UBI Increases Job Growth

The security of UBI serves as a cushion for slow wage growth, low wages, and the lack of job security that is a side-effect of the emergent gig economy (think Uber and short-term contracts) and automation in the workplace. 

Researchers from the Roosevelt Institute created three different models for the implementation of UBI in the U.S. and found that UBI would provide economic growth, increased economic output, employment and increased prices and wages under all three scenarios. 

If we look at Alaska’s UBI program, results show that the purchasing power of UBI beneficiaries resulted in 10,000 new jobs for the state.

Uganda also had its own UBI trial called the Youth Opportunities Program

Under that program, youth were empowered with skills training as well as all the tools and materials they needed to increase their business assets by 57 percent, their work hours by 17 percent and earnings by 38 percent.

UBI Lowers School Dropout Rates

UBI helps people stay in school longer and get the training they need in order to improve their skills or get into a trade.

The Canada Mincome UBI trial found that participants of the trial were more likely (than their peers who were not involved in the trial) to finish high school.

Results from the Namibian UBI trial show that school dropout rates fell from 40 percent at the beginning of the trial to 5 percent a year later. 

The significant drop was caused by the fact that under UBI, parents were able to afford school fees and other necessities (like school uniforms and supplies) and encourage attendance.

UBI Guarantees Income for Homemakers and Caregivers

Guy Standing, Professor at the University of London, says that UBI provides an equally fair and deserving payment for all types of work including caregivers and homemakers. 

UBI also enables working parents to cut back their working hours so they can spend more time with their children or carry out household chores.

Organizations like SEWA Bharat (a women’s employment organization) and UNICEF reviewed the 2013 UBI trial in India and resolved that “women's empowerment was one of the more important outcomes of this experiment.” 

They noted that women who received UBI were more involved in household decision making and had great benefits from increased and improved access to healthcare, food and education.

The Namibian UBI trial reported a “reduced dependency of women on men for their survival” and that UBI lowered the pressure to engage in transactional sex.

The Canadian Mincome trial reported fewer domestic violence emergency room visits during the trial period.

Overall, UBI seems like a great idea and a simple solution to our future post-work problems. However, critics of UBI put forward some interesting points.

They argue that although the intentions behind the policy are good, it doesn’t solve issues related to poor wage growth and also defies the concept that you need to work in order to earn a living. 

They further argue that it weakens the economy, is not economically viable and is less effective than targeted aid or welfare.

Here are some of their data-driven arguments.

UBI Makes the Poor Poorer

Poor people face many hardships that are mitigated by anti-poverty measures like medical aid, food stamps and child assistance programs. 

UBI would undercut those programs and distribute those funds to everyone, regardless of their financial standing. 

Robert Greenstein, President of the Center on Budget and Policy Priorities, stated, “If you take the dollars targeted on people in the bottom fifth or two-fifths of the population and convert them to universal payments to people all the way up the income scale, you're redistributing income upward. 

That would increase poverty and inequality rather than reduce them.”

Luke Martinelli of University of Bath created three different models for UBI and reported that all three would make a large number of individuals and families worse off that they were. 

He states that the “losses are not concentrated among richer groups; on the contrary, they are proportionally larger for the bottom three income quintiles.” 

The Organisation for Economic Co-operation and Development (OECD) also state, from their research in Finland, Italy, France and the United Kingdom, that “rather than reducing the overall headcount of those in poverty, a BI [basic income] would change the composition of the income-poor population” and thus “would not prove to be an effective tool for reducing poverty.”

There is also the argument that UBI is less cost-effective than the standard anti-poverty measures that are currently in place because a lot of the people affected lack more than just cash

UBI does not address ailments like drug addiction, lack of skills, poor health, and access to other basic needs.

UBI Leads to a Labor and Skills Shortage

Earned income impels people to work and to engage in personal and professional development. So when you introduce a UBI program, it inspires people to frankly, do nothing. 

And that breaks down the economy.

Economist Allison Schrager explains that a strong economy needs people who are motivated to work hard, and in order to do that, there needs to be a certain degree of uncertainty for the future. 

UBI replaces that uncertainty with ensured security.

Elizabeth Anderson of the University of Michigan claims that UBI would enable people to embark on a life of leisure and consequently demotivate people to pay taxes in order to support them (the people of leisure).

Switzerland voted against the implementation of UBI in 2016. One of the main reasons against UBI was that it would demotivate people to work and would consequently aggravate the current labor and skills shortages.

Results from UBI trials in the U.S. in the 1960s and 1970s show that people who received guaranteed income worked fewer hours.

UBI is Not Economically Viable

If UBI were implemented in California at $2,000 per person per month, as Y Combinator (a startup incubator) plans to do in their UBI trial in Oakland, California, then that would cost the government $2.275 trillion a year. 

Some of that cost would be compensated by removing federal, state and local assistance programs. 

However, according to Mark Joffe of the California Policy Center, “these offsets total only $810 billion... [leaving] a net budgetary cost of over $1.4 trillion for a universal basic income program.” Which would be economically impractical.

The UBI trial in Finland allocates €560 a month to participants, for two years. That cost is unsustainable for the Finnish economy, according to Ikka Kaukoranta, of the Central Organization of Finnish Trade Unions (SAK). 

Kaukoranta says that it would not be economically viable since it would increase the government deficit by 5 percent of GDP.

Economist John Kay looked at proposed UBI policies in Finland, France, Germany, the United Kingdom, the U.S. and Switzerland, and determined that UBI at the appropriate level which can deliver an adequate standard of living would be “impossibly expensive... 

Either the level of basic income is unacceptably low, or the cost of providing it is unacceptably high.”

Those are some pretty strong arguments against UBI. So which side do you stand on?

Wrapping Up

Do you agree with Elon Musk, Richard Branson and Mark Zuckerberg? Should UBI be implemented in all countries? Do you think it is an effective and viable solution to our impending post-scarcity world?

Whether or not you disagree, it is time for us to start debating and looking into possible and practical solutions to our ever looming future of a life without work. 

It should no doubt be the topic of your next coffee chat.