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To UBI or Not to UBI?

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My son, Ben, asked for my take on Scott Santens’s article “If You Think Basic Income is ‘Free Money’ or Socialism, Think Again,” so here it is.

The title previews the two issues Santens plans to take up, though in reverse order. So let’s start with socialism.

Santens article is in a way refreshing because he likes markets. He begins thus:

First, saying basic income is socialism is as absurd as saying money is socialism. It’s money. It’s all it is. What do people do with money? They use it in markets. In other words, basic income is fuel for markets.

Before we get to the socialism part, let’s clear up one thing up. A basic-income policy — UBI, or universal basic income — is not money. How can a policy be money? It’s a proposal for what to do with money (or purchasing power). Saying it is just money is like saying military policy is just money. Clearly it is not.

Whether the policy constitutes socialism, as some libertarians definitely assert, is a semantical matter. What is socialism? If socialism means state ownership of the means of production, then UBI is not surely socialism. If we use an older definition (such as individualist Benjamin Tucker and others used) — an umbrella term for any answer to the “social question” regarding the fact that most people must sell their labor services to owners of capital in order to live — then as Santens presents it, it is a form of socialism, though (to show my cards here) not a very good one.

One last point about the socialism question: Santens tries to establish the nonsocialist character of UBI by citing Alaska’s oil dividend:

Every year since 1982, all residents of Alaska receive an equal dividend as their share of the dividend of the Alaska Permanent Fund (APF), now worth over $61 billion. Rich or poor, adult or child, everyone has received a Permanent Fund Dividend (PFD) of $1,000 per year on average for over 30 years. Is Alaska a socialist utopia? Do people move to Alaska to worship at the altar of Karl Marx? Nope. Alaska is a red state, but not that kind of red state. It’s a conservative state where everyone gets what too many media outlets refer to as “free money.’…

“The dividend is not really free money, Santens argues, because “Alaska owns the land and charges oil companies for the right to drill in it…. Does that sound like socialism to you?”

Well, yes; as a matter of fact, it does (in the newer sense of the word). How can Alaska, an abstraction, own anything? In reality, some of the individuals who constitute the government of Alaska claim to own it and thus control its use. Those individuals may say they control it on behalf of the people of the state, but what’s that assertion really worth? Can a regular Alaskan decide he’d rather use his putative share of the land than accept a cash substitute? Of course not.

By making this argument about Alaska, Santens seems to reveal a Georgist belief (which some past libertarians have found alluring) that the world’s land by natural right belongs to everyone equally. That claim has been rebutted so I will leave it at this: how can someone far from a parcel of land have an ownership claim equal merely by birth to someone who mixes his labor with it and actualizes its hitherto only potential value?

Santens never asks whether UBI, if not socialism, is rather a welfare-state measure. It certainly seems to be. So the long-standing libertarian critique of the welfare state would seem to apply.

As I said, Santens appreciates markets:

Markets are a wonderful invention that serve to calculate via a massively distributed computer comprised of people, what goods and services should be made, using what, going where, by whom, of what quantity, etc. It’s an incredible act of decentralization built upon supply and demand signaling.

I won’t quibble over the word invention. (Markets emerged without being intended or designed.) I admire him for embracing the core of the Austrian critique of any proposal to abolish markets. Of course, this point would also apply to any proposal that would distort, rather than outright abolish, prices.

Santens thinks he can use the calculation point in defense of UBI. He writes:

When someone has money and wants to buy something, that is a demand signal. Businesses meet this signal with supply. Basically, buying is like voting. We vote on what we want using money as our ballots, and we do this over and over and over again, every day. Now imagine someone has no money in a system built around markets. How do they vote? They can’t. The market thus confuses this lack of a vote as a “no” vote. These two signals are of course very different. One is zero and one is null, but markets don’t know that. They can’t differentiate between them. This means markets containing people who don’t have enough money to signal their demand can’t function properly.

His argument is that markets would work better if people who don’t have money had it. But Santens seems not to have read Bastiat’s “What Is Seen and What Is Not Seen.” If the government transfers money or purchasing power from A to B, B can signal his demand, yes, but only because A can do so only to a lesser extent than before. What would A have done with the money if not signal his demand in the market? You might say that transferring wealth from rich to poor would have important benefits, but this misses a point. Wealthier people save and invest more of their incomes than poorer people do. In a freed market (i.e., without privilege or impediment), savings and investment help lower income people disproportionately by making goods cheaper and more abundant. Consumption spending cannot do that. So UBI would give with one hand while taking away with the other. I don’t like the “pie” metaphor in political economy, but it seems preferable to grow the pie rather than merely distribute slices of the existing pie.

Thus, why say the market work would better after the transfer than before? This is an unsupported normative argument masquerading as a positive economic one. I call foul.

Santens pulls an argument from authority by noting that both Milton Friedman and F. A. Hayek “supported the idea of basic income.” But Santens will have to do better than that. Yes, Friedman and Hayek had their reasons, but how good were those reasons? In my view, they are vulnerable to my counterarguments here. Friedman’s case is along the lines of a second-best proposal; that is, if we are stuck with a government safety net, let’s have one with the least bureaucratic intrusion and cost. So he supported the negative income tax over the welfare state. (See Henry Hazlitt’s critique.)

If those were the only options, then, well, okay. The problem is that proposals for modest government activity have a way of undergoing mission creep, moving far beyond what their advocates wanted. This is just good public choice analysis. Besides, we can have a social safety net founded on voluntarism without the state. For a look at how this was once done, see David Beito’s From Mutual Aid to the Welfare State: Fraternal Societies and Social Services, 1890-1967.

Santens lays much stress on studies that purport to show that places which have UBI are better societies than those that don’t. But his basis for comparison is existing (state) capitalist society, not societies based consistently on natural rights and void of the privileges and impediments that characterize historical capitalism. However, even in our corporatist economy, progress occurs because the market has not been obliterated. See Don Boudreaux’s response to the stagnating-income canard. (Also see my article “Free Markets Reduce Income Inequality.”)

“Everyone should get enough money to be able to refuse to work. That way, the incentive is shifted to employers, where it should be,” Santens writes. “Want someone to do something? Pay them enough to do it. If you refuse to pay anyone enough thanks to their ability to tell you to take your job and shove it, then either automate that job, or let it go undone. If the work really needs to be done, you’ll sweeten the deal or hand it to a robot.” (His emphasis.)

I agree with much of this. But we don’t need UBI to enable people to tell bosses to take the job and shove it. Abolishing all government privilege and impediments would achieve this. I mean abolishing the government’s schools (which prevent progress for the poorest people), occupational licensure, zoning and other land-use restrictions, “intellectual property,” trade restrictions, and all the other stuff that keeps incumbent producers entrenched at the expense of the rest of us by, among other things, making self-employment and small partnerships more costly and risky than otherwise.

Santens, we can see, resorts to a new form of government intervention because he is blind to the existing interventions that privilege the few over the many.

One last matter. Santens writes:

Universal basic income need not be done via taxation, just as the Alaska dividend isn’t via taxation. It can be done in many ways including by non-debt-based money creation, which by the way is mostly done by private banks right now, not the government. And yes, even cryptocurrencies could be designed to provide UBI. So an issue against taxes is not necessarily an issue with UBI itself, at least it shouldn’t be, but with how it’s funded.

This marks him as an inflationist — and advocate of the old-time money crankism which held that creating money creates actual useful things. Inflation in fact is an implicit tax that covertly transfers purchasing power from some to others. Not only that, it distorts prices, which Santens ought to oppose. This is another normative argument pretending to be an economic argument.

Santens is promarket and well-motivated, but his proposal for UBI fails to survive libertarian scrutiny.


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