Another Preposterous Free Money Universal Basic Income Test on the Way

Mish

Another UBI Test is coming up. This time in Germany.

The UBI Idea

The goal is to provide a "living wage" to everyone as a basic right no matter how productive anyone is. 

Under UBI, governments collect taxes and redistribute the money or alternatively just hand out free money. 

Under some proposals, everyone gets free (or redistributed) money but in other proposals, free money only goes to the needy. 

German Test of UBI Coming Up

Eurointelligence reports Universal Basic Income Now Subject to a Vaccine-Style Test.

A German NGO is funding a unique economic experiment that works like a vaccination test: a group 120 people will be given a universal basic income of €1200 per month for three years. The idea is to study what they will do with the money and how the universal basic income changes their lives.

This reminds us of scientific experiments funded by the pharmaceutical or tobacco industry. If the source of funding has an interest in a particular outcome of a study, chances are that the study will be biased in many subtle and not-so-subtle ways. We would be very surprised if this particular NGO concluded that the universal basic income was a thoroughly bad idea in the unlikely event that the experiment sprang a surprise. Remember: no empirical evidence in economics ever led to the abandonment of an economic theory. They exist in a universe of their own.

Test Cannot Possibly Fail

Even without the built-in bias, the test cannot possibly fail. 

If you give a carefully-selected group of 120 people €1200 free money monthly, it is certain all 120 people will have an improved standard of living. 

Any UBI test has but one mission: Come up with the wrong answer.

Free Money, What Can Go Wrong?

The obvious problem, which is why these tests should never happen in the first place, is the tests do not scale. 

It's relatively easy to come up with €1200 * 12 months for 120 people. That's €1,728,000.

UBI Annual Cost for Germany

Let's do the math for 83 million people in Germany. 

UBI Annual Cost for Germany

UBI for all of Germany would cost about €1.2 trillion annually. 

Where is that money supposed to come from? Unlike the US, Germany does not even have its own printing press. 

And right off the bat Germany would face a huge immigration problem. People from all over the EU would move to Germany.

That would cause an instant housing crisis with soaring rent, mandating a bigger monthly UBI to keep up.

I suppose you could pick winners (no immigrants and no wealthy) instead of handing out free money to everybody. 

But that creates a huge incentive to not work, especially at the margin. 

Previous studies claim that does not happen. But participants know the test will end. 

Higher Taxes? How High?

Tax the wealthy enough to pay for this monstrosity and the wealthy will move. 

More Studies? Why?

The problems are many, obvious, and insolvable. UBI in any non-trivial amount will never scale. 

I show how and why studies are guaranteed less than useless. Unfortunately, ridiculous economic theories never die.

For example, the economic illiterates at YouMatter conclude "more experiments will probably need to be done to assess whether a universal basic income would be a good idea." 

The clamoring and studies will continue until the economic fools eventually get approval somewhere. 

Will California Be First? 

California, like Germany, has no printing press but it is willing to tax anything and everything for the sake of social fairness.

Also note that California's Radical Brainwashing Curriculum Soon To Be Mandatory.

Thus, California may be as good a guess as any. 

Mish

Comments (50)
No. 1-18
PecuniaNonOlet
PecuniaNonOlet

62 days till election. Mish, I dont disagree with your thesis but what is the alternative. Central banks want the control so until they give it up, we will continue to see these ideas put forth.

Webej
Webej

UBI is an attempt to think your way out of structural unemployment (quite significant in most OECD countries since the seventies) and an upsurge of automating jobs. Unless you let people die by the wayside as in third world countries, a puzzle remains. Simply asserting that such crises have been filled in the past after technological shifts is blind faith ... you actually have to think the problem through to productive/remunerative work.

Tony Bennett
Tony Bennett

"But that creates a huge incentive to not work, especially at the margin.

Previous studies claim that does not happen."

...

I would DEARLY like to know who funded those "previous studies".

TCW
TCW

Is it really possible to raise the bottom in relative terms? Give people more money and prices will go up and they're no better off. Which may not happen with such a small sample of people but certainly would on a large scale. Seems like all socialism really does is buy votes.

Cocoa
Cocoa

With 7 billion people in the world, the labor costs will very cheap as everyone is fighting for work. This is due to oversupply of humans, undersupply of buying power and emergence of automation. So what else is the answer except population control, or worse reduction or just let the homeless camps increase into towns. The demographics already point to a negative birth rate in the West but it's not fast enough reduction. What the hell are people going to do to buy all this automated shit?

Rbm
Rbm

People need to work. It keeps unhealthy habits and social unrest at bay. Hey you want go out and drink/ protest etc. tonight. No i have go to work tomorrow. Should be figuring out how to provide jobs for everyone.

Six000mileyear
Six000mileyear

Giving people money will only give them a false sense of security to go have kids. Once the money stops, the kids will still have to be fed. Instead of UBI and welfare, reproductive buyouts should be offered. Amounts would be less if the person has already had at least one child.

Mish
Mish

Editor

Definitely not a Central Bank idea. They are beholden to the banks. The banks want debt slaves, not living wages!

Bam_Man
Bam_Man

The post-Bretton Woods monetary system (born 8/15/71) is in its death throes anyway.
They might as well administer the "coup de grace" by handing out soon-to-be-worthless, free "money" to everyone and finish it off.
And then they can say "Look at what happens when we hand out free money!"

shamrock
shamrock

$500/month to every adult American citizen not on social security would be about $1.2T annually. Half of that could be funded by eliminating all other forms of assistance, including tax credits, other than medicaid.

Maximus_Minimus
Maximus_Minimus

If you don't know it, studies are a ruse to justify a desired outcome.

Carl_R
Carl_R

Another excellent article. What a curious world we live in. We claim we need to solve the problem of "structural unemployment", yet unemployment is something we artificially create in the first place. Sadly, the law of supply and demand isn't taught in high school, and few seem to grasp it.

If you artificially raise the price of a commodity, you get more supply, and less demand, resulting in a surplus. Labor is a commodity. If you raise its price (i.e. institute a minimum wage), you increase the supply (number of people wanting jobs), and decrease the demand (eliminate jobs). We call a labor surplus "unemployment". Now, we also know that, if you allow the market to work on it's own, the price will find a natural point at which supply=demand, and thus there is no unemployment.

That brings us to where we find ourselves. First, we raise the price of labor above it's equilibrium point, creating unemployment. In the process, we cause prices to increase, and burden the economy, lowering the overall standard of living (though big business, and big labor are better off, with less competition). Then we complain about the results of what we have done, but rather than eliminating the unemployment, we instead create things to further burden the economy, and to further decrease the overall standard of living.

The stupid thing is that there is an obvious solution, but it's so obvious, that it's never tried. We know that lower marginal tax rates incentive people. We know that UBI disincentives people. So, the obvious answer is to eliminate the minimum wage, and then to combine all of the various benefit programs into a single unified benefit, and make the amount of assistance decline with rising income in such a way that every time a person gains a dollar of income, he loses perhaps $.50 in benefits. That way everyone is incentivized to get a job and to keep trying to move ahead, since every dollar he/she makes, makes him/her better off. The net result is that each person then produces the maximum that they can produce, and in turn the overall economy is maximized, along with the overall standard of living. Prices fall, productivity increases, and we are all better off.

Someone asked above if I really want to see people doing things that machines could do? Of course! Work is it's own reward. Ask people what they do, and they say "I'm a plumber" or "I'm a teacher" or "I'm in manufacturing", and they usually say it with pride. A job is an identity. when you rob people of their personal pride, you rob them of dignity, and you rob them of feeling that they play a role in society. The result is more crime, more drug addiction, and more broken homes. "What do you do?" "I live on handouts" just doesn't have the same ring to it.

nzyank
nzyank

UBI is like welfare, with negative public perceptions attached. Instead, we should have a job guarantee program. Every person that is able to work, should be guaranteed a living wage job by a combined State/Federal program. Focus should still be on private sector job creation, but at times that the private sector can't create enough jobs, the guaranteed job program would kick in. This would also require a bigger investment in training programs.

SunnyvaleCA
SunnyvaleCA

Fix it for you:
UNPRODUCTIVE people from all over the EU would move to Germany.

nlightn
nlightn

Isn't this current MANUFACTURED gaming the of financial system, compliments of the Fed,..isn't this in reality and actually UBI for the 1% uber rich ?

Of course it is !!!

I cite,...

this is the program: Devalue or deflate everything owned by the "little people", buy it up for pennies on the dollars with unlimited free money, and attempt to use this massive financial asymmetry between the super-wealthy and the ordinary to manipulate markets back upward through artificially goosed "demand" backed by empty, cheap-money purchasing power.

AND

On April 9, 2020 for the "first time in its 107 year history" the Fed changed its terms and bought junk bonds, bailing out at the trashiest level yet, the deceits of the big players, particularly private equity firms.

~ Zeus Yiamouyiannis, Ph.D.

I am sooooo totallllly sick and tired of the BS rational of "if we do it it's not the same ",...what a bunch of manucia.

It's lie after lie after lie. And its stacked against mom and pop.

All that is happening is UBI on a massive level for the uber rich.

For anyone not to see this has denial painted across their few still active firing neurons.

Felix_Mish
Felix_Mish

He who pays the piper calls the tune.

It might be instructive the divide those who advocate a UBI in to three groups:

  1. Those who want it for others.

  2. Those who want it for themselves.

  3. Those who want to work for the UBI program - to hand the money over, so to speak.

How do people in these groups feel about UBI recipients in comparison to themselves?

Stuki
Stuki

I still fail to see why the current scheme of non-universal-way-above-basic income for the few, connected and invariably entirely useless, is somehow superior to Universal and Basic.

As long as all UBI does, is add another redistribution racket on top of the the already waaaaaay to many, and too intrusive, existing ones (pensions, asset appreciation, income and sales taxes, fines, ambulance chaser shakedowns, traditional welfare, "mandated spending", social security....) then yes, obviously it is idiotic. Adding more to already too much, trivially is.

But the "promise" of UBI/citizen salaries, at least to those sentient, is specifically to replace the existing muck of a billion special case-, everyone fights everyone for Massa's loot-, idiocies, with something more universal, efficient and less intentionally designed specifically for vote and favor buying and those only.

"30% of all taxes collected last year distributed evenly to all citizens without a sigle exception" would do that. Then nothing else. Every other scheme thrown on the trash heap of history, where they all belonged from the get go.

No disincentive to work, the way traditional "unemployment benefits" by necessity entails. No "unless we bail out blah, blah people will be starving in the streets..... " No "without Obamacare, people will, again, die in the streets..." "Without ever more Teacher's Union pensions, retired teachers will also be dying in the streets......"

Etc., etc., etc. Blah, blah blah..

By having a UBI, all those "dying in the streets" (imaginary as always but still..) hobgoblins can all be slain in one fell swoop: "No dude! UBI ensures noone will starve in the streets on account of lack of funds to buy basic calories for. So take your self-serving argument for yet another junta shakedown of others on your behalf, shut the f up and stuff it!"

awc13
awc13

easy solution for germany. tax everyone 1200 a month to pay for the program.

even then that wouldn't work as there would be a loss in the system due to the cost of distributing the money