Big Tech’s View of Universal Basic Income is Deeply Flawed

By Frederic Filloux

The implicit pitch of the tech world to promote the Universal Basic Income looks like this:

“Due to automation and various tasks elimination, our industry is poised to suppress a lot of jobs. Nearly all sectors will be facing a huge gap between the massive loss of employment and the creation of new kinds of jobs. It will take years, maybe an entire generation to adjust.
To prevent a massive rise in poverty and possible social unrest, we propose to give everyone a lump sump of money, say $500~1000$ a month, no strings attached. We should be able to absorb the extra burden because in the meantime, we will be creating an obscene amount of wealth, thanks to companies shooting at a trillion dollars valuation. Not only we are performing incomparably better than other industry (see chart below the evolution of us (the FAANG) vs. the old world…
… But we feel especially confident that we’ll bring a decisive contribution to preserve the fabric of the society thanks to our superior tax management acumen. Thanks to our legion of best tax lawyers money can by, we have been able to leave the burden of paying for public services to the schmucks of the legacy S&P. They endure a 27% average tax rate, while we optimized ours at 4% to 17%, as you can see in this chart:
Finally, since we are definitely leaning on the left (more than 70 percent of our votes went to Hillary), we feel a slight sense of remorse towards the new proletarian of working poor we’ve created… But we are conscious of our duties. Above all, we need stability to ensure prosperity (primarily ours). We don’t want to go beyond some plebeians vomiting sporadically on Google buses to express their frustration. That’s why we need to implement the Universal Basic Income.”

I always had a hard time to decide if the tech people were predominantly cynical or just disconnected from the real world. My natural kindness made me lean on the later. After all, the Silicon Valley looks like a huge gated community, with the values and superficiality that go with it.

The approach to the Universal Basic Income is just another manifestation of the implicit admission that technological progress can only lead to a fractured society, between an elite (the Lords) and the Serfs.

An anecdotal example that I observed countless time: you chit-chat with a chorus of young parents that explains how they radically enforce a no-screen policy for their offsprings. In the conversation, you realize that most of the crowd get their comfortable lifestyle only thanks to their work related to digital audience engagement and the usual tryptic of metric known as “recency, intensity and frequency” of screen consumption. But of course, it better involves the Serfs’ kids than theirs.

Of course, I met countless people genuinely concerned with the excesses and the contradictions of the system — many giving back a lot of their time and wealth to the community. That’s why I’ll stick to my idea that most of my interlocutors need to be forgiven. Amen.

My compassionate nature, however, reaches its limit when I read about the arguments deployed by this bright and supposedly educated crowd about the benefits of the universal basic income.

Supporters include people like Marc Andreessen, Elon Musk or Jeff Bezos. To them, handing over money to everyone will make the leftovers from the robotic revolution suddenly morphing into a cohort of learners, taking advantage of free time and access to the vast intellectual stimulus available out there, as wrote Marc Andreessen in a 2014 essay:

Imagine 6 billion or 10 billion people doing nothing but arts and sciences, culture and exploring and learning. What a world that would be.

Yep, but not with five hundred bucks a month, Marc. At least not in your country, where 44% of the population can’t afford a $400 medical emergency.

Echoing to the lyricism of the co-founder of Andreessen Horowitz, one of a star VC firm of Silicon Valley, some inspired pundits goes further. Take Steve Randy Waldman, a prolific multi-talented writer who said on his blog:

“VC for the people” has a more common name. It is called a universal basic income. Properly implemented, it is not means-tested and carries no disincentive to earn. It is inflationary via increased purchasing power of ordinary people, the best kind of inflation, especially desirable in disinflationary times. Its level is a policy instrument and need not be indexed to prices. If it “works too well”, positive interest rates can tamp down spending, and, presto, no more secular stagnation”.

As smart and educated they are, these people live above the ground. I doubt they ever drove a couple of days in the backcountry.

•••

I’m writing this from my summer house in France, in the beautiful Loire Valley. Around me are plenty of sweet but decaying villages where people live on the Gallic version of the Universal Basic Income (the most recent name is RSA, for Revenue de solidarité active.)

It provides €518 ($606) for a single person and €1075 ($1257) for a couple with two kids. Right in the ballpark of the UBI. This is supplemented by completely free access to healthcare and free education. Some local aids for housing can also kick in. About two million people get the RSA in France.

All the RSA did was to create a vast category of déclassés, i.e., people no longer part of the socio-economic fabric. Most of them indeed live out of poverty, but they are no incentivized whatsoever to get any extra training or even to find a job. We are light-years away from the concept of a basic income as a stimulus for self-improvement or individual entrepreneurship — beyond a vegetable garden. In the best case, people create a modest living, cumulating layers of public aids, adding some undeclared work here and there. But the worse case scenario involves a social downfall with alcoholism and domestic violence.

I don’t mind to see my taxes preventing kids living in a tent, especially when I know that the 35-year-old cashier of my local supermarket and her warehouseman husband will soon be replaced, respectively by an automated cash register and a Kiva robot.

That’s why I remain fascinated by smart people in the United States being so misguided about the implications of the UBI in a country that has no decent healthcare system, a poor primary education complemented by a horrendously expensive higher education system. A state in which having more than two children is a mark of social status and in which any life crisis can lead to a social precipice.

Universal Income yields some results in two types of countries: ultra-poor nations when it lifts entire families from the street, or in affluent ones like Finland who already have a generous social safety net, free healthcare, a good education system and a low unemployment rate.

United States have a long way to go. We can expect the alliance between JP Morgan and Amazon to disrupt the corrupt US healthcare system, with the risk of creating a new monopoly. As for higher education, I will echo Scott Galloway, a marketing professor at NYU Stern, in his book The Four:

The cost of college has skyrocketed in recent years, at a rate of 197 percent vs. the 1.37 percent inflation rate [averaged since 1980]. Education is ripe for disruption. There’s a commonly believed fallacy right now that technology companies, specifically VC-backed technology education companies, are going to disrupt education. That’s bullshit. Instead, Harvard, Yale, MIT, and Stanford are the favorites to disrupt education when they fall under heavy and sustained government pressure over the irrational and immoral hoarding of their mammoth endowments. Harvard claims it could have doubled the size of its freshman class last year with no sacrifice to its educational quality. Good. Do it. More students, paying no tuition, at the best schools will disrupt the system.

The American technology sector is immensely creative and wealthy. It now needs to pour billions to profoundly improve a society that is crumbling under its feet. To do so, it must take the long view and start to care about its stakeholders and not only about its shareholders. In such context, the Universal Basic Income is nothing but an economic fad, which has some virtue elsewhere. In America, it looks like the acknowledgment of a systemic failure.

— frederic.filloux@mondaynote.com