WHAT IS UBI AND HOW WILL IT AFFECT THE WORLD?
In recent events, the term “Universal Basic Income” has become a very popular topic especially during the 2020 US Presidential Election. Someone even attempted to run in the US Presidential Election suggesting that Universal Basic Income would be one of his key policies.
This sparked my curiosity whether it is a system that can actually work, how that would impact our society, and what that entails for our economy.
Some key considerations when examining at universal basic income is, what if the province or state covers your expenses?
Would you still go back to work?
Would you get educated?
As of this moment, a growing number of countries are considering UBI as an alternative to welfare. Right now, 34 million people in the United States are living below the poverty line.
That is approximately 10% of the population. If you consider the future of the world, there are massive amounts of automation changes coming, for example, Google, Facebook, Amazon, and Tesla are all giants pushing robotics so that mankind will produce more than ever before while requiring less and less manpower.
At least, that is the belief for now. This means that more and more people will continue to be unemployed, so universal basic income may become a necessity for many.
SOUNDS GREAT… SO WHAT IS THE CATCH?
Let’s examine some more perspectives of UBI.
UBI is the minimum amount required to sustain life just above the poverty line. Apparently, in the United States this figure is approximately $1,000 per month, or $12,000 per year.
This means that you would get $12,000 tax free and you can do whatever you want with it. In a nutshell, UBI is a method to transfer wealth from the wealthy to the less fortunate.
However, this perspective excludes the concept of inflation. In today’s post, we will examine hypothetically how UBI will affect the world and economy in some possible scenarios, and its pros and cons.
We will cover the transfer of wealth as well as some of the problems it entails, and we will also be covering what happens if you issue more money for UBI and how that would impact the economy.
The first primary concern regarding Universal Basic Income is that, if this exists, will poor people waste their handouts on booze, alcohol, and tobacco?
Will people stop working?
In 2013, a world study conducted by a bank to assess whether poor people will waste their handouts on substances concluded that surprisingly, they would not.
What they found was that the richer you are (or in other words, the more disposable income you have), the more likely you are to spend on alcohol and drugs because you can afford it.
In a way, giving UBI to wealthy individuals would be a waste of money. The stereotype of a lazy, drunk, poor person is nothing more than a stereotype and this is not necessarily true for a majority of poor folks.
The second concern is that people will stop working if they receive UBI.
In the 1970s in Canada, there was an experimented conducted to see what would happen if UBI was distributed.
The result was that only 1% of the population quits working after receiving UBI, and the main reason for that 1% was because they wanted to take care of their kids, which is quite reasonable.
In other words, the individuals that stopped working really treated UBI as an extended maternity leave. Additionally, less than 10% of the population decided to reduce their working hours.
I find that very interesting, that who actually want to be more productive will use that income to take some time off, so that they can go back to study and improve themselves.
With this time off, they can now become more productive in markets.
I think this experiment had some very positive results because ideally we would want the population to reinvest in themselves in terms of knowledge.
As a result, they increase their relevance in the market instead of trying to go work at, let’s say a fast food chain or something unfit for their skill in the short term just to make some money to survive the dip, especially during a time like COVID-19.
Will people still be doing “hard jobs”?
Examples of these types of jobs are plumbers, farmers, people picking up garbage, any laborious job. A survey conducted in 2016 suggests that 33% of US employees are actually engaged in their work, 16% are actively miserable, and 51% are just physically present, meaning that they simply show up so that they can collect a paycheck.
Just being “physically present” has always been an underlying problem within our economy when you think about it, not only within the US but outside of it as well.
I see a lot of people just showing up to collect their paycheck simply because that’s what they were told to do. With Universal Basic Income, people have more flexibility and they are able to choose what they want to do.
They are less reliant on the income that they get from their job as their only source, being scared of not being able to pay rent or not being able to make up the mortgage payments.
Let’s dive into this topic a little deeper. Here are 2 case studies from South Korea on UBI, reported by the Wall Street Journal.
In 2021, provinces within South Korea issued $220 every 3 months to 13 million people during the pandemic for them to spend it however they please, no questions asked.
There is only one catch, and it was that people would need to spend it within their neighbourhood, within their province. South Korea is one of the most automated countries in the world.
15% of all jobs in South Korea are expected to be automated by 2024, which is very soon and many people are preparing for a future with robots.
In this case study, one of the people they interviewed within one of their provinces was actually a university student, who was able to quit her part-time job and was able to focus on completing her college degree.
Additionally, each person in the province is given a credit card that they can spend locally.
This is a way for the government to track everyone’s expenses. They cannot spend money on international businesses such as McDonald’s, but can bring business to local businesses.
This means that the money is issued within the province and circulates around the province as well. This is a key constraint, and local businesses gave positive feedback, stating that it has helped them bring in a lot of revenue.
As a result, South Korea has had a vibrant economy in which locals are consuming services within the province.
One downside however, is that because this government-issued credit card is being tracked, there were some privacy concerns brought up by the Associate Professor in the University of Pennsylvania.
If the government was tracking your every expense, would you be worried?
In the Western world, we were taught to be very worried that this would be infringing on your rights. However, when you think about it, wouldn’t you rather have $1,000 every month and give up a little bit of privacy to make sure that you’re spending within the local economy?
Or would you rather not have that $1,000 at all?
I think it should be fairly clear that during a pandemic, you do want to get that $1,000. If you are concerned about your privacy, then simply do not get that $1,000, and do not spend a single penny of it and that would solve the problem.
If you look at the bigger picture, privacy is not a huge concern. In South Korea, the data they’ve collected on expenses have been analyzed on an aggregate basis, and on an anonymous basis.
This means that they viewed it on a summarized level and they have also requested for permission before they collect data from you.
These days, we are becoming more data conscious and we understand the value of data and how companies like Google, Facebook, Apple are collecting our data.
The South Korean government collected data for economic analysis, not in the same way that Google and Facebook would collect data, in which their profit is completely driven by data and knowing exactly who you are.
Most of the time you enjoy using these apps and services for free, but what if you can get paid for it?
This is a concept that I will return to at a later date when we touch on the topic of potential creative solutions, because when examining credit card data it gives information on your location, the exact vendor you purchased from, the amount, and your purchasing frequency.
What if hypothetically, you could get paid by sacrificing a little bit of data privacy because you are already doing so now with Facebook, Google, MasterCard, Visa, and so on, but you are not getting paid for it.
This is going to be an interesting hypothesis, and I will return to this topic in my next post.
CASE STUDY #2:
Another concern raised by the Associate Professor from the University of Pennsylvania was that people might spend the $1,000 within the local economy, but saved up their own money to spend on international goods.
This would mean that money within the province would find a way to circulate outside of the local economy.
I put some thought into this, and though initially this seems like a huge red flag and something that everyone would be against, however, this is not the case.
Below is a chart that I’ve created to illustrate what I mean.
There are two categories of people: one above the poverty line, and the other below.
On the opposite axis are two categories: local goods that are less expensive (than international counterparts) and international goods that are less expensive, such as oranges, mangoes, and iPhones.
This chart is an example for residents in B.C., where blueberries are grown locally and therefore more inexpensive for locals to buy compared to any other region. So let’s dive into the meaning of this chart.
If you want to buy something and it is cheap locally, then you will buy it anyways because it is cheaper, and those below the poverty line would have less money to spend on international goods. However, what if you wanted to buy something that is more expensive locally?
In that case, you would want to purchase internationally.
For example, oranges are cheaper to be produced in California and more difficult to produce in B.C., where it is also more expensive.
This is the reason that we do not see B.C. oranges, and if you wanted to eat an orange in Vancouver, it would make sense to buy a California orange.
If you’re above the poverty line, you would have an extra $1,000 that allows you to spend within the local economy first, which guarantees a certain level of income within the local economy and what you do with your own disposable income (your salary) is none of the government’s business.
For those below the poverty line, the idea is the same.
The key point is that this initiative encourages people to spend their money on blueberries and other locally produced goods within the province first.
Any extra money can be spent however you please, and you do not need to be concerned about people saving their own money to spend on international goods, because you would have a guaranteed source of revenue for your own local economy by issuing UBI and restricting it within the local economy.
CASE STUDY RESULTS?
As of June (the middle of 2020), 50% of South Koreans are supportive of UBI which is a very positive outcome because before UBI was a concept, the figure of people who were supportive of it was actually 0%.
This is still a fresh concept and also something that has been picking up a lot of traction in a very short amount of time. In other words, it is a trend that is only going up, and in the future it is likely that more than 50% of South Koreans will be supportive of it.
CASE STUDY #2:
Our second case study was conducted in Finland in which researchers have selected 2,000 individuals ages 25 to 28 to each receive 560 Euros, tax-free.
They reported data monthly, and after a year conducted an interview on an individual named Mika.
They got fairly positive responses for UBI, since it encouraged them to work.
Mika stated that 560 euros a month is not enough to live on, but it provides flexibility for a family vacation and the potential to start his own business.
I think the part of starting a business is significant, because starting a business entails a lot of risk, and most businesses would not survive what you would call a “dip”, or J-curve.
This is the point where you first incur some loss before you figure out your business model, you start making money, and start going back up again.
If you cannot get through this dip, your business will fail. Oftentimes, businesses don’t go through that dip. UBI eases the dip as it gives a base level of income, which pushes the graph a little bit higher for you as an entrepreneur.
Another interesting statement from Mika was that he said he was not sold on receiving the cash when you are wealthy.
I agree with this statement because if you are making quite a bit of money, receiving an extra $1,000 monthly does not make much of a difference. It will just sit in your bank account and be wasted.
The biggest concern for the Finland study however, is funding. Researchers only had enough money to give it to around 2,000 unemployed individuals and not a single more.
Logically, one of the biggest problems of handing out money is not the process of handing it out, but actually where the money comes from, and we will cover this in a later blog post.
Another concern is politicians.
People are always going to be debating on how to reform the system, how to best give out the money. If we rely on politicians to make changes within our society, it will be a very slow process.
So how can we create a more efficient and optimized change when innovation and automation is happening at such an accelerating rate?
If we wait for politicians to act, they will never be fast enough to meet the needs of the people, and this topic will be covered as well.
Stay tuned for the next post, where we will further discuss UBI through the government, the economics of funding, and whether these concepts would function realistically.
So recently the concepts of universal basic income, it's very popular. A lot of people are suggesting it. And even during the us presidential election, 2020 has been mentioned a couple of times as well. Someone even try to run for a us presidential election race and suggesting universal basic income as one of his key policies. So this made me really curious whether it is actually something that would work, how would that impact our society and what does it mean for the economy? So before we start, this channel is dedicated to busy full-time professionals like yourself and learn how to invest in a stock markets. So you can get a higher return over a long period of time. And the goal here is really to help you save or make an extra one K 10 K or even a hundred K from investing. So I just want to celebrate another success story within investing a celebrator where Roy sold his BRK B for 57% profits Disney at 42% profits and chef warehouse for 27% profit.
And this is amazing. And congratulations, Roy. So this month I'm looking to help an additional 15 people without a financial background to master investing. And a stretch goal is 20 people. So if you're interested in joining an investing accelerator, there's more details within the description that free study. So some of the key considerations when looking at universal basic income is what if the province or the state covers your expenses? Would you still go back to work? Would you get educated? And right now a growing number of countries are considering UBI, universal, basic income as an alternative to welfare right now, 34 million people in United States is below the poverty line. And that's approximately 10% of the population. And when you think about the future, there's massive amounts of automation, Google, Facebook, Amazon, they're all pushing robotics, including Tesla as well. So in the future, we can produce more than ever before and eating less and less manpower.
At least that's what we believe for now. And with that level of automation, it should create even less jobs, which means more and more people will be at employed. And that's why some of us think that's universal. Basic income can be a good idea. So what is UBI? So in this video, we're going to talk about UBI in diversion, where is the minimum amount of income you need to sustain life in United States, that's approximately a thousand dollars a month, which is $12,000 a year. And this means you'll get $12,000 without tax and you can do whatever you want with. It sounds interesting right now in one of the videos I watch about universal basic income is from a very popular channel. In a nutshell, they talk about universal basic income as a way to transfer wealth from the wealthy to the less fortunate. And when you think about that, so the arguments is that there is no inflation.
And in this, we're going to talk about both versions of it. One is a transfer wealth, and we're going to talk about some of the problems. We're also going to talk about issuing more money for UBI and how that would impact the economy. Now, the number one concern when it comes to universal basic income is if this exists, we'll pour people wasted on booze and alcohol people will start working, right? And in 2013, a world bank study actually assess whether poor people will waste their handouts on alcohol and tobacco. And surprisingly, the answer is no, they don't. What they find is that the richer you are, the more likely you'll be spending on alcohol and drugs because you can afford it. So this is actually interesting because the evidence points to the fact that the more disposable income you have, you'll be spending money on alcohol and drugs.
So in a way, giving to universal basic income to the wealthy people will be a waste of money. And the lazy and a drunk poor person is actually a stereotype and it is not necessarily true for most of them. So the concern number two is will people stop working if they get a UBI and in 1970 in Canada, there's actually a spearmint where they tested. And only 1% of the population in Canada turns out to be not working after receiving UBI, because they mainly want to take care of their kids. And that is quite reasonable. So it's basically just like a maternity leave, but extended version. And on average, the people who reduce their working hours is less than 10%. And what's interesting is that people are actually want to be productive and they'll use that income to take time off. So then they can go back to study and improve themselves.
So now they can become more productive into markets. And I think this is a very positive experimental results because what we want to know and to see is that people are reinvesting in themselves in terms of knowledge. So then they make themselves more relevant in the market. Instead of trying to go work at, let's say a fast food chain or something that is not a fit for their skill into short term, just to make some money so that they can get through the dip, especially in a Corona virus time right now, not a concern. Number three is really will people still do what we call hard jobs. So for example, like plumbers like farmers picking up garbage, so on and so forth. And based on a survey in 2016, 33% of us employees are actually engaged at work. 16% are actively miserable and 51% are physically present.
So they're just showing up here. So then they can collect a paycheck. And when you think about it, even with, or without universal basic income, this is an underlying problem within our economy, not just within us, but outside of us as well, because I see that a lot, people just showing up to collect our paycheck, because that's what they're told to do with universal basic income. People have more flexibility and they're able to choose what they want to do. And they're less reliant on the income that they get from the job as the only source, because we're always scared of not being able to pay rent. We're always scared of not being able to make up the mortgage payments. So then there is a foreclosure on our house. I just want to share two case studies with you. The first one is experiment or actually something that the South Koreans have done.
And as Ashley reported by the wall street journal. So you can check out that video as well. And basically in 2021 of the provinces within South Korea issued $220 every three months to 13 million people during the pandemic. And you can spend it on whatever you want. No questions asked. Now there is a catch to, this is that's. The people need to spend it within their neighborhood. So within the province and self Korea is one of the most automated countries in the world. And 15% of the jobs are expected to be automated by 2024. So that's actually quite soon, and they are preparing for a future with a lot of robots in it. So one of the people they interviewed within the province was actually a university student. And you can actually watch the video there. So the university student is able to quit her part-time job, and she's able to focus on completing her college degree.
And each of the person within the province is given a credit card that she can spend locally. And this is the way for the governments to track the person's expenses. And, you know, you can't spend money on international businesses like McDonald's and so on, but you can bring businesses to local businesses. So that means the money is issued within the province and as circulates within the province as well. So that's a key constraint. And basically the feedback from local businesses are saying that's, it helped them bring in a lot of revenue. So then that creates a vibrant economy that are consuming the services within the province. And because they're all using this credit card that governments can track people's expenses through the credit card. So one of the concerns that was brought up by the associate professor and university of Pennsylvania is that it would raise some privacy concerns.
You know, obviously if the government is tracking your expenses, Dan, would you be worried? And I think in the Western world, we are taught to be very worried, you know, is infringing on my rights. But when you think about it, well, would you rather have a thousand dollars a month and give up a little bit of privacy to make sure that you're spending within the local economy, or would you not have the $1,000 at all? And I think drained a pandemic. It should be fairly clear that you want to get that $1,000. And of course, if you want to protect your privacy than just don't get the $1,000, don't spend a single dollar on it, then that will actually solve the problem. So when you think about that carefully, privacy is actually not a big concern. Now for South Korea, they actually only analyzed the data on an aggregate basis and on an anonymous basis.
So then they just look at it on a summarized level and they do ask for your permission before they collect the data from you. Now, obviously right now, we are becoming more data conscious and we understand the value of data and companies like Google, Facebook, Apple, they are collecting our data. And they're also trying not to collect our data as much in a way. But when you think about Google and Facebook, their profit is completely driven by data and knowing exactly who you are. And most of the time you enjoy using these app and services for free, but what if you can get paid for it? And this is actually one of the ideas Outbrain back when we talk about potential creative solutions, because when you're looking at your credit card data, there is the location. There's the exact vendor you purchased the amounts, how often the frequency and what if just by sacrificing a little bit of data privacy, which you are already doing with Facebook and Google MasterCard visa card and so on, you get paid for it because right now, Otter companies sell your data and you don't get paid for it.
But what if you can, and that's going to be an interesting hypothesis. And later in this video, now the second concern that was raised by the associate professor in U Penn was that's. What if you just spend the $1,000 on the local economy and you saved up your own money to spend it on international goods. So then the money within the province can still go out. And I was thinking very carefully. Initially, this sounds like a big red flag. You know, everyone will be against it, but if you think very carefully about what she's saying, I have created this chart to explain what I mean. So there are two types of people. So one is above the poverty line and one is below the poverty line. And then [inaudible], you'll get goods within the local economy that is less expensive within the local economy that is more expensive than international goods like oranges, I-phones mangoes and so on.
And I'm using BC as an example because blueberries are very cheap in BC, but they're very expensive in another country because we locally grow our blueberries here. So let's look at this chart. Now, if you want to buy something and it is cheap locally, then you will buy it anyways, right? Because it's cheaper here to buy it in BC or whatnot. And there's less money to spend on international goods for people below the poverty line. So that is fine. But what if you want to buy something that is more expensive locally? So then you want to buy the international version. So for example, California oranges, where it is cheaper to be produced in California and is more difficult to produce in BC, which is more expensive. That's why you don't see BC oranges. And when you think about that, if you really want to eat an orange in Vancouver, you will buy it out.
Anyways, if you're above the poverty line, add what the $1,000 or to UBI allows you to do is to spend that money within the local economy first, which guarantees a certain level of income within the local economy and what you do with your own disposable income, your salary, that's none of the government's business anyways. And if you really want to eat an orange from California, then by all means, go ahead. And when you're looking at people below the poverty line, it's the same thing. And that's, what's important because you would spend the money on blueberries and utter goods produce within the province first. And then for any extra money, you will spend it on whatever you want, which is your freedom. So you shouldn't be concerned about people saving their own money and spend it on international goods because you have a guaranteed source of revenue for your local economy by issuing UBI and restricted within the local economy.
So the results as of June, which is middle of this year, 50% of the South Koreans are supportive of UBI. And that is a very positive because when you think about it before UBI was even a concept, 0% of people are supportive of it. So this is not something that has been around for many, many years. This is something that is picking up with a lot of traction in a short amount of time. So when you think about the trend, that is kind of going like this. So in the future board and 50% of South Koreans will be supportive of it. Now, in terms of case study, number two, it's from Finland and the researchers have selected 2000 individuals between 25 to 58 within Finland to each get 560 Euro tax free. And again, each month, and after a year, they did an interview on a specific person and his name is Mika.
And a feedback for UBI is actually quite positive. Basically UBI encourages you to work. This is actually one of the quotes from Mika is that's 560 Euro per month is not enough to live on, but it gives him the flexibility for a family vacation and potentially to start his own business. And I think this is a very important quote, not because he wants to go on a vacation with his family, but it's because he can potentially start a business. Because when you think about starting a business, there's a lot of risk and most business wouldn't make through what they call a dip. So it's kind of like a J curve. So you first incur some loss before you figure out your business model, you start making money, and then you start going back up again. So if you can not go through this dip, your business will fail.
And oftentimes businesses don't go through that dip. And with universal basic income, it makes the dip easier because it gives you that base level income. So then it pushes to graph a little bit higher for you as an entrepreneur. And one of the interesting quotes is that's, he's not sold on receiving the cash when you are wealthy. And I do agree with him because when you're making quite a bit of money, even if you receive a thousand dollars a month extra, it doesn't really help. It will just sit in your bank account and it would be wasted per se. Now the biggest concern when it comes to the Finland study is funding. Researchers only had enough money to give it to around 2000 unemployed individuals and not more so when you think about handing out money, the biggest problem, of course, it's not the process of handing it out.
The biggest problem is where is the money coming from? And that's what we're going to explore in a later video. The second concern is politicians. People are always going to be debating on how to reform the system, how to best give out the money. And if we rely on politicians to make changes within our society, it's going to take forever. So the question is, is there a faster and a better way to create this change? Because innovation and automation is happening at an accelerating rate. And if we wait for politicians to act, they'll never be fast enough to meet the needs of the people. So that's what we're going to explore in a bit. So I thought of a couple of ideas that might solve this problem. So stay tuned
In the next video. I'm going to talk about the economics of funding, universal basic income through the government and whether that would work or not. So stay tuned for the next video.