An effective Universal Basic Income Program
In this article, I will talk about an effective UBI Program. I will try to solve the concerns of implementing such program, with a radical financial change.
What problems are we trying to solve with the UBI program?
For me, the biggest problem in any economy now is unfair access to credit. While the rich get millions and even billions in loans, the working class cannot have the same access to credit, and instead, is bombarded with high interest rates and harsh requirements
and terms. This leads to the rich getting richer by exploiting credit to expand the means of production, while the working class is struggling to make ends meet.
Also, when governments try to solve income inequality problems, they
raise the minimum wage, which can hurt small businesses and make corporations more incentivized to fire workers and automate their jobs, that leads to higher unemployment rates.
One of the other issues is the issue of market entry, when
you need big loans with harsh interest rates, and you have monopolies in technological or pharmaceutical companies, it is very hard for your company to succeed.
In the dark of automation, labour free market, and income inequality issues,
Universal Basic Income programs might be the light. However, we face multiple issues 'both economic, and political' that hinders the way for application. I will try to solve the economic issues only, since I am not a good politician.
What problems do we face when we think of UBI programs?
I will discuss each point, and how we can solve it effectively.
- Funding/Cost Issues
- Increased Inflationary Effect
- The application/implementation of the program
1. Funding/Cost Issues Assume that we have 1 Million people under the UBI Program, each of them receives $1,000 per month. That's $1Billion cost per month, or $12Billion per year. Now imagine $2,000, $3,000, or any meaningful number
you can think of. That's a lot of money to spend.
How are you going to fund the program? The common answer is taxes, but increases tax in general has a lot of disadvantages, such as businesses fleeing the country, tax evasion, and macroeconomic
shrinkage. This will lead to further decrement in tax revenue, which will result in the government increasing tax rates again, which will result in more tax evasion, and macroeconomic shrinkage, and will harm small businesses who cannot evade
taxes or flee, and the cycle continues.
2. Increased Inflationary Effect Higher demand means higher inflation if the supply did not increase at the same pace. This will lower the value of the currency and the purchasing power of the UBI monthly payment. If the monthly payment
changes according to inflation, the economy will easily slip into hyperinflation.
3. The application/implementation of the program How are you going to
actually distribute the money? If you are going to deposit the payment in every registered bank card or account, this will lead to some people getting more
than they should be getting 'ie. getting paid more than once every month'.
In order to fix these issues, we need to make major structural changes, to ensure the maintainability of the program and avoid other nasty macroeconomic issues.
Addressing each point, to make an effective UBI Program
The main point is to replace loans with UBI. Even though this would sound disastrous, this is the optimal solution.
The fractional reserve banking system already has a nasty inflationary effect, replacing this system with UBI program will maintain
the target inflation rates, and will actually benefit the population.
So let's talk about the Eligibility Criteria. Anyone older than 18 years old, and younger than 60, can be enrolled 'by choice' into the program. We will not talk about the
benefit amount 'ie. the monthly payment itself', since it will be determined by many other factors, this article only outlines the mechanism.
The funding issue is solved as well, instead of the central bank lending 'new' money to banks, the
central bank would create money for the monthly payment.
For the application of the program, other social security entities should be abolished. Everyone can submit their ID and bank account, and if he is new 'did not subscribe before', he will
join the UBI program.
There sure are a lot of questions that need to be answered, I will answer them one by one.
- What if someone wants a loan?
- How are we going to control inflation if there are no tools such as interest rates and reserve rates to use?
- How are we going to solve existing loans?
- How do we know what amount of money would be the monthly payment? Is it going to change?
1. What if someone wants a loan? Let's assume that the monthly payment is $1,000. You want $15,000. Therefore, you are requesting 15 months of UBI to be prepaid. You will get the $15,000 and you will not receive a cent for the next 15 months.
No loan repayment, no late fees, nothing. It is that simple!
By the way, it is worth noting that you have a maximum amount of money to loan, and this is related with your age. For example, if you are 20 years old, and the maximum age for the eligibility
criteria is 60, your maximum prepayment request is 40 years of UBI (the difference between the maximum age, and your current age), for the $1,000 example, your maximum amount is $480,000. This limit is needed so that no one cheats the system and request
100 years of UBI, leading to hyperinflation.
2. How are we going to control inflation if there are no tools such as interest rates and reserve rates to use? Luckily, now you only have one tool, that is the amount of monthly repayment. The effect is immediate. If you have higher inflation
rate than usual, just decrease the monthly payment by 5% - 10% and see how things go, vice versa for deflation.
And speaking of deflation. Since now everyone can get over $100,000 immediately, the size of the private sector will increase, which
will lead to higher supply, which will lead to deflation, which will lead to higher monthly payment with higher purchasing power, which will alleviate poverty.
3. How are we going to solve existing loans? You can easily abolish them, the existing loans already did their inflationary effect. If you want to sustain existing loans, it would be easier for people to repay them using the UBI monthly
payment, which will solve small and medium loans easily.
4. How do we know what amount of money would be the monthly payment? Is it going to change? As a software developer and a mathematician, I do not like to shoot in the dark and tell you to start with an arbitrary amount. Instead, there are
multiple ways you can implement such program.
A. You can recalculate the minimum wage so that it will be above liveable wage by a teeny tiny bit. For example, $1,000 a month. 75% of that minimum wage is covered by UBI, the private sector will pay the other 25% as salary.
B. Abolish the minimum wage, the liveable wage is the UBI monthly payment.
There are no clear disadvantages, and people will not be discourged from working. No one likes to live on a minimum wage, they will have to work 'at least to
fullfil their goals'.
If you noticed, the program will benefit small businesses to expand and hire, since minimum wage is almost 'or fully' abolished.
The monthly payment will increase if:
- We are below inflation rate target
- Unemployment rate decreases
and vice versa. Note that the monthly payment should not be always able to cover the spending over the entire month. We can increase or decrease the monthly payment within a certain range 'eg. 5% to 10%', so that people would predict the volatility of
the monthly payment so that they can adjust their lifestyle accordingly.
It is worth noting that the program will have huge societal effects. The system of payment will be electronic, since the eligibility criteria and the program itself
is not that complex.
One main issue with the program is that a 20-year-old can give birth to a lot of children hoping that she 'or the husband, or both' will get a portion of the children monthly payment after they turn 18, so that they can
spend money on the parents after 60. The solution is that a maximum of 2 or 3 siblings will get the monthly payment. This would discourage a birth rate >3 per woman, and solve overpopulation 'if it is a problem'.
In conclusion, implementing
an effective Universal Basic Income program requires major structural changes and careful consideration of economic and social factors. By replacing loans with UBI and making the program available to all eligible individuals, we can address income
inequality and provide a safety net for those in need. However, funding and inflationary concerns must be addressed, and the implementation process must be carefully planned to avoid unintended consequences. For example, we can interview some Egyptians
to see how can they manipulate the system With proper planning and execution, a UBI program can provide a path towards a fairer and more equitable society.