Economics

A Different UBI model that may finally work

UBI
Posted by chitranjan

There are many arguments against the UBI universal basic income. I have made an attempt to present a different UBI model.

I also argue that the UBI system is better than the welfare system.

Thus Revised UBI model can replace Welfare system.

UBI vs Welfare

First, let’s get to the basic understanding that of the two systems one is welfare, and the other is UBI.

welfare limitation

The welfare system subsidizes products or services. Under UBI, money is provided with no conditions on spending.

UBI is way more flexible as it allows a person to choose what product or service he wants to subsidize. welfare system doesn’t allow that freedom as people try to convert their welfare product into cash when possible.

It results in a roundabout way of becoming a UBI. one example that comes to mind is a subsidy on the gas cylinder.

The middle or upper class buys a cylinder from the poor which the poor got at a subsidized rate in the black market. they pay extra to get the cylinder from the poor and swap their empty one.

Poor prefer the money over cylinder as they are familiar with wood wire. Here the welfare system gets converted to a type of UBI.

Many vs one program

the more systems there are the bigger the government and high the chances of corruption. In the welfare system, there is welfare for different aspects of life.

Welfare for education, health, transport, food, etc can attract high corruption. Moreover, the amount of administration this require becomes a haven for bureaucracy.

UBI reduces the administration and utilizes markets to provide for goods and services. In markets, businesses compete to serve the people.

A person is free to spend UBI as per their need and the market provides the goods and services. Since UBI is a transfer of money thus after physical verification, the rest can be automated.

Therefore under UBI administration is less compared to welfare. In welfare, you have to manage logistics, different employees, buildings, etc. In UBI there will requirements of the same but not to the level of welfare systems.

Problem with the current model

The current UBI model is for everyone without any condition. It doesn’t matter if you are rich or poor or from a different class. Everyone gets a universal basic income.

Such a model is inefficient and also wastes money on those who don’t need it. One may ask what is the right criteria to decide who or which class should get UBI? We will tackle such problems ahead.

funding of current model

The funding of the current UBI model is either by creating inflation or high taxation. Both of these methods ruin one side of the economy to benefit the other side.

This system becomes a wealth transfer system. now you may ask won’t the revised UBI model be the same thing? the answer is sort of mixed.

we will tackle it under revised UBI model. First lets see UBI from different prespective.

UBI from Political left and right

Image by Andrew Martin from Pixabay

Political left

Push for UBI is generally seen from political left. They see that that wages earned by the labor are not enough to live with dignity.

Thus push for UBI to help the very poor to live a better life. Now the terms “better life” and others are subjective.

someone living in a very suppressive state may find low wages in a free-market economy as the best thing.

This is not the case as people compare themselves to people they are living along.

Political right

Now Political right and center-right see UBI as theft. For reasons like it is funded out of taxation for doing nothing.

Thus it seems unfair to those who are working hard and are subsidizing the lives of those who are not putting that much effort.

Moreover, there are concerns that UBI will set incentives for people to become lazy.

Now lets talk about revised UBI model and see if we can tackle these problems and improve upon the basic UBI.

Revised UBI model

So what’s up with the revised UBI model? the model doesn’t make UBI available to everyone, they have to sacrifice something in return. This is to limit how many people get UBI and how much.

UBI gets half per child

Photo by Ben Wicks on Unsplash

UBI gets half for every child a person has. If one has no child and decides to have no child in that case that person will get a full UBI amount.

If someone has one child then the UBI that they were supposed to get will get half and they will get this half of the UBI they would have got without that child. Upon having children UBI gets half every time.

Why half the UBI

The halving of UBI upon having children is there to free up funds for the next generation.

If a person is receiving UBI and then decides to have children it is an assumption that he/she has figured their life out and are mentally and financially mature.

Setting UBI to zero after the first child is not the goal. People still get half after having their first child. thus incentivize having children with good enough intervals.

Benefits of revised UBI model

This runs against the desire to have children and for many not having a child is a deal-breaker. Does this mean that this model punishes for having children?

No that is not the case we have to look at it from a different perspective. We can also see it as a way to allow people to have children later in life and use the UBI to push themselves up financially by learning new skills.

It has been seen that some females get pregnant in their teenage which is below their adult age. So the age from when a person starts getting UBI can be set from that age when teenage pregnancy is high.

I leave this decision to the policy implementors. The point we should understand is that the younger an adult starts to get UBI the more funds they will be able to put towards learning skills or saving for later.

Most upper-middle and rich class people don’t bother with this UBI as it may not worth their time. So it is an assumption that mostly the poor will be signing up for it.

other than this there is a way to set different UBI for different age groups.

how that can be done? we will discuss it in the formulation section below.

For now, understand that there is a way to give different weightage to different age groups. While building I set the high weight-age for young and old people.

The reasoning was to give initial support and in the end time support to the old generation. For now, I have settled with weightage based upon the percentage of the population in an age group.

Which is nothing but paying UBI equally to everyone. don’t worry there is a second filter of the number of children as well.

Formulation of Revised UBI

In the simple formulation below there are two parts you need to use the first part if you want to give different weightage to the age group. if not then just divide the UBI equally among the population and use the second part to get how much money every person actually gets.

Formulation different weighted age group

Two pools will be there. the first pool is to decide how much an age group should get. then this age group pool gets distributed among the member who is from this age group.

Formulation to get to get share of particular age group

The age group weighted average(will be in the range of 0 to 1) 0 will be 18 and 100 will be 1.
AGW= Age group weightage
ISM=Individual share of the money.
Fund for a particular age group will be equal to (total fund*AGW)
ISM=age group fund to which individual belong/number individual in that age group.

Formulation for distributing UBI to individual

Formulation to get a share of individuals in that age group.
MDI= money to be distributed.
NC = Number of Children individual has.
mdi=ism/2nc

This is how it looks, people with the number of children they have, and based upon that their share of UBI is decided and paid.

people with lower number of children get more UBI as compare to those who has high number of children

Impact on population size

No doubt it will have impact on the popoulation and might reduce the population size. In the long run it will auto stabalize as population reduce the labor advantage goes away thus sources of funding also gets reduced.

If UBI is so high then not even poor but low middle class and middle class will join. The result of more people joining in the UBI per person will get reduced getting back to balance.

If a nation gets productive it gets more money to give in UBI thus reducing its population.

As the population decrease, the labor cost may increase and thus lead to low business activity reducing funds towards UBI thus reducing the incentive to have children later in life or not have children at all.

Which should again increase labor and thus reduce labor costs.

This should come to an equilibrium where UBI per person is such that demand for labor and it’s supply match optimally or close to it.

This may also auto-check the unemployment rate so no need for an artificial boost in the economy to generate jobs. As this UBI model impact the very population.

funding of revised UBI model

How the UBI model is funded is very important because if no rules are applied to its funding then politicians can and will start using it in their campaign as a freebie offer.

Thus in the revised model, I have put some limits on how the fund should be taken from the government.

Other than that I have also set rules on how much funds should be distributed and what should be done with the funds that are not distributed.

Rules on funding from government

In the policy or UBI law there should be a condition that government can contribute to UBI fund only if it’s budget is in surplus and it can only transfer the surplus.

This limit politician from going crazy with promises to increase UBI while ignoring government budget.

In this model first nation’s budget has to be brought to surplus, which means all inefficient ministries or programs must be removed and the government streamlines its departments.

Normal civilians and other entities are free to doante to the UBI fund.

How much funds to be distributed and kept

Since the fund’s money will be used by the people to improve their lives it is important that it is reliable. To make it reliable funds 80% should be kept in top index funds at the global level and the remaining 20% in internet paying bonds.

The interest in the 20% gets distributed while an 80% increase with markets. Every year the portfolio rebalance to bring it back to the ratio of 80% in the index and 20% in bonds.

These are no strict rules or ratios but a guideline, the point is to keep the UBI independent and its fund stable and growing. Such that it doesn’t collapse or become dependent upon other entities or individuals to sustain itself.

Satisfying Political views

The left should be happy that people are getting UBI thus allowing them a chance to keep trying in the free market economy and lead a good life.

If this spreads at a global level and developed nations fund UBI in developing nations then there will be a reduction in migrant crisis as people will be able to afford a life in the places where they live.

This means fewer children getting separated and fewer people getting raped or killed while migrating. As the migration mostly happens to get to an economically well nation.

People use money from UBI to improve their lives first and have children later in life. This increases their chances of succeeding at an early age requires stiving to be successful.

Read SOCIAL AND ECONOMIC CONSEQUENCES OF TEENAGE CHILDBEARING

The right should see that there will be fewer migrants and less cultural shifts in their country.

Since poverty brings desperation in people which leads to a high crime rate can also be tackled with UBI. As there is a support which is allowing them to keep trying rather than destroy the very system.

The political left can always attract the poor with freebie promises. Thus it’s better such scope is removed from political discussion.

cost of policing goes down and government size also gets small as there is only one system and the welfare system is removed and replaced by UBI.

Moreover, as we learned above the government can fund UBI only if it has a surplus budget and then transferring it and getting the budget back to balance.

This revised UBI model removes the ideology against the market from the political arena as the market is there to serve and thus is an essential part of it.

Revised UBI model from a WAR perspective

This Revised UBI model can be seen as a way of war. let me explain. Like there are rules of war this UBI can also be converted to a war game. But this war is totally different and results in prosperity rather than destruction.

How does it work?

Well, let’s say the USA is angry with China for taking away its businesses. in both countries, UBI is allowed to funded by foreigners. USA funds china UBI so much that its labor starts to shrink with time leading to increasing labor costs.

As the cost increase, businesses will shift to nations which have lower labor cost and if the same is done to those countries as well then we will have the same cost of labor everywhere in the world.

Remember the USA is not attacking china, it is funding a revised UBI model where people voluntarily accept the terms of UBI.

So the USA is paying people of china to have a lower number of children or have them later in life. This money can be used by china’s poor population to improve their standard of living.

Imagine if the third world war is fought like this rather than with nuclear weapons. Not only every nation will prosper but people in poor countries will get lifted up from poverty way early.

Parting thoughts,

There may be some kinks in the model or you may disagree with the model at its foundation all that is ok.

The model is to start a discussion on UBI which actually helps people and is not just a wealth transfer scheme.

In my small effort, I have tried to develop this UBI model such that in the long run population of a different nation reaches optimum population and UBI acts as a way of bringing that balance.

This UBI model is to create a WIN-WIN situation for humanity.

I will keep updating this article if I find something new to improve upon.

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