There is a lot of discussion regarding insane AI productivity, that will probably replace people in a large number of jobs. UBI (Universal Basic Income) looks like a solution – resulting in a great deal of happiness and better living to an individual level. To me it doesn’t look like that :(.
I recently listen to JRE podcast discussions with Sam Altman, where Altman was a proponent of the UBI, seeing it as a solution to AI disruption. There is problem here.
Value creation
Every other technology until now, created more value. Until now, by adopting new technologies we solved a lack of abundance problem, or we invented a better way to create value, that generated more value or wealth to society. AI is in fact redistributing the value in the society, without creating more. I will explain.
Take the plough for instance. After the invention of the plough hunter-gatherers became settlers because they were able to produce more food without moving. This created villages and partially solved the issue of insuficient food. Then we invented the iron plough. Since the iron plough, the upgrades to the device were basically marginal. (I know I am overstating, but trying to make a point here)
Take the car. The car disrupted the horse breeding but solved the abundance problem (more people were able to travel and transport) which generated also a large new industry. (lack of abundance, more convenience and more value). It also developed other vertical industries such as tyres, windows, steel and so on. Further away, since the car became mainstream, even if we do not want to accept, the upgrades became marginal too. (A 50’s Cadillac and an Tesla have more in common than you would want to accept at first)
Computer, smart phones and I can continue. Even social media – although if extracted the value from traditional media, generated more dollars in the end to probably more people.
I don’t see that coming with the AI. For now AI is extracting the value from a group of people (let’s say office managers for now, but there are more groups that are affected by AI) without creating a new better value in exchange. Is not creating a better office manager or more office managers. And in my opinion there is no lack of office managers :).
The UBI money issue
I just discussed about the need of value creation, but let’s say I don’t see it. Maybe there is a better value out there. If AI would create enough wealth, this wealth could be further distributed in the society so that the people can live better. I am cool with that. Will it?
I will make some calculations for the most powerful economy in the world. US has a labor force of environ 164 million people and a GDP of 25 trillion USD. In order to make basic living, you would probably need to pay at least 25 000 USD per year to each American in the workforce. (I am sure that my American readers will say it is not enough but bear with me) It makes a total of 4.1 trillion USD. I am not counting here the retirees and other population categories. Are 4.1 trillion available? It can be if they will be provided by AI every year from now on (I am not thinking any growth here)
In order to return in taxes 4.1 trillion from AI companies, assuming that all AI companies are well intended and not hiding profits, it should provide at a 25% return rate, an added value of 25 – 35 trillion USD in added value. It should at least double the American GDP. (roughly speaking) I have to remind you that in 2022 the estimates are the the entire world GDP is up to a 100 trillion USD. You can do the math.
But let’s say that the AI companies will generate such a wealth. The issue is that the wealth is actually not generated, but “disrupted” from the world economy in the favor of US economy. Do you believe it works? Maybe for America for a short run.
What about others?
Let’s say this works for America and the AI will really create so much value.
As we can see there are no second Amazon, second Google, second Apple, second Facebook. When speaking of Big Tech, huge monopolies are created. They are created for profit and governments are making a bad job regulating them, simply because the changes occur faster than governments can react.
The industries disrupted by tech accumulate wealth to some major companies stripping the competitors. Best case scenarios, they will bring some money to the general budgets of origin countries. AI would not be different.
How will UBI work for Germany or Japan? Do the math and you will see that Germany would have to triple its GDP, only based on new AI companies (Germany has none as we speak).
But how will it work for countries like Romania, Bulgaria or Senegal, or Uganda? And the list can go on. I am sure that some people in these countries can afford 20 bucks a month to use AI, but can the countries afford the “disruption” and pay an UBI?
Then, there is the destination of the value extracted by AI. Let’s say an US – AI company is extracting some value from a territory like Romania. The people using AI in Romania, will not create a larger value in Romania that their company will be able to sell the product in US and generate more tax dollars in Romania. How will be Romania able to offer UBI to its citizens under such circumstances? There are questions we need to answer.
Inflation
Of course there is the matter of inflation. Governments are not really good administrators and have a tendency to overspend. My expectation is to behave similarly in an economy with less activity. I am pretty sure that an easy fix will be to print money.
Another contributing factor will be the amount of money in the market, not based on the value creation, but on money supply.
There is also the taxation inequality issue that sooner or later will arise, as there are some business domains not suitable for AI or robots, that will require human work. This work will be the subject of income taxation, as robots work will be the subject of profit taxes, that basically require the companies to have profits. Inequitable taxation is a measure that works only on short term. On the long run, leads both to unemployment and inflation which is the nightmare of any economist.
What about purpose?
Human beings are resourceful and creative, constantly seeking for new activities and purpose. We know that a person without purpose is becoming depressive and chronic depression leads to early death.
UBI and doing noting will make lot of people abuse alcohol, drugs oar even kill themselves. Work is source of purpose for many of us.
But I will discuss about the subject in another article.