What Covid 19 Tells Us About Universal Income

Because of Covid 19, millions of America’s are not working, yet there is no shortage of food or other basic products.  The only shortages are due to lack of income.  In other words, automation and efficient production has made it so the workforce does not require full participation from the population in order to achieve efficient production. Full participation serves only to increase the income rates for Americans with ownership interests in companies large enough to take advantage of capital-intensive technology.  These conditions force one to question whether Universal Income (“UI”) is now feasible. 

UI faces a steep hurdle to gain backing.  The basis of the free market economy is to encourage productivity from the entire population, and UI appears on its face to discourage it.  The message for UI must change to emphasize the GOAL of that productivity, which is to maximize the overall happiness of the population, by providing access to affordable goods and services.  Since affordable goods and services exist without full population participation, the route to “maximizing happiness” is no longer tied to full participation but rather allowing people to allocate their time more effectively. 

Even then, acceptance of UI will be difficult.  It will be accepted only in stages, not as a wholesale  policy to provide income to all.  As artificial intelligence (“AI”) and global trade displaces workers from their jobs, the call for relief will become louder.  American companies involved in auto and steel manufacturing will cede to foreign competition, which relies on cheap labor.  Proponents of UI should view this as an opportunity. 

National security interests dictate that the US must always have the means to support its military with production.  In other words, the American steel and auto industry cannot be allowed to completely crater to cheap foreign competition.  Survival of the American steel industry hinges on the ability to obtain government subsidies.  Those subsidies should be structure as reimbursement for a portion of labor payroll.  Firms would only receive subsidies by employing non-management labor. 

As AI develops, this rationale will slowly apply to other industries.  Once the economy is saturated with industries receiving subsidies, public sentiment will reach a tipping point for UI.  It would be structured so that all workers must continue to work in order to receive it, and workers can still earn above market rate by putting in more time. 

Funding the subsidies will be the most difficult aspect of this transition.  As firms such as Amazon, Google and Apple earn increasingly larger margins, support will increase to restructure marginal tax rates.  This is likely why many tech firms are already UI proponents.  The exact tax structure will depend on the “current” status of technology and income margins.  Accordingly, there will need to be flexibility in the tax governance, so that it can accommodate as firms adapt their technology and income stream.