If UBI is the Answer, What is the Question?


Let’s just stipulate that 2016 was a lousy year. We lost the Greatest, Prince and a Princess (Leia), and saw the election of a clown who thinks he’s a king. Worse yet, the President-elect likes to communicate simple and wrong answers to complex questions in 140 characters. 2017 will be somewhat better if it sees the end of Silicon Valley tweeting its own 3 character simple and wrong answer to complex questions. UBI: It’s the wrong answer to the wrong question.

There is real angst in the United States about inequality and in particular with opportunity creation and the likelihood of moving ahead. Moreover, there is a legitimate debate about the future of work and what happens to employment with advances in technology (will software and robots eat our jobs?). Unfortunately, Silicon Valley’s obsession with the latest shiny object, Universal Basic Income, is making that problem worse. Like Donald Trump’s wall, it is absurdly expensive, won’t work and is a disingenuous distraction from the real problems. It’s time for Silicon Valley to stop the techno-libertarian navel gazing and turn their considerable talent and resource to the core issues.

Look Out Your Window

If Silicon Valley thinks it is seeing the future, perhaps it should look in its backyard to start. If the future is robots and no jobs, why does the Bay Area have effectively zero unemployment and yet only 100 miles away in the Central Valley unemployment struggles to get out of double digits? If California had followed Tim Draper’s misguided attempt to split the state into six states, it would have had the richest state in the union in Silicon Valley and the poorest in the Central Valley. And all is not well in Silicon Valley. Despite 50,000 job openings in the Bay Area, a black male in East Palo Alto (right next door to Google, Facebook and LinkedIn) or Oakland is more likely to be in jail than having graduated from college. Nearly 30 percent of families in the Bay Area are unable to make ends meet. Indeed, Santa Clara County’s food bank serves 250,000 meals to hungry Silicon Valley families every month. Perhaps the problem isn’t jobs, it is relevant skills development and capital deployment to those who need it. Perhaps it is regulation, NIMBYism and bad fiscal incentives preventing housing construction where it is needed (like a million fewer homes built in California in the last decade than we needed), allowing only 15% of San Francisco residents with the income to afford the median home price, and leaving 50% of California households housing burdened. It is hard to take the venture capital industry’s ideas about inequality seriously when they are so insular. Seventy-eight percent of all venture investment goes to 3 states, 95% of venture partners are male, only 3% of color. Perhaps we should instead have a community reinvestment act requirement on public pension money invested in venture capital to ensure equitable investment in communities that are hurting, whether in Silicon Valley or the Central Valley.

Naïve about Real Human Needs

Furthermore, as currently discussed, UBI ignores the existing evidence and will be regressive. Giving everyone cash is not progressive, and the existing evidence shows that cash disbursement only works to achieve its objectives if it is means tested and conditional. Those who are struggling are like everyone else, seeking opportunity for a meaningful life and hoping for a better one for their children. UBI is a naïve patch that skips the important step of getting to the root cause of core human needs. A much better solution can be found in looking at examples like the Fresno Bridge Academy where Pete Weber is providing wrap around support and multi-generational job counseling to help those on SNAP get the skills they need to get meaningful employment. And it’s working: every dollar spent by the program returns $5.50 in public benefit. Or closer to home, look at the United Way of the Bay Area’s Sparkpoint Centers helping those in need with financial counseling, career coaching and more. Instead of starving support to fund cash transfers, we should be giving those who need it the help that works. We should build off of the amazing EITC implementation led by Joe Sanberg where 360,000 of the lowest income Californians got direct cash payments last year and expand it to a broader number of workers — including those getting 1099s and not W2s. Advocates should push the new GOP administration to give much more flexibility in funding streams from SNAP to mental health to housing support to training dollars before slashing budget dollars and waiting for UBI. UBI’s champions bring to mind an image of a tech titan sitting in his Atherton mansion surrounded by a UBI moat 3D printing a tin cup to deliver bitcoins from a Uber robot drone to a homeless battered woman in UN plaza in SF. Perhaps helping her with transitional housing, counseling, addiction support and mental health services might work better.

Absurdly Expensive

On top of focusing on the wrong problem, no one has yet to describe how we could ever afford even a modest UBI. Just to provide annual income of $12,000 (roughly the poverty level for a single person) to all US citizens would cost over $3 trillion a year. Even a modest $5,000 a year UBI would still cost as much as the entire federal budget except for Social Security, Medicare, defense and interest payments. When I hear Silicon Valley advocating for eliminating carried interest as a capital gain, taxing short-term capital gains differently or raising the marginal rate for high-income earners, I might listen. If we really believe we have excess labor, maybe we should subsidize investing in labor instead of capital (why don’t we give accelerated depreciation on investing in training instead of machines?) Perhaps a simple first step might be to stop promoting catch me if you can regulatory arbitrage business models to avoid taxes and treat employees as contractors to avoid paying benefits. Or better yet, adhere to B corp standards and commit to the giving pledge. Role model responsible behavior and put skin the the game today; don’t wait for fantasy solutions. Until then blabbing on at poverty conferences about UBI is like a hedge fund manager buying a table at a Catholic Charity event at the Waldorf Astoria. Tax deductible plenary indulgence that makes you feel better, but doesn’t solve anything — and is horrible symbol.

Wildly Unpopular

Silicon Valley’s champions were as surprised by Trump’s election as the UK’s establishment was by Brexit. And they will be as surprised as they learn that the public likes UBI even less — especially when they understand it. Bernie supporters might like free college when someone else pays for it, but citizens hate UBI. The Swiss rejected it by a 77% margin. In case Silicon Valley was sleeping on 11/9, the country isn’t waiting for elites from the coasts to tell the deplorables in flyover states what they need to do. Stop talking Silicon Valley, start doing. Every time you say there won’t be any jobs in the future, you make the problem worse and put yourself in the center of the bullseye as the real problem.

Bad Social Science

More research won’t help put lipstick on the pig. Today’s UBI’s champions’ research fantasy is to do 15 year randomized control trials to see what citizens will do when given cash. Any first year PhD student would first start with looking at existing research and utilizing the latest research methodology and data. I’m delighted that wealthy Americans are giving directly to Kenyans and Ugandans, as an experiment, but in addition to dooming another generation to no constructive action while we wait for results (and we go through a few technology and business cycles), that research approach is the social science equivalent of outdated 3-stage clinical trial using the poor as the first stage. Perhaps the brilliant analysts should call Diana Farrell at the JP Morgan Chase Institute and ask her what their evidence says on actual behavior on gas price reductions (hint, they spent it) or give a few million dollars to Raj Chetty at Stanford to mine his 40-year data on what actually works.

Intellectually Dishonest

Perhaps the most concerning part of the obsession with UBI is that it is inconsistent with the underlying data that got Silicon Valley’s juices flowing in the first place. If the fundamental concern is that returns to capital are outpacing labor incomes (see Piketty’s r > g logic) then giving away cash late in someone’s life not sharing wealth early is chasing your tail — giving crumbs to pacify rather than means to participate. Not only is that approach doomed to forever lag, it is shockingly Marie Antoinette “let them eat cake” cynical. A much better approach would be Universal Basic Assets — give everyone at birth an asset account to let them share in capital appreciation (similar to Singapore’s Child Development Accounts).

Get Out of the Bubble

Those of us who read Ayn Rand in high school knew it was fiction, not the techno-dystopian philosophical manifesto the algorithm obsessed boys in Silicon Valley think it is. Most of us grew out of video games and interacted with the real world. If Silicon Valley wants to have a serious debate about the future of work and what do about inequality, they need to get out of their virtual reality bubble and see real people. It is time for Silicon Valley to in its terminology “pivot” (Orwellian SV speak for “I admit I made a mistake”). We need a robust social contract for the 21st century and real opportunity creation for those who need it, not a silver bullet virtual reality fantasy.

Fortunately, some serious work is starting to be done. The Economic Security Project is asking good questions about how to “guarantee economic opportunity for all” Americans. In the interest of being constructive, I might suggest some fundamentally different and better design questions for their work. For example, how might we:

· Integrate government anti-poverty funding streams (EITC, SNAP, ACA, Section 8 Housing, Workforce Training etc) to help those in need get to self-sufficiency, scaling programs that work and cutting those that don’t, while providing a true safety net for those who haven’t or can’t

· Ensure that every child born has an expectation and the resources to get into and through post-secondary education with skills relevant for the jobs of the 21st century, and retrain those who didn’t

· Invest in the infrastructure (transportation, energy, water, housing, technological and human) necessary to ensure the US is competitive everywhere in today’s marketplace while employing large numbers of workers to build and maintain it

· Align business incentives for longer term investment and job creation to make capitalism work for all Americans, not just white males who went to elite schools within driving distance of Sand Hill Road

· Finally, and only after answering the first four, expand and finance cash based transfers to ease the burden of those who need more support

Do the hard work Silicon Valley. I like hypothesis oriented problem solving as much as the next ex-McKinsey senior partner; but I like asking the right questions even more. Lack of job creation and a wildly unequal distribution of wealth is a major design flaw in the current extreme version of capitalism, not a bug to be papered over by UBI. Until the right questions get asked and answered with serious and practical answers, Silicon Valley should just shut up about UBI. We already have a PEOTUS spouting fake news, we don’t need Silicon Valley to pile on with another fake panacea.

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