In Dr. Steve Trost's lecture on his case for a universal basic income (UBI) he argues in favor of a number of policy changes in the form of a constitutional amendment. While there are aspects of his propositions that I generally agree with, there are a number of contentions I have with his case for a universal basic income. In this article I will lay out those proposals which I am in agreement with and give my critique of those which I am not.

UBI or UBD?

I will start by stating my opinion on whether or not the proposed plan is aptly named.

Dr. Trost calls the plan a universal basic dividend (UBD) rather than a universal basic income (UBI). I must contest this as a misnomer, as I do not believe it fits the definition of a dividend. Dr. Trost bases this description on the premise that the payouts in his system are dependent on annual GDP. This makes some sense on its face, however a dividend, definitionally, is a payment based on contributions: higher contributions result in higher payouts and lower contributions in lower payouts. For Dr. Trost's plan to fit this definition it would require the "dividends" to be paid out based on GDP contribution, not paid out generally based on a set percentage of annual GDP. Dr. Trost's proposal works almost in the inverse fashion, giving equal sums of money to those with potentially vastly different GDP contributions and varying sums to others based on factors such as age, marital status, or family size. many individuals receiving the payment could very well have none or very little contribution to GDP. For these reasons, I believe universal basic income (UBI) to be a more apt description.

Aligned With Many Ideologies?

Next I will address the values of various political ideologies Dr. Trost claims are aligned with his plan for a universal basic income. Those ideologies are as follows: libertarian, conservative, progressive, and communist.

I agree that the proposed plan aligns, to a degree, with progressive and communist ideals. The plan redistributes wealth in favor of everyday individuals through political means. Wealth redistribution is certainly a communist ideal, and the government distributing such wealth to everyday individuals is certainly a progressive one. It is with the other two ideologies that I struggle to see a relation.

Dr. Trost, in my opinion, correctly defines libertarian ideals. He does not, however, properly apply them to his plan for a universal basic income (although other features of his plan are closer to libertarianism than what currently exists in the United States). The primary bases of libertarian philosophy are voluntary association and freedom from coercion. A universal basic income cannot possibly uphold these ideals (unless it is somehow arranged privately in the form of charity). This is because the payments are funded through taxation - an undeniably coercive and involuntary institution. It cannot be said, then, that such payments increase autonomy and freedom as they are first rooted in a process that destroys such ideals. From an economics standpoint, such payments also destroy value, as they will be taken away from their most value-productive end (in the hands of the individuals who originally earned them through their own labor or investment) and placed in the hands of individuals who had no stake in the choices that resulted in the possession of the funds by the original individuals. This is guaranteed to produce a net-negative creation of value compared to the unhampered state of affairs. More on this later.

While certain aspects of Dr. Trost's plan are more in line with conservatism than the status quo, that cannot be said of his plan for UBI itself. redistribution of wealth through a permanent, constitutionally recognized system of welfare is in no manner a conservative ideal. It does not serve to uphold property rights, as it is rooted in the violation of such rights through taxation, and it does not serve to promote traditional American social institutions, as those are typically in favor of self-reliance far more than they are in favor of support from the state.

I will now address my main points of disagreement with the UBI system proposed by Dr. Trost.

The Freeloader Problem

Firstly, there certainly exists a freeloader problem within the proposed plan. Sure, many individuals would choose to work regardless of necessity, but many also would not. This ultimately has a negative effect on society, at least for the reason that it does not necessarily promote productivity for individuals at the bottom end of the income bracket.

A Critique from Austrian Business Cycle Theory

Austrian business cycle theory holds that economic downturns come as a result of malinvestment due to artificially low interest rates. When entrepreneurs can pay less than they would on the open market for loans, they invest at a rate higher than is sustainable. This creates a bubble of malinvestment that must eventually burst, revealing the extent of the malinvestment through the business ventures that subsequently collapse due to a lower demand for them than expected.

Dr. Trost's proposed system of UBI operates in a similar fashion. In this analogy, the "entrepreneurs" are the recipients of UBI payments and the "interest rate" is zero because the income is given free of charge. When recipients of the UBI payments go and spend the money (which would have otherwise been saved or invested in a different manner by its original holder) they are essentially committing a malinvestment of maximum proportions. Had they not had the additional income for which they gave nothing, they would not have funded whatever they chose to spend their money on (this is analogous to the entrepreneur who would not have taken out a loan had the interest rate been at the proper level). New businesses will be started and existing businesses will see profits they otherwise would not have under the unhampered market. The result of such malinvestments cannot result in anything but an economic downturn at some point. Even worse is the proposition that such a system be constitutionally amended, as states would then be forced to call a constitutional convention once more to undo the damage caused by the malinvestment. This would be unlikely to occur, as most individuals would likely be less than willing to part with their guaranteed free money. Malinvestment would continue to occur to some degree so long as UBI payments exceed $0.

It could be argued that detrimental malinvestment would not occur because the UBI recipients still have an incentive to spend the money in a responsible manner. This is true, however it is still not the most value-productive end for the funds. Their original position in the hands of the individual who earned them is a reflection of their productive value. To redistribute this wealth to individuals who did not earn it through value creation is to assign it to an end less reflective of the demands of society as a whole.

Agreements and Final Thoughts

Now to address a few points within the plan I agree with, and to pose a simple alternative.

I am fully favorable towards the elimination of a minimum wage as well as personal and corporate bailouts. I have no contention with the these proposals and agree with them for many of the reasons stated by Dr. Trost. I also fully admit that many (most, even) of the points in Dr. Trost's plan would be a significant improvement from the status quo.

I propose, however, that instead of implementing such major changes in order to increase mobility between school districts, places with different costs of living, etc. that we merely attempt to abolish the flawed government institutions that are responsible for these issues to begin with. Why pursue a workaround to such institutions when we could pursue their abolition in favor of more market-friendly alternatives that don't require a plan so complex and riddled with uncertainties as UBI? Instead of making it easier to move between good and bad public school districts, why don't we abolish public schooling? Instead of making it easier to move from places with high costs of living to places with lower costs of living, why don't we abolish the zoning laws and housing regulations responsible for such costs to begin with? To me it seems this is an unnecessarily complex answer to less complex (but complex nonetheless) issues.

In-Class Discussion

1. In class I will discuss the similarities between UBI and Austrian business cycle theory.
2. In class I will discuss alternative private solutions to the issues Dr. Trost's UBI plan aims to solve.
3. In class I will discuss the potential for freeloaders and abuse of the UBI system.
4. In class I will discuss my thoughts on the comparisons of Dr. Trost's UBI plan to various political and economic ideologies.