On Mises and the Supposed Dangers of a Basic Income

Earlier this week our good friends at the Ludwig von Mises Institute (LvMI) posted an article criticizing the idea of a Universal Basic Income (UBI). The article attacks it on standard Austrian grounds, but the real question is: Do these criticisms hurt the Geolibertarian UBI? Here I will argue that the answer is no.

What is the Geolibertarian UBI?

The Geolibertarian worldview is similar to that of the LvMI. Free markets, free people, but a crucial difference of opinion on land. Whilst Geolibertarians agree that taxes on an individual’s labor and productivity are abhorrent, we believe that land is a very different issue. The view is that, as it was not created by any individual, unworked land should be regarded as social property. All taxes should be replaced with a tax on the value of land (LVT), and any surplus should be distributed equally among citizens in the form of a UBI. As it is not my intention to fully justify this idea here, I will simply sum up the perspective with a quote from the late Danish politician Dr. Viggo Starcke:

“What I produce is mine. All mine!

What you produce is yours. All yours!

But that which none of us produced, but which we all lend value to together, belongs by right to all of us in common.”

What does the LvMI say?

Now I will attempt to analyze the article’s most pertinent points. Their opening statement is:

“First, UBI does not eliminate the disincentives to work that are inherent in welfare programs; it simply moves them around.”

Which they justify by adding:

“[…] a UBI means that the more a person earns, the higher percentage of their wealth will be taken from them. The work disincentives are therefore still very much present in the tax system. They’ve simply been transferred onto different, higher income groups of people.”

This is a strong argument in the case of most traditional forms of taxation, especially income tax. It is certainly true that a UBI funded by income tax is equivalent to robbing the productive for the benefit of those who do not produce. If funds are raised by an LVT, however, this argument falls down. LVT is categorically not a tax on earnings. LVT is a tax on people who deprive other people of the ability to be productive. If a person claims the right to exploit a natural resource or plot of land, they are simultaneously declaring that no one else is allowed to make use of it. My claiming of a vein of gold ore deprives other people of the gold’s benefits, despite neither of us having made it in the first place. In economic parlance, LTV is a tax on negative externalities rather than production. What is being disincentivized is not production, but the act of depriving other people of the land necessary to produce. Far from dissuading production an LTV encourages it; it pressures land to only be held by those who can make it pay its way, rather than having whole swathes wastefully used at the whims of the world’s landowners. If someone is able to participate in the economy without depriving other people of the ability to benefit from nature, then they will not be made to pay tax. This includes jobs from comedians to paper boys and from athletes to shoeshiners. All forms of wealth generating activity that don’t impede the ability of other people to generate wealth, no matter how extravagant, will remain untouched. Kanye West can sleep safely in his bed. Exxon Mobil, which generates enormous profits by simply extracting liquid cash, which it spends on land to extract further liquid cash, is in a more dubious position. The wealth of the oil industry is largely produced by nature rather than man, and there is no good reason that people who merely manipulate the deeds to land should be entitled to such a disproportionate share of that which they didn’t create. Taxing this, and redistributing via a UBI would provide a constant pressure for land to be used productively, far from creating the “work disincentives” that the LvMI worries about.

The second charge of the LvMI article begins as follows:

“Far from promoting the unemployed from searching for work the market rewards, it [UBI] actually subsidizes non-productive activities.”

…and goes on:

“In a functioning marketplace, producers of goods the consumers don’t want would quickly have to abandon such endeavors and focus their efforts into productive areas of the economy. The universal basic income, however, allows them to continue their less-valued endeavors with the money of those who have actually produced value”

Following on from our previous argument, the first point of contention here is obviously the implication that UBI necessarily takes money away from producers of value; not the case with an LVT. The main thrust of the LvMI’s argument though is of course that, by guaranteeing a basic income to everyone, we are making it easier for producers of less valuable commodities to continue doing so. I would concede that this is probably the case with traditional forms of welfare, but with an LVT funded UBI I am less convinced.

As a dedicated follower of Carl Menger, I of course subscribe to the view that value, and therefore what we class as productivity, is subjective. Few people in today’s society would claim that van Gogh or da Vinci were unproductive humans. However, reversing back in time, one would probably struggle to find a Neolithic subsistence farmer who felt the same way. The point here is that increased wealth cultivates a taste for increasingly more superfluous goods. It may be true that a UBI would lead to the production of more goods that are undesired by society before the introduction of the UBI. But whether or not this is the case is not relevant. The increase in disposable income that would be had by the vast majority of people would fundamentally alter the dynamic of the marketplace, and create demand for goods that previously didn’t exist. The UBI is unlike other forms of welfare in this regard. Whereas state healthcare et al simply impose unnatural regulations on the marketplace that are antagonistic to every other element within it, the UBI fundamentally alters the dynamic from the ground up. No specific industry is unnaturally singled out by the UBI, and any apparent subsidization of unproductivity primarily takes place by the standards of a now non-existent society. It would take a strange person to argue against the affluence of the modern world for subsidizing the bottled water industry, simply because such an industry would seem extravagant to a society where the median consumer and producer was poorer. With UBI, we are not subsidizing anything. We are reconstructing the market from the most elementary level, and creating a new machine that works on new rules.

It may be the case that UBI would make people feel secure enough to do things that they previously couldn’t have. This is simply, in Mengerite terms, a result of the fact that the marginal utility gain from their pursuing this activity is now greater than their alternatives. This is only abnormal by the measure of a system which has been replaced. On another marginalist note, we should remember that, even though it’s now easier to engage in less valuable activities, more valuable ones are just as much more profitable as they were before, and we aren’t giving people a reason to not engage in them. One might counter this by saying that the law of diminishing marginal utility means that the incentive to engage in this more profitable activity is reduced, because it now yields money that is further down on people’s utility scales. This would, of course, only be a bad thing if it resulted in an increase in poverty and thus some kind of net utility loss. However, any speculative increase in poverty would also continually increase the incentive to engage in more productive activity, as decreasing wealth would undo the aforementioned effect of the law of diminishing marginal utility. Thus we have a  self-correcting element to any way in which UBI might negatively impact on production, if we even concede that it does. This again is indicative of the fact that we are rebuilding the system to drive towards new equilibriums under new conditions, rather than simply distorting what existed before. As such, whilst one might argue that the UBI subsidizes unprofitable activities, it is incoherent to argue that this would result in a net utility loss; any such loss would continually diminish the force that supposedly created it, thus rectifying itself.

Without wishing to flog a dead horse, one might claim that increase in supply to less valuable goods would be balanced out anyway, as the median person’s more affluent status stimulates a corresponding demand. Let us not forget either that our funding is only coming from people who impose negative costs on others. Even if we ignore all the arguments which have gone previously here, it is hard to conceive of a worst case scenario more fearsome than simply shifting counterproductive forces from one part of the market to another. To drive the point home to the boundary of nausea, UBI is in no way like traditional welfare programs. It does not work against the market but rather alters the market’s very nature.

Final note

To end on a more abstract level, the idea of “First come, first served” has never been a powerful moral argument when it comes to the distribution of unearned wealth. Similarly, this discussion is an area where the classical Lockean homesteading principle breaks down. Yes, you might mix your labor with the gold when you dig it up, and a Geolibertarian would agree that this gives you a claim to enjoy it. But, as long as it remains in the Earth, you have no claim to it more legitimate than anyone else. The second you declare, on whatever principle, that a swathe of land or unproduced resources are your property, you deprive everyone else of the ability to do the same. If this happens without you paying compensation to people for depriving them of that chance, then I would argue that an injustice has taken place. Most pertinently to the LvMI’s argument, it becomes impossible to claim that we are introducing “work disincentives” as much as we are introducing “depriving others of opportunity disincentives” and corresponding compensation.

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