Friday, July 21, 2017

Concerning the Universal Basic Income (and Change in scheduling)

Hi All,
    I'm sorry this is starting to be a habit, but perhaps I should make it official. Instead of trying to get one post every two weeks, I'm going to do one every three or possibly four weeks. If I can make the bi-weekly schedule then I'll do that, but family duties, work, and so on make that difficult even when I have a topic. For instance, last week I intended to share more thoughts about economy, but I couldn't get my thoughts organized in a presentable manner. I have a few points, but the flow was not there yet so I cannot share it. However, here is a piece I wrote today on a related topic utilizing some of those points. I hope you find this enlightening.

N.D. Moharo

Concerning the Universal Basic Income

Dear Society.
I read a Vox article recently encouraging the Universal Basic Income (UBI) where everyone receives a basic sum of money to help with their lives. I found it interesting as I had not given much though to the topic, but I also thought it was ignoring a few realities. The article's focus was on two arguments against the UBI: Work Critique and Cost Critique. Here is how they described the two in the article:
  1. (Work critique) Giving people cash will cause them to work less, hurt the economy, and deprive them of the meaning that work provides in life.
  2. (Cost critique) Providing an income floor set at a reasonable level for everyone is unaffordable.
For the work critique, it claimed that it wouldn't really make people work less. Depending on the amount of money given, I would agree. Even if it did reduce the "labor force", it would potentially be for the better. For example, if you give enough to help make it so someone doesn't have to work 4 part time jobs in order to survive, but instead only need 2 jobs, that gift of time can provide the golden opportunity to find a better job. At the same time, since 1 person isn't taking 4 jobs anymore, that opens up jobs for more people, actually increasing the labor force by allowing more people to work. These are the people that would be helped, at least temporarily.

For the Cost Critique, it shared a point that that giving 300 million people $10,000 a year would cost the country $3 trillion a year. For some reason, the article believes we can afford that and believe that it will wipe out poverty entirely. That is incredibly idealistic but also unreasonable because it doesn't actually address why poverty exists in the first place and how people would respond. For the few cases where it would seemingly help at first, it would be a complete waste and very destructive for everyone else.

What happens when you give a homeless man $100K? People actually tried this and you can get the short form from Today I Found Out. The very short form is that the guy ended up back on the streets despite the benefactors being generous, providing means of turning his life around, and family trying to help him get a job but he refused all of their efforts. The points made are that there are people who do not want to work or people with poor money skills and therefore they would be in poverty despite how much money you give them.
Also consider how to keep track of who gets the money and if they actually did. People die every year, but a family might not report it to the government so they can get a few extra $10K a year. And what about the illegal immigrants? Will they get money too? If they do, then we'll get more illegal immigrants and they'll try to get the money too. If they don't, well then there will still be some people on the streets and poverty has not been eliminated. 

Then there is the often forgotten consequence of everyone having more money; inflation. That's what happens every time there is a surge in wealth for a country. Gold loses it's value when there is so much of it. The only reason why diamonds are still "expensive" is because they are artificially limiting supply. Have you ever wondered why making a product overseas and then shipping it to the US and paying the tariffs is cheaper than making the product domestically? Why does such a low amount of money make it so a person can have an education for a week/month when it costs more than that just for a sandwich down the street?  I've heard stories about how foreigners are told not to shop when visiting family in third world countries because the prices skyrocket when they do so, but even those prices foreigners will find as a "good deal."

The market tends to regulate itself, but when money suddenly appears, greed acts even harder to get it all. If people suddenly have more money, then they think they can afford higher prices and end up doing so. Since there is no regulation on prices, as evidenced by how high the markups can get especially for medicine, and that's one reason why the U.S. is not ready for universal healthcare. Even college education has similarly increased dramatically with data from showing that college costs 3X as much in 2016 than it did in 1976 even after adjusting for inflation. Also, more money you have, the more taxes you have to pay. The result is that the initial $10K will work for an instant, but then there will be greater debt and it'll take years for the economy to stabilize even to the point we are at today and be probably worse off.

How will you fund such an expensive program?  Increasing taxes as suggested by the Vox author is not an answer because that lowers the value of the money given. And if you exempt the amount given, then you don't collect as much in taxes to pay for it. Sure, it could possibly substitute for medicare and other social security programs, but those people would likely end up getting less money than before when it's already not enough. As a result, we would be harming more people than helping. Accumulating debt would not work either as that also causes inflation and there is no guarantee that future generations can pay it off. Considering that more families have both spouses working in order to provide for less people than a just father did a few decades ago and I think we can agree we are not wealthier than before.

Lastly, what affect would such a stipend have on our paychecks? Would employers claim they no longer need to give us raises or bonuses? Would they instead try to make paycuts using the stipend as an excuse? This is a dangerous possibility that needs to be considered and regulated before a UBI is put into place.

While I partially agreed about the vox article's opinion on the work critique argument, the cost and realities around the Universal Basic Income show that we have more to lose and very few have anything to gain. Instead of trying to figure out how to give everyone more money, we should instead examine what are the causes of poverty and try to control that. If we do, then we can finally make true progress.

With love,
N. D. Moharo

Saturday, July 1, 2017

The Minimum Wage Conundrum

To Society,

Apparently Seattle is starting to feel the effects of the minimum wage increase and it is not optimistic. While some companies beforehand actually paid well more than the minimum wage, forcing all companies to do so have many problems, resulting in no way everyone could win and the one to lose the most was the minimum wage worker.

When you increase the wages of a large workforce, where does the extra money come from? There are three options.
1) from the company 
2) from the consumer
3) from the worker

When trying to run a business, you need to try to make a profit. With the minimum wage increase, a business model I had became no longer viable because not enough money would come in to support both the costs of operation and the workforce.  In today's economy, startups have enough trouble as it is. Increasing the cost when profit is not yet guaranteed makes it even harder to start a business. As a result, less jobs are created. 

Now I will admit that if a company is performing very well, then the employees should reap some of the benefits, but by forcing to raise the minimum wage for even struggling companies, there is more to be lost than gained.

As for the consumer paying for the increase in wages, the common method is to raise prices. This does not help anyone, especially in the long run. One, when prices go up, consumers will turn to other products or companies. I did this especially when it came to Subway long before I stopped going there altogether. I would often go regularly and order the $5 footlong because that's what Subway's marketing convinced me the sandwich was worth. So when the prices went up, I no longer went there. Similarly, when I visited Japan and found the 6-inch subs to be more than $5, I refused to order anything. Companies know they can lose customers by raising prices and in a competitive industry, raising prices is not an easy option.

Also consider that if the prices for basic items go up in order to handle the increased wages, that means the increased wages don't mean so much anymore and those who previously made a decent wage no longer do. No one wins here.

Lastly, the money can come from the workforce and we've seen this happen before not too long ago. Employees get laid off, benefits are removed, or hours are cut. The result is that everyone suffers due to overworking, having to pay for benefits, or not working enough to make any money. Unfortunately, when it comes to running a business, this is the easiest option to pull off because it can have the least negative impact.

Are there other problems caused by the increase in minimum wages? Yes. The increase in prices means businesses have less customers, reducing the need for workers or closing the business altogether. Less jobs for unskilled workers makes it difficult to gain work experience. More competition for jobs makes it harder to save money for college. The increase in wages mean that even if you made more, then you have to pay more in taxes. Also, with higher prices, then we get inflation, meaning everyone is effectively making less money.

So what can we do? Not raise the minimum wages so dramatically but instead look at the real economic problems. Since raising the minimum wage actually creates more problems without solving any, we need to shift our attention. However, I do not have time today to address them for you, but I do intend to write again on the subject. Until then,

With love,
N. D. Moharo