Tobold's Blog
Sunday, August 28, 2022
On the road to universal basic income?

Capitalism is the best system we know for the creation of wealth, but absolutely sucks at distributing that wealth fairly among the people that contributed to its creation. There was a reasonable equilibrium in the decades after WWII, but from the 80's on a combination of deregulation and globalisation shifted the balance: Capital now was globally mobile, while labor wasn't, and thus capital was able to claim an increasingly larger part of the created wealth. As a result, a great many people are living paycheck to paycheck: 56% of Americans can't cover a $1000 emergency expense with savings, and in Europe one in three people are unable to face unexpected financial expenses. That is kind of a problem if suddenly all of these people at once are faced with the same unexpected financial expense.

The combination of post-COVID general inflation and huge increases in energy prices caused by the war in Ukraine has led to a general cost of living crisis. Due to American shale gas, this crisis is a lot more pronounced in Europe. That is easiest to see in the UK, where there is an annual energy price cap for households set by a regulator, Ofgem. This price cap used to be a bit over £1,000, but has now risen to £3,549, and is expected to hit £5,000 to £7,000 next year. While energy prices and regulation work differently in other European country, all over Europe households are hit with energy bills that increased by thousands of dollars/Euro/pounds. And as we previously established, a large number of those households are in a financial situation where they can't afford that.

Normally, if I can't pay my bills, that is my problem. But if a large number of people gets into a situation as dire as having to choose between buying food and heating, it becomes a political problem. So all over Europe different governments have proposed different means to ease the financial burden of their citizens in this cost of living crisis.

Now energy is a particularly regressive cost: A poor 4-person household doesn't inherently spend significantly less on energy than a rich one. Which means that the percentage of energy cost in the overall budget is much higher for poor people than for rich ones. And it happens to be the richer people who are more likely to already have had the means to invest in lowering their energy bills, by investing in solar panels or better isolation. As a result, a lot of the political discussion on how to deal with the cost of living crisis has been to concentrate the help on those who need it most. A general idea is forming that somehow there is a human right to have at least basic heating in the winter, and somehow it is up to governments to provide that. Things are still sketchy, and governments aren't exactly sure where to get all the money to pay for this, but there is a very definitive trend towards governments in Europe making sure people don't freeze in their homes this winter.

That is very interesting, because government aid has a tendency to move from short term action towards some sort of established right that people expect. And while the Ukraine war is hopefully going to end one day, fighting climate change will exert upward pressure on energy prices in the long term. We use fossil energy not because we *want* to kill our planet, but because it is the cheapest option. If we establish now that it is the government's job to make sure that everybody has at least enough basic energy supply to not freeze to death, there isn't a huge distance anymore from moving from a universal basic energy supply to a universal basic income. In Europe, of course, not in the USA.

I agree that energy is a larger % of the poor's budget. While I am not an expert on the poor or rich, I think the rich do spend noticeably more on energy - e.g. 400 m^2, air-conditioned house on a 1-acre suburban lot.

A complication is that IMO climate-worried micro-economists would say high energy prices are a good thing (assuming amelioration for the poor.) I.e., economic incentives not mandates for more insulation, paying more for high-efficiency appliances, batteries, solar, changing thermostat temperature, smart thermostats, ... Which also means the obvious solution, government-subsidized energy, is a bad thing by encouraging energy consumption by lowering energy prices. How can you insulate voters from a wildly variable energy price.

IDK: Should someone in a Lapland village get the same subsidy as someone in a Helsinki high-rise? Should there be economic incentives to move?

Universal income does blunt some of the minimum wage momenta.

The USA outlier is that for a lot of voters in a lot of places, air-conditioning is also considered a necessity.

I do think UBI is a matter of when and not if.

Unless you believe the human race is going to kill itself off we will inevitably reach a point where technological advances will render many jobs obsolete or at least not needed in the same quantities. While I don't think all "low skilled" or manual labor jobs will go away completely I do think we'll reach a point where less and less of those roles will be needed.

We can already see the effects of this in big box stores where they can hire 1 or 2 people to staff 20 self checkout lanes instead of hiring 5 or 6 dedicated cashiers.

Being from the US I fully expect Europe to adopt UBI way before us and we'll eventually be dragged kicking and screaming into adopting it decades after we should have with Conservatives crying socialism the whole way.
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