 So Matt, everyone loves free money, and that's why we're talking about Universal Basic Income or UBI on today's show, what it is, why some people are calling for it, and what would the consequences be if it would widely adopt it? Yeah, before we get into this discussion, we should define UBI or Universal Basic Income. There's a lot of different ways we could implement this, but the basic idea is that every month or every year, you would receive a essentially no strings attached payment from the government that would provide for all of your basic needs. Yes, it sounds absolutely fantastic to me, I can't wait for it to arrive, but UBI is actually not really that new of an idea, it's had a number of surprising advocates over history, which we'll kind of get into in a little bit, but it's really coming to the forefront now because of artificial intelligence, machine learning, and the fears that these technologies are going to essentially automate away all of the typical jobs we have in society, and we're going to have a bunch of workers with really nothing to do. Yeah, the automation apocalypse is coming. The first industry everyone looks to when we start talking about automation is the trucking industry. So the trucking industry makes up about three and a half million jobs directly in the United States today. It's estimated to be about nine million when you consider all of the secondary jobs as a result of this industry, and it looks like this might be in trouble. Waymo is running tests in Atlanta right now for long haul trucking, and potentially will be in a place in the not so distant future where these three and a half million truckers need to be retrained and find new jobs. Now the fear is that automation is actually going to take these jobs away faster than we can replace them. And if that happens, it's not great for the US economy, and we need some way that these people can survive. Right. I mean, right now these Waymo tests, they have a safety driver in the truck, but you know, once that goes away, you know, what a truck is going to do? You know, the classic example, you have say assembly line is productionized to use machines instead of humans and the humans get a job, you know, fixing the machines and everything works out quite nicely. But with trucking, it's really not clear what these workers would do. And for truckers, you know, you have this livelihood where you don't need to go to college. You don't need to get a technical, you know, four year degree. And if these kinds of jobs goes away, I mean, I think that's really scary for a lot of the economy. Absolutely. I kind of see this as a fear that not only will there be people fixing the machines, we'll design machines to fix the machines. And so we don't even need that intermediate step. Yeah, I heard you like machines. So we've got a machine to fix your machine. Exactly. But I think recently, I mean, on the show, we've been kind of getting into this theme of, you know, what are the effects of AI going to be in the future? So we've read Super Intelligence by Nick Bostrom, which talked about what would happen if AI became smarter than humans. We've read the must algorithm by Pedro Dominguez, which was essentially about if you perfect machine learning what happens. And so we're really kind of thinking about in the future, when this technology advances to a state that, you know, is better than we can possibly conceive of really, what is going to happen to the economy. And I think that's where these UBI proposals really start to make sense as a solution for the fact that a lot of workers are just not going to have very much to do. Yeah, and you've seen a ton of support for this idea lately in Silicon Valley. So Sam Altman, in particular, president of Y Combinator is a big fan of this idea. And Y Combinator is actually running a small scale test in Oakland that should give us some data on whether UBI seems to be a good idea or not. Yes, now I would like to just hold up for a second, you know, pause the automation train, and basically say that I'm not terribly convinced this is going to happen soon. For one, I have a couple of data points to back this. Now, there are about 6 million open jobs in the US economy right now, which are predominantly not being filled because of a shortage of workers capable of doing them. So that says to me, we're kind of facing an education shortage rather than, you know, an overabundance of automation. I would also say that, you know, I know this is not a good metric, but it suits my arguments, I'm going to use it. The unemployment rate is about 4% right now, which is really, really low. The vast majority of people who want to be in the labor force and want to have a job to do are able to find one. So although I agree with automation is going to come at some point, and we're going to reach a point where we can't fill the jobs that are taken by automation or create new ones, I don't think that's going to happen any time soon. And it may not even happen in our lifetimes. You know, Adam, I think it makes sense before we talk about all of the future effects to go back to the past a bit. And really, it seems that UBI has a fascinating history. I know you've done a lot of research in this area. Let's dive in. Yeah, I spent way too much time working into this. I did find it quite interesting. But it turns out, yes, Silicon Valley did not invent the concept of UBI. It actually had been around for a while. It has kind of different names and monocles. Oftentimes, it's known as a basic income guarantee. But this idea goes all the way back to Thomas Moore in the 1500s, in fact. Yeah, it's surprising that the writer of the famous novel Utopia would have come up with such an idea as to give people free money. Yes, he really wanted people to be compensated as public lands passed into being private lands. And I hope Thomas Moore will be happy that his idea was finally gaining traction, you know, only 500 years after he first wrote it. Better late than never. Yep. But since then, there have been a number of thinkers on kind of all ends of a political spectrum who've come out in favor of some form of UBI. You have people as diverse as Milton Friedman or a bunch of Russell who've argued in favor of it. And the most surprising one to me was, in fact, progressive, darling, bastion of liberalism. Everyone's favorite president, Richard Nixon. Yeah, you know, I was really shocked when looking at this, the amount of conservative support for UBI in the past. I don't think you would see that today, but it is shocking to me how many conservatives seem to be really into this idea. Yeah, I really think our views on welfare have kind of evolved over time, not necessarily for the best. In Nixon's day, he was proposing something called a family assistance plan, which was basically a system where families would be paid a living wage as long as they were searching for work and some kind of job training. Now, this is a little bit different to classic UBI, which would come with absolutely no strings attached. But Nixon's plan was really quite forward-thinking for its day and only just failed to get through Congress. Yeah, it's interesting to think about the ways the different political sides think about this today. So on the liberal side of the progressive side, UBI is often seen as a way to provide basic economic freedom and basic sustainability to the entire system. On the conservative or even libertarian side, people often see it as a way to get around inefficient government bureaucracy. Let's get rid of all this overhead of making these programs work and just pay people directly and trust that they will use the money in the best way. Yeah, it's an idea that when phrase slightly differently can really appeal to all sides. So in addition to tackling poverty and providing a robust income floor, there are a couple of other benefits that the supporters of UBI have been touting. One of these ideas is that UBI is very pro-women, that a lot of women work in the home doing unpaid housework, and they can actually get compensated for this with UBI. The other idea is that actually it will create more entrepreneurship. People today are very restricted and they can't get capital. They must work to provide a basic living for themselves, and therefore they can't do this cool new venture that in the world of UBI maybe they could work on in their garage. Right, so so far UBI is looking absolutely fantastic. It's kind of this olive branch that's being extended among this AI machine learning devastation to the economy where all our jobs are being automated away. And it's an idea that in principle could be supported by both sides of the political spectrum. But I would say that for Republicans it's more likely to be seen as replacing the current welfare system, whereas for progressives it's kind of an add-on. But nevertheless you should be able to reach a point where we can reach a consensus. A majority of people willing to send these basic income checks to people every month, year, whatever. Now having said that, there are some criticisms of UBI. There are detractors, there's a number of things that they will kind of say to you when you bring up UBI as being a potentially good idea. We're going to kind of go through these criticisms one by one. Now the first one potentially the most significant is that UBI will provide a significant disincentive on people's desire to work, to be entrepreneurs, to innovate, to create new companies that have traditionally driven America's economy forward. Yeah, I think the people who support UBI don't realize how expensive this is going to be. Now if you took the U.S. economy and applied a tax rate of about 35%, something like you'd see in Germany today, you'd realize that the average citizen would only receive $10,000 per year. Now I don't know about you Adam, but I am not happy with that level of payment coming into me every year. I would want much more and I think most people would agree. And so what you actually find is that for this to be sustainable, you need a tax rate that's more like 80%. And in that case, I think the argument that there's not a strong incentive for entrepreneurship in the system holds a lot of water. Yes, especially when people are looking at things like going to college and they're thinking about the return on their investment, you're going to look at this say 80% tax rate and say, I'm not going to be able to keep much of the money I make, you know, after I've gone through this time consuming academic program. And for that reason, there's really kind of a severe disincentive to, you know, go to college or start a new business to do whatever it is. Yeah, I think another analogy you could make could be to some of the unions in the United States, whereby unions were quite powerful in the 1940s, 1950s, and then really use their short term incentives to kill their, you know, long term prosperity, whereby, you know, they voted for more and more and more benefits and they were more heavy handed. I see a similar system coming in place if we go to UBI whereby, you know, the population says we want more and more and so the tax rate must go up, the incentives go down, it's quite a negative spiral there. Yes, and if you do even think though that the tax rate is kept, you know, a reasonable level, you still end up with a system where you're kind of on a substance UBI, where it's enough for you to buy your rice and beans and to feed yourself every month. But it's not enough where you'd actually have disposable income to, you know, enjoy this wonderful life being an artist or whatever you want to do. Yeah, this is one of the things that people always assume that I have a big issue with. They assume that UBI equals utopia, and that's just not true. You'll be alive, but that's about it. You're not having a great time. The other issue we can talk about is the poor incentive to have children, because now, if you receive a payment for all of your children, why wouldn't you have as many children as you can? There's nothing to hold you back. The government will support them all. You've seen people even make this argument today against some of the incentives in the current welfare system. Well, this would be even worse. And so the only way to really control this would be to have the government step in and say, okay, there is some restriction on how much you can have children or how many children you can have. And I think people in Western countries do not like that. Right, you get into a lot of dystopian fantasies very quickly when you have an entire population that is dependent on these payments from the government, whereby the government would therefore potentially have a lot greater control on what its citizens could do and not do in order to keep receiving these payments. Now, I do think there are arguments when you look at the values of, say, American society, but would say that UBI is never going to be very popular, because people are not going to be comfortable with giving everyone money, no strings attached. It kind of goes against the American ethos of individualism and sort of work ethic, countless work ethic, even. And so I think you could potentially argue that if we're going to be spending all this money on universal basic income, maybe we'd be better off spending it on vocational training-type programs to try and fill some of these unmet job needs right now or produce as many machine learning engineers as we possibly could. And I also think a lot of people would opt for something like an increased earned income tax credit, whereby people would be eligible to get a large amount of money from the government, but it would be conditional on you working some number of hours per week and staying into labor force. And I think this kind of gets into the second major critique of UBI, which we see put forward, which is it would cause a massive increase in social resentment, and it would be really bad for social cohesion, because you would essentially have this underclass of people who became dependent on UBI and weren't really working at all, versus this upper class of machine learning and AI experts who'd be controlling the wealth and the means of production, basically all income that was being generated in society. Yeah, I think this is going to be a big problem for the United States if it comes to pass, because the US is really valued individualism. A lot of the culture of the US that leads to entrepreneurship really comes from this idea that, you know, we don't really care a lot for welfare. The US is very concerned with welfare cheats and sort of pulling yourself up by your bootstraps much more than you'd even see in other places like in Europe. And so UBI is going to have a very hard time getting off the ground in the United States. And honestly, I think, given the US's culture, I wonder if this is sort of the fall of the Roman Empire, if you will, the thing that takes down the US's place in the world. It's a question a lot of people ask. When does the US, you know, fall off the top? Well, it could be due to something like automation and UBI that we're just not well equipped to respond to. Yes, I think you're going to find a lot of people who have pushed back so, so hard against the UBI being introduced, because they don't want to, you know, casually accept that there'd be this massive group of people in society who would be unemployed and dependent on the government. And it's certainly not going to make people any more accepting of immigrants if immigrants are coming over and being seen as taking, you know, part of the UBI pie away from people who already live there. So I could certainly see it generating unrest that way. The other thing I think would happen is that you would kind of see this division in society, where you would have this sort of unemployed underclass that is dependent on universal basic income, doesn't really have great technical skills because, you know, there isn't being incentive to, you know, get an education that they used to be, versus this ruling or elite class of, you know, that ML engineers essentially who control the means of production of the majority of wealth in society. And I think a lot of people who would become dependent on basic income would kind of see, you know, a decrease in their happiness, due to the fact that I think a lot of people right now find purpose and satisfaction in terms of the work that they do. You kind of have this idea of the Calvinist work ethic, where people really enjoy working to some degree, and they kind of see themselves as making this, you know, really important, you know, beneficial contribution to society because they are working to contribute to society and now be, you know, taken away, you know, in a society where, you know, basic income is just given to everyone. Adam, you know I am going to take issue with this Calvinist point. I always disagree with the Calvinist on this issue. I think if you go back and look at history, you'll actually find that there are times during the Middle Ages where people actually only worked 120 to 150 days per year and were perfectly satisfied with that. So I don't think not having a job to go to or something to do is necessarily a bad thing for people. I don't think it will decrease the quality of life because they don't have a job. That said, I think if you have large portions of the population that are unemployed, UBI might be a necessity because you have to minimize social unrest. If you have 30, 40 percent of the population unemployed and you're not paying them something, they are going to burn the country down. Yes. I think you could look at it as you're going to have social unrest either way, kind of like you're saying, you know, if you pay people UBI, you're going to have the underclass that becomes dependent on it and that's bad versus if you try and not pay UBI, well, suddenly you're having all this wealth accruing to, you know, the machine learning AI people and people upset because they're not getting any part of it. I think one interesting question is to consider what people would be doing all day. Were we at a point where you would be given a large enough universal basic income to live off of it? Now I think the UBI proponents kind of paint this optimistic view that we would be free to explore whatever, you know, creative endeavors we such as. So this would be things like being artists or, you know, painters, musicians or, you know, making amazing YouTube clips all day. But for me, I think that's sort of an overly rosy reality. I think the majority of people would in fact just be, say, playing video games. Economists, for example, have looked at what young men who are out of the labor force are doing right now and they found that for every hour that people are not working, these men are spending about 75% of that time playing video games. It's a massive industry, you know, it's sucking up more and more of our leisure time. And I think in the future, especially the virtual reality or augmented reality, you would basically see people sitting around playing games all day. Yeah, you know, I am in the camp that thinks people will be perfectly happy doing this. And, you know, I say this because I myself love playing video games. And I think if you look towards the fiction side of things, you see a book like Ready Player One, Soon to Be a Movie, which maybe calls out a little bit of what that future could look like, whereby people wake up in the morning, they put on their VR headset, maybe they get on their omnidirectional treadmill, and they spend all day in their virtual universe. And I honestly think people would really enjoy that. Yes, I mean, I do think you could argue for video games as a way of minimizing social unrest by basically keeping people occupied and happy. But I do think there's a high opportunity cost to the amount of time people are spending playing them. You maybe wouldn't have people looking to become doctors and improve medical technology or, you know, carry out these really innovative pursuits, because instead, they would just be playing video games. Yeah, I think it brings up an interesting conversation, which is, you know, do you fundamentally believe society is a weak link or a strong link problem? And what I mean by that is, you know, are we really driven by the average of society, or are we actually driven by the top end? So people who believe that it is a weak link problem would say that, you know, this is not a good thing. We need a lot of people contributing to these thoughts and these efforts to really have a well-functioning society. The other side would say, actually, it's a strong link problem, that what you want to do is have the best of the best thinking about these hard to solve problems. And frankly, they'll do that anyways, whether or not we have UBI. It's sort of a question as to the power of incentives. Would somebody right now who is going to say go to MIT or work on some amazing algorithm or improvement to society, would they still do that in a situation where they're being paid 80% tax rates for any income and they're receiving a solid basic income? Would the motivation still be there to do it? I think one of the things we should realize is that some people are motivated by money, some people are motivated by solving problems. And there's also another side to this, which is that in the world of people who spend all their day in VR, we often think they're going to be dopes. We think they're just going to sit around like cavemen and kind of drool and play these games for pleasure. But the reality is all of the benefits we see from automation that will apply to all these other industries will also apply to things like education will also apply to things like medical research. And so the reality is we may have, you know, lots of unemployed UBI people sitting around who are much better educated than people are today. So there's also the possibility that through these systems, it will provide more social mobility because now we have, you know, lots of smart kids, I think that live in the Rust Belt or the South that don't have opportunities that kids maybe on the coast have. And so in that case, you can often see a scenario where someone says, well, now that I have my VR headset and actually receive a world-class education, I can go on to be, you know, innovative and be an entrepreneur where before I would have been locked into, you know, a social system that just didn't provide much mobility for me. Yeah, as we can see, there's kind of this massive variance in terms of the UBI predictions, whereby, you know, one school of thought would say you get kind of oppressed, underclass dependent on basic income, not really able to achieve anything. Where another school of thought, I think that you're kind of advocating for him that says that actually UBI will be very much a liberating force that would enable people to, you know, go achieve things, achieve a better education, use a power of technology to their advantage, without being dependent on having to go out and, you know, earn some substance level income all the time, because this would all be sort of taken care of by UBI. Yeah, I think the thing both of us can agree on though, is that the artist's theory doesn't make any sense. Right, journalists who are covering UBI tend to optimistically portray society as one in which we are all artists, so, you know, painting watercolors in our backyards, reading English literature in our spare time, and that would be one that's very convenient for journalists and that the value of a liberal arts degree would surely increase. Now, I think both of us kind of disagree with that future. I would say we're going to be wearing VR headsets playing video games. UMAP might say we'd be getting a much better education, but either way, valuable liberal arts education not likely to be all that high. Now, having said all this, there's one more objection to UBI that we have not yet confronted. It's probably the one most often considered by, say, policymakers and economists, and it's this idea that if you give people, say, $40,000 a year in the mail, aren't the prices of goods and services just going to rise to an incredible degree when you see substantial inflation in the economy to the point where the UBI is not actually all that useful for buying stuff? Yeah, this is not a very easy question to answer. You know, proponents of UBI say that inflation is not going to change too much because you're really just redistributing the existing wealth and not creating any new money, but you're likely going to have some changes to the velocity of money. Now, as the economist in the room, Adam, I'd love you to tell us a little bit more about this. Yes, it's time for me to search back into that undergraduate education and try and bring back some of the concepts that I once learned. Now, the simplest explanation of inflation is basically to say that it's when money supply outstrips money demand. We're printing a lot of money and the demand for money amount people want to spend on stuff is staying constant. And for that reason, you see inflation. Now, there's a kind of a bit of a nuance to this, where in fact, you can have inflation without necessarily increasing the money supply. And this is something that is explained by the quantity theory of money, which has really quite a simple and nice equation, MV equals PQ. Now let's look at the right side of this first opinion queue. So P is the price level, the prices of the goods and services in an economy. And Q is the quantity of these goods and services. So when you multiply P and Q, you essentially get the GDP, you know, how much is being spent on all the goods and services in Asia is producing. Now this is being affected by two variables. M is the money supply, the amount of money we have in the economy, the amount of money that's being printed. And V is the velocity of money, how fast money is moving through the economy. If we're just taking our tax refund checks and sticking them in our bank accounts and saving them and not planning on using them, well, that's going to lower the velocity of money. Unless it's if people are actively taking their money and spending it on stuff, that's going to increase the money velocity. Well, now you're seeing this MV side of the equation go up, even though we're not printing any money. And that's going to cause an increase in the price level on the other side, since the quantity of goods and services isn't likely to change. And now the idea here is that if you're taking money from, say, the privileged 1%, you otherwise would just be parking in savings accounts, static investments, giving it to people who are more likely to spend it, you're going to dramatically increase the velocity of money through UBI. And for that reason, you're going to see inflation without actually printing any money. Of course, it's difficult to actually get any estimates on this, since no nation has really implemented full fledged UBI programs yet. So it's a little bit tricky to explain how this would actually play out in reality. Yeah, there's been a couple of tests, though, right? So one of the ones that always comes to mind is the Alaska Permanent Fund. Now this was not a test of UBI, but it was a test that said, what if we made a payment to everyone for the oil and gas development in this state? And so as a result of this, most economists actually believed that this would have increased inflation for Alaska. The reality was quite the opposite, though. The consumer price index for Alaska has actually grown at a slower rate than for the US as a whole. So this means that Alaska is actually not seeing any inflation because of this payment that's coming in. So it's a really complicated question, and it's definitely not cut or dry. Yes, it's very difficult. It's very difficult for economists here who have to see something work in practice and wonder if it can work in theory. But it's also worth noting that a lot of other kind of mini UBI initiatives are taking place right now. Previously, we mentioned Sam Altman of Y Combinator and the small scale Tesla Drive running in Oakland. But there have been other kind of larger efforts, in particular, there was a Swiss proposal to give everyone a monthly income of about 2,500 Swiss francs. This went to a referendum in Switzerland, and it was turned down. 77% of people opposed a plan. And I think this shows some of the difficulty right now of getting traction for UBI. In a world where the majority of jobs have not yet been automated away, it's going to be hard for people who are working to kind of support giving other people a no strings attached guaranteed income. For that reason, if you try to put that kind of referendum to vote in America, I think you would see a very similar result. Now, Matt, you have made it abundantly clear based on our previous reviews that you are a big believer in the power of automation and the pace of automation. And so I would ask you, do you think we're going to reach the point where the majority of jobs are being automated in our lifetime and we kind of have to have UBI? You know, the answer to that is no. But I don't think this means that it won't be really disruptive for society. Everyone thinks about automation as taking away every single job. I don't think that's true. I think what will happen is we'll have this downward spiral, if you will, whereby one industry is automated away. Let's say trucking, like I pointed out at the beginning of the show. If there's three and a half million people out of work that need a job, this has a devastating effect on the labor market. And so because of that, I think that you could actually see something like a 10% or a 15% unemployment rate really calling for UBI because there's nothing else we can do to maintain a stable system. So I think I'm definitely much more optimistic than you. I would point to the degree to which our economy is now a service economy. Oh no, not back to the haircut. Yes, we're going to a haircut example. Well, I would say that a robot is not capable of cutting this hair right now and you cannot get this look via a robot. And I think it's going to be a long time before we have the degree of precision in automation to make these kinds of jobs, you know, completely automated. I would also again return to the fact that we have about 6 million open jobs in the US and say that we really need to be focusing on your vocational training and better education of people rather than worrying about jobs being automated away entirely because we have plenty of open jobs. Yeah, you know, I would say that losing an industry is incredibly damaging though. Let's look at the Rust Belt. It really hasn't ever recovered from the loss of automotive and other manufacturing industries that existed there. I think if we want to respond to automation in the way that it's coming, we'll actually need the federal government to step in and fix things like mobility. So for example, one of the things that made the last recession in the US so bad is that people didn't have a lot of mobility. There were jobs other places, but they couldn't get to them. So maybe one of the intermediate steps is maybe we'll increase mobility so that people can get to the places where the jobs are. Yeah, I agree with you, but the Rust Belt is a classic example of kind of the devastating power of technology. I will say that if you look at a city like Pittsburgh, beyond having a ton of obnoxious Steelers fans, it has also developed a burgeoning tech economy, even though this has taken a few decades to develop. I think humans are always going to find jobs, even if we're just creating training data for neural nets, say labeling if a picture has a hot dog or no hot dog in it, there's always going to be something for us to do. Although you might, as you said, kind of see a large enough portion of the economy out of work that you would start to see widespread support for UBI. As we've discussed, UBI can often be supported across the political spectrum, but there are significant downsides we have to think about, the inflation effect, the disincentive effect, the effect on social cohesion. There's all these things that policymakers are going to kind of have to grapple with in years ahead. But I think this is really kind of fertile ground for us to talk about as we think about the shape of technology moving forward and how it's going to build our future for better or worse. Now, Matt, get excited. It is now time to announce the next book that we will be reviewing. I'm pumped. I am too. We will be reading The Singularity is Near When Humans Transcend Biology by Ray Kurzweil. This book was actually suggested to us by Edward in our YouTube comments, so thank you, Edward, for that. And to any other listeners, if you have suggestions on books for us to read, be it about artificial intelligence, machine learning, technology, how automation is going to affect our futures, we would love to hear from you, so just put them in the comments and we'll add them to our reading list. For any new listeners, Matt and I can be heard both on YouTube or wherever you get your podcasts, so make sure to subscribe. This has been Random Talkers. Thank you very much for listening and we'll see you next time.