Since the topic introduced by our Nerdy Show hosts in this episode is such an incredibly interesting and complicated issue for our near future — a future in which we will be living for better or worse — and I previously got drawn into a facebook discussion (of all god-damned things) on this topic, I felt the need to get this discussion going following this episode.

Of course, a great deal of issues were discussed, including regulating artificial intelligence, but the main talking point remained how we as a society will cope with a potentially very different future. As an economist I’ve got some idea of the systems that more or less keep our civilization afloat and from that perspective will be speculating on what might happen as the robotic futures comes ever closer to our robotic reality. Not that I’m some kind of oracle or expert on this specific matter, but at least you’ll know where I’m coming from.

In the previous discussion I had on the topic this perspective felt desperately needed. It started out bemusing the benefits of a universal income which was quickly dubbed a dire necessity when someone brought in the fact that robots will soon be taking all our jobs. The self-driving car, I was assured, would be a reality within 5 years from now, putting pretty much every truck driver out of a job soon after, and they wouldn’t be the only ones. Obviously there would be trouble on the horizon if a huge amount of people became unemployed and something needed to change. Solution; universal income.

Given how these things go, and the internet high-fives were flying gratuitously to and fro the shocked and frightened people who quickly agreed on the matter I came upon somewhat a hard time to put the foot on the brakes just a tad. Mind you, I think universal income is pretty clever and any step closer to it is probably a good one, but it is not a matter of simply starting to hand out X amount of dollars to every man, woman and child and utopia will be achieved.

Now be warned, here come the economics…

It was already pointed out in the podcast briefly that simply handing an income that would be high enough for people to live off of without anything else changing basically means the government is printing a lot of extra money. Well… ‘printing’, printing is so last century! This would lead to the mentioned inflation, which is pretty bad. Considering the amount that would suddenly be printed, yeah, that’d be quite a lot of inflation. In the end, what inflation really is, is a way for the economy to straighten out its prices; if you increase the supply of money without the commodities and services that can be bought with it also increasing in proportion the result will be an increase in prices. The logical result of printing extra money is a proportional increase in prices, meaning the universal income the government printed money for will very quickly become insufficient to provide an income to live off of. You could then of course simply print more money, but… you can probably guess what happens next.

So, yes, it needs to come out of money that is already circulating in order to avoid the inflation issue. I happen to live in the Netherlands (and yes, Utrecht is a lovely city, thank you) so I’m going to use it as an example for what follows next. This little pimple on the face of the world that is the Netherlands has a government that spends about 250 billion euros on its various activities a year. We’ve got some 17 million citizens and people on welfare get about 1.000 euros a month.

12 x 1.000 x 17.000.000 = 204.000.000.000

A universal income in the Netherlands of 1.000 euros a month would cost over 200 billion a year, or 80% of what the government is spending currently. But, there are many (assumed) benefits to providing a universal income; removing the stresses of unemployment (or perhaps even employment) would make people happier and healthier. Aside from giving people the freedom to do all these possibly amazing things they can do if they are given the ability to pursue already discussed in the podcast.

But let us look at the budget; a universal income would replace unemployment benefits and their ilk as we move away from accenting being employed so deliberately. The Dutch government spends about 80 billion on that, or 40% of what the proposed universal income would cost.
That is also immediately the largest category of spending, the second largest is healthcare; 70 billion. If we really become healthier perhaps some savings could be made here, but cutting too much just means the costs of going to the doctor have to be paid directly by the people, which effectively reduces their universal income. I’d be surprised if 10 billion could be shaved off, but let us pretend, so we’ve found 45% of our basic income so far, but we’re quickly running out of possible savings.
The third largest expenditure is on education, which I’m sure we’ll all agree on more often than not needs more money spent on it rather than less, so we probably want to leave the 30 billion spent on that alone. What is left is things like infrastructure, justice, defense spending, interest on loans and a bunch of small items.
Universal income probably won’t usher in a new era of peace, so we should hang on to the less than 20 billion spent on justice and defense, infrastructure is also pretty important and we can’t simply ignore that we’ve made a bunch of debt either. We probably need the little stuff too… So we’ve maybe found half the money we’d need to fund a universal income in the Netherlands, and that is being generous. The rest would have to come out of additional taxes.

Let us put that in perspective; The Gross National Product of the Netherlands is a respectable 800 billion, about 250 billion finds its way to the government already and we’re looking for at least 100 billion more, or 1/8th of the GNP. We can’t tax willy-nilly, if we end up taxing very basic things more heavily all we’re really doing is decreasing the universal income as prior with cutting into healthcare. We’d have to tax ‘luxuries’ or ‘wealth’ specifically.
I don’t know how many of you have heard of Thomas Piketty, the French socialist — uh, I mean economist — who has written a book about the growing gap between the rich and poor in our current society, because the return on capital happens to be larger than the return on labor. Even if his book is entirely factual and the conclusions hold (which is debatable) taxing the wealthy more heavily is reasonable. Is 100 billion euros still reasonable? I suppose that is a political question, but it sure is a LOT of money.

Despite me questioning Piketty, it is clear the money can only come from the richest among us. In the discussion I had prior some were under the illusion that the replacing of people with machines would somehow magically create wealth, and they suggested the money these machines were making should be used to fund the universal income. We might find some economic growth come out of the automation process, but we’re looking for 100 to 200 billion euros worth of growth in my Dutch example, or a growth of 12,5% to 25% of GNP due solely to automation. This is quite unlikely. Funny thing about economic growth? In the long run it is equal to the growth of the population. Well, in theory. I’m not sure how that holds in a robotic future…

Why replace a person with a machine in the first place? Because the machine can do the same work cheaper than the person, right? The better the machines the cheaper whatever they make becomes, which is actually great. In a sense machines are looking to be the near future’s China or India. Yes, ‘dey turk uwr jerbs’, but you get really cheap stuff in return! The economics of it are known as the ‘comparative advantage’ and the short of it is, all parties involved gain from it. Of course, the robots don’t have their own nation (yet), but despite the problems the shift in the jobs market will create on possibly a completely unprecedented scale, we all do in fact stand to gain from it.

But that is assuming the unemployed don’t get ignored and more and more impoverished leading to a very bleak dystopia. Especially given how I’ve argued it is pretty damn difficult to imagine a universal income that actually allows for a comfortable life to suddenly become a reality.
So then what? Well, most likely those jobless due to the machines will have to find other employment. ‘But the machines and their maniacal efficiency!’ I hear you cry, ‘what jobs will there be left!?’. Well, the economics of it may not be exactly uplifting, but they suggest equilibrium will be found as the prices adjust to supply and demand. Raise the supply of workers and demand will match them after an appropriate change in prices. In short wages would drop and people would work jobs which are more service oriented, or just slightly too complicated that it would take a machine that could be built but is just too expensive to compete with the cheap labor available.
For example, in the previous discussion I foolishly asked aloud; ‘If cars will be driving themselves 5 years from now, why are there still people driving trains? Surely implementing a train that drives itself is a lot easier and cheaper than a car.’ The answer, as if it came from someone who understood economics, was; ‘A huge portion of the cost of moving something by truck is the driver, for trains its mostly the capital cost of the train and the guy in it is pretty irrelevant.’
People are going to be replaced by machines, as they have have been by tools we’ve invented since the dawn of time, but only as far as it makes sense to do so, yes, even when we’re talking about robots. It doesn’t matter that they’re cool, I promise.

So, hey, bright side, it won’t get to a point where half the workforce is irrevocably unemployed! Even lower wages aren’t necessarily a huge problem, considering goods and services are also being provided more cheaply. But it is very likely that the most vulnerable workers will lose out as their wages drop far more than the price of living. So I still wouldn’t suggest we simply let the economics run its course, mind you.

But like I said before I started spouting all of this economic nonsense, any step towards basic income is probably a good one, but we have to be aware of what we’re talking about and that such a fundamental change is not something that we can or even should do from one day to the next. Though starting such a change sooner rather than later is probably a good idea, completing it properly will take a great deal of time. But the rate at which jobs are lost won’t be instant either.

Uh, so yeah. That’s that. I’ve homed in on only one aspect of this episode, about which on a whole much, much more could be said (and no doubt will be said). So, chime on in, fellows!