Financial independence and universal basic income

Posted by – February 20, 2018

It is interesting to compare financial independence that with what many people want to achieve for the masses via redistribution (a “universal basic income”). Something like that does seems to be bound to happen eventually. In fact, it has already happened from the point of view of, say, a hundred years ago. In Finland it is quite possible to go through a lifetime without working, and never starve, be homeless or go without health care. It can be mental and emotional torture for people today to live that way, but someone from a hundred years ago might consider it to be “free living” (though after actually experiencing it they might change their minds). The same is to some extent true of third world immigrants, for whom employed family life in their home countries can be unaffordable compared to unemployed family life in the west.

The mysterious thing to me is how few of those who really strongly advocate for it to happen *right now* take any serious steps in their own lives to achieve it. It’s a long and hard road to go all the way, especially if you start from a bad position, but even some measure of financial independence can make a big difference. I have successfully nagged at least one friend of mine to go from being out of money or even in debt most of the time, to accumulating some savings. The difference between never having any money and always having some money can be just a few thousand euros you save once, and then you’re free from small-time money worries FOREVER. From that point on, you can maintain the same long-term consumption level you would have otherwise. In fact a little more, because you don’t need to pay interest any more.

So why wait, probably for the rest of your life, for some financial security instead of doing something for yourself today? Perhaps the politically active non-savers are virtuously refusing to get something for themselves before everyone can have it, like those who postponed their weddings until same-sex marriage passed. But I think it is more likely that this fact shows why a substantial universal basic income is impossible in our present (non-automated) economy. People are just fundamentally different. The proportion of people who are willing to sacrifice consumption in the present to a sufficient extent is quite small, so most people must stay about as productive as they are now. They are not willing to lower consumption in exchange for lower productivity. In a democracy, that places some sort of limit on what a UBI can provide (meaning, people will demand excessive consumption through politics).

Of course, that’s also true of private financial independence. It can only ever apply to a small minority. The more people rely on UBI / financial independence, the higher the price of labor becomes, and the smaller the return to capital. The equilibrium of where enough people are indifferent between working or not isn’t going to shift dramatically, and people are going to continue to feel “deprived” at the margin, even as it continues to improve.

(I do know that the real promise of UBI is not free living, but better employment incentives, but Nordic countries are actually the least likely place for that to work, because we perceive strong employment incentives as “harsh”. We prefer to have people nagged and looked after rather than barely subsist on a small UBI.)

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