Assessing Andrew Yang’s Freedom Dividend

A look at the common critiques of Andrew Yang's UBI plan.

5 years ago

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I, like Andrew Yang, love math. Before philosophizing about the racial symbolism of Andrew Yang as an Asian American political figure who loves math, I’ll speak on the Freedom Dividend — what Yang doesn’t say, what Yang should say, and what Yang can’t say. And as a hat-wearing member of the #yanggang, I’ll be as objective as possible.

I. In response to NYT Ross Douthat’s “The Robot Apocalypse has been Postponed”

Douthat’s main criticism of Yang is that he doesn’t believe widespread automation of American jobs will happen. Technology, Douthat says, is the harbinger of progress which is the harbinger of jobs which is the harbinger of higher living standards. Dourthat further states productivity statistics have stagnated, which counters the productivity increase one would expect from robots who don’t get tired, unionize, or have children to feed.

Though one could counter with more statistics (or a whole book?) that the automation of jobs is indeed already in motion, believing that the mass displacement of American workers by robots is inevitable does not act as a precondition for believing the American people need expansive financial safety nets against an increasingly volatile, unpredictable, and counterintuitive economy. The Fed predicts that interest rates have a 25% likelihood of returning to the zero-lower bound from 2018 to 2027, forcing the Fed to depend on unconventional monetary policy options such as quantitative easing — the purchasing of private assets to generate demand. Though stimulating, these options have ambiguous long-term effects on the American public, including the renegotiation of public-private relationships and the destabilization of foreign markets that may have bounce-back effects on our own through trade, loans, and spillovers. The impact of Trump’s trade agreements on American producers may outlast his presidency. Large nationalistic shifts in leadership of European allies and the expansion of domestic markets in developing countries like China and India may also decrease current levels of trade. Basel III, intended to ensure sufficient liquidity in financial institutions after the 2008 crisis, decreases opportunities for credit in a country where 77% of people are in debt and the costs of education are still rising.

And yes, Andrew Yang is correct. While the unemployment rate has steadily decreased, the labor force participation rates hovers at 62%, the lowest it has been in twenty years. And yes, contrary to Douthat’s claims, American wages have grown by 9% since 1973 while productivity has grown by 72%. University of Chicago professor Ufuk Ackigit and Federal Reserve Board economist Sina Ates outline ten facts indicating lower business dynamism in the US — including a rise in market concentration, a slowdown in job reallocation, and a decrease in firm entry rate.

All facts point to an inflexible economy treading in unprecedented waters of difficult global relations and unconventional monetary policy. All are reasons to restructure and expand social safety nets. And none have to do with a robot apocalypse.

II. What about inflation?

There are two aspects of Yang’s Freedom Dividend that may drive inflation: (1) increased inflationary expectations as all citizens over age 18 obtain $12,000 a year, and (2) a value-added tax (VAT), which is placed on a product whenever value is added at each part of the supply chain. The first drives inflation as firms account for the ability of consumers to pay more. The second drives inflation as a VAT is endogenized into firm costs and reflects in higher prices.

Yang often responds that inflation requires the coordinated action of all firms, which is difficult to ensure. Additionally, the Fed injected $4 trillion into the economy to bail out banks in the early 2010s, resulting in no inflation. Both statements are correct but oversimplify. Yang’s proposal will likely cause inflation but not enough to offset an additional $12,000 a year.

The Fed implemented quantitative easing during an abnormal economic recession in the United States, suggesting that injecting money in the economy today may look different than injecting money in the economy of the early 2010s. One reason cited for slow economic recovery is debt overhang, or the condition of households and firms being too in debt to make beneficial fiscal decisions. Though Americans are still in debt, the Freedom Dividend after implemented for an extended period of time could alleviate the burden of debt from households, placing inflationary pressure on prices. Additionally, it would be imprudent to underestimate the collectivizing ability of firms. Firms increasingly use price optimization machine learning algorithms to advise on price setting; these algorithms often consider projections of other firms’ prices. Both concerns place Yang’s rebuttal against rampant inflation associated with UBI under further examination.

Ironically, the brokenness of our economy may actually save prices from the inflationary pressure described above. Firm profits are distributed so unequally that the highest-profiting firms with the largest consumer bases may not need to increase prices to be ridiculously well off even after additional VAT production costs. The costs of losing market share and consumers may be too great for large firms, who gain most of their success from being perceived as “the only option”. However, even if the highest-profiting firms do raise prices, the higher prices of larger firms will allow smaller firms — who are less able to set such low prices in the first place and would not be subject to a VAT — to be more competitive, incentivizing entrepreneurship and increasing economic dynamism. Additionally, price changes — especially those of large magnitudes — are difficult to enact, as most prices are contracted.

It is promising that the US has only imported more goods from the EU, of which many countries have instituted a VAT, increasing the goods trade deficit by 11.8% from 2017 to 2018. This statistic suggests that the price pass-through rate of a VAT is minimal, especially for developed countries where production is highly-networked and therefore highly-contracted. It is also worth mentioning that if Yang’s hypothesis is correct — that many of our jobs will be automated away very soon — an inflationary pressure on prices is the last issue we need to worry about, as few people will have enough money to buy anything.

I am often surprised by how skeptical the public is about the value of taxing corporations in non-evadable ways like the VAT. A corporation’s greatest value-add comes from the government, which enforces intellectual property laws and busts anti-competitive practices. By a fair-play argument, it is morally reprehensible that a corporation like Amazon pays $0 in corporate taxes when it has benefited so much from the government. Therefore, we should examine options to ensure a government slice of Amazon’s profits in all years to come.

III. When $12,000 a year isn’t enough

This criticism is probably the most convoluted of the ones I have encountered about the Freedom Dividend. Mostly because the government currently does not give any direct cash to the public. And when the government does offer aid through welfare programs like TANF, the process is so administratively burdensome only 23% of eligible families receive benefits. Like the implementation of the Voting Rights Act of 1965, the administration of benefits varies highly across states and depends on the volume of resources allocated to case-workers, social stigma around welfare receipt, and local systems around information distribution. Unsurprisingly, less than 10% of families in poverty receive TANF benefits in Texas, Alabama, and Georgia. These statistics contrast greatly with those of New York and California, where over 40% of families in poverty receive TANF benefits. If $12,000 a year for every American over the age of 18 is not enough, then surely the current system and its unoriginal variations fail by any reasonable metric.

Each program must attain bipartisan support to be implemented into law. This process ensures that contradictory and problematic notions of “worthy” recipients are baked into the design of each government program. To receive SNAP, one must look for a job and “[take] a job if offered.” This clause suggests that considering job compatibility — a practice that many take for granted — makes a citizen undeserving of food security. Medicaid requires recipients to meet a financial need requirement, though making $1000 more than the poverty line does not mean non-recipients need healthcare any less than recipients. The EITC requires a person to work, suggesting that non-working individuals are not valued members of American society. Aside from the ethical ambiguity of arbitrarily assigning “worth”, the convoluted system makes vetting eligibility a grueling process, difficult enough to prevent people from applying in the first place. If merely aiding teenagers in FAFSA applications results in a student being 8% more likely to graduate college, the large effects of administrative burden in applying to government programs should call into question the need for such arbitrary, unintuitive, and unethical restrictions on government aid in the first place.

This criticism is often said to mean that Yang does not seem “socialist” enough. Though Yang is a former entrepreneur and calls the socialism-capitalism dichotomy “outdated”, the Freedom Dividend is the most visionary effort on the current debate stage to provide an alternative to a broken welfare system. Indeed, SNAP exacerbates the excesses of capitalism by only being eligible for use at certain grocery superstores like Walmart. It is also the most ambitious effort for real redistribution: the shift of liquid money from the profits of corporations — where many high-income individuals hold wealth as shareholders — to the hands of everyday people. Most importantly, everyday people have no option to opt out by not opting in.

IV. Less radical options can achieve what the Freedom Dividend achieves

Yang often paints the Freedom Dividend as a panacea: it will empower women, improve race relations, stimulate the economy, and save jobs. However, the Freedom Dividend is just one policy option in a sea of others: Elizabeth Warren’s wealth tax, Kamala Harris’s expansion of the EITC, Cory Booker’s baby bonds, the Paycheck Fairness Act of 2019, a $15 minimum wage, and more.

The blind spots of other policies are relatively easy to notice, and I will do so for each option listed above:

Though the characterization of the Freedom Dividend as a panacea should be questioned, Yang’s proposal addresses the limitations of other policies by being simply designed and uniformly implemented.

V. Conclusion

Charles Blow recently stated in his column “Yearning for More Yang” that Andrew Yang has altered the thinking about what it means to be a political thinker. And he has. By forcing to make Americans think harder about unconventional policy ideas such as UBI, Yang also forces Americans to think harder about the unconventionality of democracy. What a privilege it is to consider a “nonconformist in the best way” for president. And what a privilege it is to hear ambitious and novel policies brought forth to the mainstream to be taken seriously.

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Christina Qiu

Published 5 years ago

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