We Need VAT and UBI

There is a pretty serious gap in how the economy functions right now, has been for decades, and we have to close it. I’m not here to be all “tax the rich” even though I maybe think that’s a good idea too. I’m not here to say “free markets are amazing” even though I kinda do believe that as well. This is a simple, mechanical problem that needs fixing, and we fix it with VAT and UBI. I’m tired of being calm about this. If you so much as whisper “that’s socialist” or “you’re defending the bourgeoisie” I will beat you to death with a sickle tied to a demand curve. Because automation has moved labor markets so much that labor can no longer be the only way that people get money to participate in the economy. We have automated away jobs tied to the most basic goods that we need, and the jobs we create are tied to marginal gains in utility that are poor measures of output. Important necessities have been highly productive for decades, meaning a single person employed by say, the agriculture industry, can feed exceedingly many people. Automation replaces jobs, and yet, the economy is wonderful in that we can and will always create new jobs, we will never run out of work for people. But that is also a runaway train, we need to stop and ask “do we want all those new jobs?”. Here are the main reasons we need VAT and UBI: This one is quite easy: Because it’s the fairest. You get money for existing. Whether you work or not, you are given some money to participate in the economy, to buy the things you want and to signal to the economy which things you want. It’s simple to administer because there are no checks or barriers you need to pass, and it discourages working less than most alternatives because your income doesn’t go down if you start working. This is a little harder but not too hard: Because it’s the mirror of UBI. The UBI will fund consumption, VAT taxes consumption. A 50% VAT raises the price of bread by 50%. The existing economy sitting underneath goes untouched, the base price of bread is set by scarcity and is paid by labor income, as before. The additional VAT on top funds the UBI in a circular fashion. (For questions about saving as opposed to consumption, I talk about that later in “what about saving?”) Yes, and a bit more than 50% (or whatever the VAT increase is), at least in the beginning. Here’s some examples of some people: So, yes, this is technically a form of redistribution. Buying power is being transferred from the rich, to the poor. However: The point of this system is to adjust for the fact that the nature of what jobs can be done is changing. Physical labor, the kind that almost anyone can do, is mostly automated away. Other forms of labor require training that not everyone can obtain or learn, or takes years. Those jobs are in jeopardy too now, since regardless of what you think about AI it is able to do cognitive tasks to some meaningful degree. That’s not to say we can just wait for mass unemployment before saying “maybe now not everyone needs to work!” because the economy will almost always be able to create new jobs, and that will not save us. Those jobs chase marginal utility over marginal cost, i.e something that wasn’t worth doing before but now is. However, the speed of automation makes this system imperfect2, and the jobs we are creating at the frontier of utility either do not employ many people, or they are very low marginal utility. Automation replaces jobs, and yet, the economy is wonderful in that we can and will always create new jobs, we will never run out of work for people. But that is also a runaway train, we need to stop and ask “do we want all those new jobs?”. Yes, but not that many. Firstly, costs have risen because of the VAT, for many the UBI is mostly eaten by this increase. Only those that make very little doing a job they hate may choose to quit their job. Secondly, keep in mind that most people actually don’t like doing nothing. Right now, struggling to cover costs with a meager salary means you stay busy hunting for work or working. With support from a UBI people have opportunity to learn, obtain skills, try new things that actually in turn may contribute back to the economy. No, because the VAT eats into most of the UBI. This is by design, demand doesn’t actually rise that suddenly or that much because most peoples buying behaviour hasn’t changed much. However, a few points are worth mentioning: That’s to say raising the VAT in lockstep with the UBI is what makes the UBI stable. The pressure it exerts on the economy is much smaller as compared to funding the UBI with anything else, both in terms of labor and consumption pressures. As I’ve described it the VAT and UBI are circular. They don’t actually extract from the rest of the economy3 in the way that paying labor does. Two points here: You can go fight over how much other stuff to tax and how we should redistribute it and how big government should be, I do not care about that right now. This is

We Need VAT and UBI

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