Georgist colleague Frank DeJong asserts that the widely discussed Universal Basic Income can eliminate poverty only if the tax burden is lifted off the productive economy and onto the speculative economy. Read on…

UBI Self-Defeating Unless Funded by Rental Value Capture

by Frank de Jong
December 1, 2020
Universal Basic Income
Toronto, Ont.

A universal basic income (UBI) is an idea whose time has definitely come, especially considering the devastating COVID-19 related business and job disruptions.

As well as covering basic costs for the duration of the pandemic, a UBI can and will help businesses retool, restructure and backstop startups. It will provide bridge funding for artists, the gig employees and students. It will allow people to move away from uninspiring, unhealthy, or unethical work, and will support part-time and traditionally unpaid work such as care-giving, parenthood, and community work.

A UBI, if implemented properly, can reduce, replace or supplement employer and government costs related to pensions, disabilities, job loss insurance, healthcare costs, seniors and child benefits, and a myriad of other social programs.

But basic income programs will be self-defeating if financed by raised taxes on jobs, businesses, and sales. In the short term, UBIs will appear successful, but over the longer term the monthly benefit will be absorbed into the rising cost of living, their purchasing power neutralized:

Rents will rise to what the market will bear, forcing tenants to use the monthly benefit to help cover the costs of accommodation. Home prices will rise to what the market will bear, the UBI will be used to carry higher mortgages. Job seekers will bid down wages since the UBI will help keep them out of poverty.

The added taxes levied to pay for the UBI will damage the economy by eliminating marginal jobs and forcing marginal businesses closer to bankruptcy. The UBI benefits will flow through the poor to those who own land, resources, and internet monopolies, exacerbating the rich-poor gap.

A UBI funded out of taxes is comparable to the wealth created by technological advances over the last century. After the 1960s, this wealth was no longer shared equitably. In 1970, a single breadwinner could support a family, but by the 1990s it took two working people to comfortably do so, and now two mid-level paychecks are hard pressed to buy a house or pay rent in many cities.

There are many factors in the mix: new technology, international division of labour, better education, inflation…, but the bottom line is that jobs pay what the market will bear. For example, the minimum people will work for, and rental and owned accommodation always costs what the market will bear. Unemployed people will always bid down wages and desperate people will always pay whatever they must for housing.

This downward spiral of maldistribution can only be broken if the UBI is financed by economic rent capture.

Economic rent is revenue from the rental of the commons, it is unearned wealth that capitalizes into the upfront price of land, resources, and internet platforms, which presently benefits only the monopoly owners of these gifts of nature. Everyone has a right to their share of these dividends, which makes it a perfect way to finance a basic income.

The main problem is the asset liquidity traps. The societal surplus (unearned income, economic rent) doesn’t go to the productive economy: the working poor, small business or unionized labour. It goes to the speculative economy, to those who command land, resource, and internet monopolies.

Economic rent capture benefits the economy by removing the incentive to speculate, leaving capital no alternative but to invest in the job-rich productive economy:

• Employers will compete for employees, bidding up salaries
• Investors will shift to value-added production and away from speculation
• Land value taxes cannot be passed on to tenants, landlords will lower rents to compete for tenants
• Upfront home prices will drop since mortgages will not be needed for land portion of properties
• Rent-funded UBI benefits will stay with recipients, no longer migrate to asset monopolists.

The only way to permanently eliminate poverty is to break the monopoly owners’ grip on the unearned increment, shift the tax burden off the productive economy and onto the speculative economy and distribute the rental value of the commons to all equally as a citizens’ dividend or UBI.