Thursday, January 12, 2017

Random Thoughts: Welcome to 2017 Edition & UBI

Welcome to 2017! May your year be filled with wonder, health, and joy.

1. Reporting earnings once a year makes a lot of sense, especially for cyclical industries. For instance, many consumer companies make most of their revenue in the holiday season. What's the point of reporting four times a year? It's as if businesses want to encourage short-term outlooks. If it didn't work in American foreign policy, why would it work in American multi-national policy?

Response: "For that reason, it makes sense to report data adjusted for seasonality:)"

My response: Your approach is better than the current one, but doesn't address short-term outlooks or the practice of excessive end-of-quarter discounting based on nothing more than needing a sales boost at the end of an artificially-created time period.

2.  Emma Stone's face in La La Land (2016) when she said, "Are you serious?" is forever preserved in cinematic history, dedicated to everyone who's ever been given a zinger out of anger and hurt so badly, the idea of a response never even enters the equation.

3.  Think of UBI (universal basic income) as a small VC investment in everyone. Right now, VCs invest millions and hope for a 2 to 5% home run rate.The idea of UBI is to invest thousands of dollars and hope for a 10%+ home run rate as more people pursue their passions, requiring both corps and govs to compete for talent, which also leads to better overall outcomes.

4.  I fear that universal basic income (experimental) pilot programs miss the point. They use too little money (the minimum in the U.S. should be 700 USD/mo), and/or they increase costs rather than cutting programs and diverting the savings into the UBI pilot. Such pilot programs would probably work best in cities with higher unemployment relative to the rest of the population and would need to be funded through foundations rather than governments. Some current UBI-like programs cut hours but not employee pay, requiring more expenditures--the exact opposite of a properly administered plan.

The idea behind UBI is to eliminate the gov's hand in direct welfare completely, and in doing so, make the citizen less dependent on the gov's moral and political whims, while focusing the gov's attention on providing essential services in a sustainable way, such as healthcare.  (Perhaps politicians forced to focus on decreasing health problems and/or escalating medical prices to prevent the implosion of a healthcare system are less likely to meddle in taxpayers' personal lives.)

In addition to lowering dependency, the goal of any UBI program should be to encourage cities to compete for residents rather than chaining them to specific places using housing inflation (through the mortgage tax deduction) as a lure. Note that our current tax system cannot adapt quickly to changing demographics or macroeconomic upheavals, encouraging boom-and-bust cycles (for example, Detroit, MI) or holding cities hostage to corporations playing them off against each other for tax incentives.

To prevent escalating UBI costs and political temptation to tamper with the amounts and recipients, the program ought to apply to everyone 22+ years old and cap the amount per adult, with an additional amount for each child, up to two children from ages 0 to 18. (Yes, there's a 4-year gap, which encourages college enrollment.)  Governments may publish the names of millionaires not donating their UBI to charity but must still provide the UBI to them.  The amounts provided must relate rationally to the amount the gov has saved by eliminating food aid, subsidized housing, direct payments, etc.  (But hopefully not unemployment insurance, an excellent program for employers above a certain revenue and employee threshold.)  The major source of revenue to divert would be from phasing out the Social Security program and from reasonable defense cuts.  If done judiciously, hundreds of billions would be available, and younger voters would not be at a disadvantage against older voters. Even on a local and state level, combining the myriad of welfare programs into a single UBI program that applies to everyone--thereby reducing enforcement and other administrative costs--and also reducing K-12 funding by eliminating employee pensions for new employees or linking the pension ROI to 10 or 20-year Treasury rates would help generate the financial equilibrium desired.

The UBI calculation and revenue-sourcing are the easy parts because they're ultimately math problems that reverse long-tail programs and shift revenue back into the present-day and to a broader class of citizens.  The hard part is also accounting for the amounts the gov must spend on persons who spend their UBI irrationally and in doing so, cause additional hospital and other law enforcement costs. Thus far, I've seen no article that accounts for the latter problem. (One idea of a good pilot program would be to require a city's citizens to only spend their UBI within the borders of the city and render the UBI card ineligible for "sin" purchases, such as alcohol and cigarettes anywhere.)  In short, current UBI pilot programs are a good start, but so incomplete that the main conclusions will be psychological rather than economic.

Looking ahead, after some time--no more than 5 years after the start of a permanent program--the amount of the UBI should be adjusted downward if GDP declines. It may be adjusted upward if GDP increases, but only if the increase in GDP is not due to increased debt issuance or financial alchemy.

Why? The only way any UBI program can sustain itself is if voters and recipients understand that the program, if poorly managed, will sap resources from other necessary expenditures, especially ones promoting innovation.  The goal isn't to create an entitled class of layabouts, but to create less dependency on larger forces, whether governmental, banking, or corporate; to mitigate criticism of citizens currently receiving some form of government assistance by eliminating the ability to "game" welfare programs; to increase time for pursuing happiness (making it easier to raise children on a one-income household, traveling the world, etc.); to promote entrepreneurship; or to promote some other endeavor that creates a positive impact.  Thus, strong checks and balances are needed, and pegging UBI amounts to some formula of GDP growth and decline, but removing the impact of artificial boosters like debt when calculating the numbers, is one way to handle voter temptation.  As you can see, honest accountants are necessary for such programs to work, and the CBO--or some other permanent, independent body--will need to be given some form of veto power over Congressional attempts to increase or lower UBI amounts.  Like any government program, UBI will be subject to corrupting and political forces, so economics and finance must be rigorously taught from sixth grade and up.

If implemented properly and with appropriate discipline, UBI in countries with strong currencies might reduce internal conflict and shift "culture wars" to practical matters, creating healthier societies.  There's no way to tell whether such an option is possible, however, if pilot programs are done in ways that fail to capture the entire point of UBI.  Mild efforts will surely create uninspiring results.

Update: I just realized phasing out or minimizing the mortgage interest tax deduction would also allow funds to be used for UBI, though my idea is to minimize future projected expenditures, especially in ways that promote political tampering (i.e., COLA adjustments, age limit changes, etc.). (On a related note, as long as the military's budget and appropriations are unaudited or enabled by "risk-off" central bank printing, they present a clear target for fiscal conservatives.)

The idea behind phasing out Social Security isn't just to free up money for UBI--it's to shift long-tail, unpredictable obligations applying to a small segment of society (e.g., seniors) to a broad-based, easier-to-manage program that removes "gaming" as well as the risks in long-term accounting and life expectancy calculations.  Why is the government in the business of calculating life expectancies in the first place without adequate health data on each potential Social Security recipient/creditor? 

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