The case against Universal Basic Income

Recently, Universal Basic Income has received a lot of publicity and the general belief is that it’s the solution to technological unemployment. While I agree that technological unemployment is an issue that must be dealt with I believe that a Negative Income Tax is a much more intelligent partial solution. I shall start by presenting the fundamental problems with Universal Basic Income before introducing the advantages of a Negative Income Tax.

Three fundamental problems with Universal Basic Income:

1. UBI pilot studies are fundamentally flawed:

  • Let’s define the variable Y, the actual change in behaviour under UBI
  • Pilot studies measure a proxy variable X which is measurable in a setting where all recipients know that these handouts will only last a fixed amount of time
  • The deviation between X and Y may be arbitrarily large as the handouts received during finite-time pilot studies are treated as capital investments whereas in the UBI scenario, these handouts are treated as a common good whose marginal utility diminishes with time.

For the above reasons, there’s no reason to believe that a person receiving regular cash benefits will behave in a particularly enterprising manner.

2. UBI is based on the assumption that a flat rate is a good idea. However, if we assume any fixed amount for UBI, the population total will be prohibitively expensive. Consider the UK population, and a basic monthly rate of 1000 pounds per month issued 10 months a year:

\begin{aligned} 6.10^7.10^3.10=6.10^{11} \end{aligned}

That’s .6 trillion pounds per annum, more than 15 times the UK military budget!

3. The impact of automation won’t be uniformly distributed. For this reason, the ‘universal’ assumption doesn’t make sense.

I’ve spent my last two summers in robotics labs in the UK and Hong Kong and from these experiences I’ve learned a few things. First, the task of defining a reward function for a robot on a continuous action space is highly nontrivial so we won’t have any fully autonomous robots anytime soon. Second, concept learning is equally hard so jobs that involve coming up with new concepts(ex. R&D, product development) won’t disappear anytime soon. However, anything that is procedural or mainly requires probabilistic inference might disappear in the next ten year. This means that work won’t disappear although certain jobs(ex. law, medicine,accounting) will become highly automated.

So that’s what must be said about UBI. It’s a terrible system that isn’t cost-effective and it disincentivizes work while making the false assumption that automation will have a uniform impact on the job market.

Negative Income Tax:

The basic idea is to use the mechanism by which we now collect tax revenues from people with incomes above some minimum level to provide financial assistance to people with incomes below that level.

-Milton Friedman

  1. The NIT is a reasonable alternative to UBI which doesn’t create disincentives to work as citizens aren’t guaranteed a basic salary.
  2. In its most basic implementation, the NIT is very simple:\begin{cases} m = \text{minimum salary} \\ S = \text{actual salary}\\ \alpha = \text{tax rate}\\ \Delta S = S-m \end{cases} If \Delta S \geq 0  , then the citizen incurs a normal tax and when \Delta S < 0   the citizen gets paid -\alpha \Delta S  .
  3. NIT is much less expensive to implement:Let’s suppose half the UK population is living below the baseline salary of 10000 pounds and \alpha = 0.5  . Then in the worst case scenario, the NIT program would cost:\begin{aligned} \frac{1}{4}.6.10^7.10^4=\frac{3}{2}.10^{11} \end{aligned} That’s 4 times less than the cost of implementing UBI! Moreover, I must add that this is a highly improbable scenario and we can also define much more sophisticated NIT systems with an adaptive tax rate.

Discussion:

From an economic perspective, the Negative Income Tax has the advantage that it’s economically feasible and it doesn’t create disincentives to work which is very important as a post-work future is at least several centuries away. However, an economic solution is only a partial solution to the problem of technological unemployment. There will also need to be robust programs for re-educating and retraining a significant fraction of the population. A concrete example of this is Xavier Niel’s free software engineering institution and South Africa’s free wethinkcode institution. This is something that governments should work on in partnership with companies that understand what the future of work will look like.

Conclusion:

In summary, we should take UBI pilot studies with a grain of salt, the implicit ‘universal’ assumption is dubious and any UBI program would be prohibitively expensive in practice. In comparison, the negative income tax which has none of these defects, is a much more reasonable economic solution although it shouldn’t be considered a complete answer to the problem of technological unemployment.

The economic value of hacker spaces

This Tuesday I had the chance to visit the Edinburgh Hacklab and I had a great time checking out the great equipment(laser cutters, 3D printers & more) as well as talking to different people about their various projects. I also caught up with Konstantinos, who used to work for Adam Stokes’ robotics lab at the university. A few people warmed up to my idea of building a galloping hexapod but what impressed me most was the vibrant activity. Unlike the University of Edinburgh, where I study, everybody was building something with a sense of purpose.

Hacker Spaces, Fab Labs, Maker Spaces…whatever you call them, they have the potential to unleash great products in the areas of virtual reality, robotics and even biotech. This statement isn’t baseless. For reasons that universities conveniently ignore, a disproportionate number of Kickstarter projects and startups come from what I shall call Hacker Spaces, from hereon. In spite of this, most Hacker Spaces don’t get regular funding while the price of university education keeps going up. 

Following my observations, I decided to check EU innovation schemes. Whichever resource you check there is no mention of Hacker Spaces, Fab Labs…etc. 
This confirms my belief that very often governments place their money into whatever sounds impressive. You have to look no further than the Human Brain Project. I don’t have a lot more respect for tech investors in the field of AI either. Nobody wants to admit that we are very far from cockroach-level AI because a startup working on cockroach-level AI is a very hard sell. So here we are in the developed world spending tons of money on headline-grabbing research/innovation instead of focusing on good technology.

Next, I decided to contact several leading silicon valley innovators that started with Hacker Space projects. However, the consistent reply was that they weren’t aware of any detailed economic research. One of them mentioned that terminology might be useful as there are at least three variants, hence my decision to coin an umbrella term. Another asked me whether I was making an assumption that they did indeed contribute to significant economic growth as there’s a difference between a good product and a sustainable company. That’s a good point which I’d like to address. 

It’s true that there’s a significant difference between being able to bring a good product to market and being able to run a company well. I’d say that Steve Jobs and the Macintosh is the prototype example. The product was good but it failed for many reasons that wouldn’t be clear to a product designer. However, it’s not clear to me that Palmer Lucky would have managed Oculus Rift well if Facebook hadn’t purchased it and brought its disciplined engineering culture and management structure to such an ambitious project. My thesis is that a good product eventually leads to economic growth as it shows that a market exists for that product and that it’s possible to build such a product. Basically, others will quickly fill the gaps.

Another thing I find pretty cool about Pauli Spaces is that they have the potential to decentralise economic growth. In the future you wouldn’t necessarily need to move your robotics company from Pennsylvania to Boston. Some people object to this by saying that skilled labour is scarce. This argument would be valid if not for the fact that a large number of PhDs from science and engineering can’t find good jobs after obtaining their doctorate. There’s plenty of brilliance out there that’s unappreciated. 

Meanwhile, the rate of change of industry continues to outpace the rate of change of the higher education system which charges obscene rates for an increasingly irrelevant education. It’s clear to me and many others that this can’t continue for much longer but I’m not dismal about the future. Hacker Spaces give me hope and in a few months I shall even make this point precise with quantitative studies on the subject.

 

Pseudo-anonymous forums

After using the stack-exchange(SE) forums for several years, it’s clear that pseudo-anonymous user profiles are synonymous with lousy user experience. Depending on the stack exchange this manifests itself in different ways but I believe the underlying reasons are the same. 

Consider these two questions:
1. Why don’t hexapods gallop?
2. Rigorous derivation of isoperimetric inequality from ideal gas equation?

In the first case you have a pseudo-anonymous user on the Physics SE with a lot of reputation who tries to reformat the question. He basically says that the question has nothing to do with physics. Eventually, I demonstrate that his claim is baseless and other users on the physics stack exchange support my arguments. A different user with less confidence might have responded differently however.

In the second case, we have a clear question on the Math Overflow that gets a clear answer from an identifiable person. Now, if you check the top users on the MathOverflow you’ll realise that almost every user is identifiable. In fact, among the top 20 users the number of identifiable users among these forums stands at 95% and 75% for the MathOverflow and Physics Stack Exchanges respectively. I believe that the fraction of pseudo-anonymous users is an important indicator of the overall forum experience. 

Pseudo-anonymity is not merely a different type of user setting. It leads to fundamentally different forum interactions for systemic reasons:

1. Users are less inhibited because they won’t be identified. 
2. Users feel less pressure to share good content because any social benefits won’t affect their actual person. 

Due to this reward system, pseudo-anonymous users tend to behave like idiots if they can get away with it and they won’t try as hard to share great content. If you’re Terrence Tao on the MathOverflow the situation is very different. In general, I suspect that the reason for the greater fraction of identifiable MathOverflow users is that they are actually proud of what they share. 

While it’s not clear how the Physics Stack Exchange can incentivise users to use their real names I think they can simply require it. I have no doubt that this would improve the user experience. 

Where education failed

Today there’s more innovation in educating computers than educating High school students in Europe and the USA. Some have even gone as far as warning that the recent progress in machine learning might lead to smarter-than-human computers in the near future[1].

First, I’d like to make it clear that the AI fears are unfounded. The state of the art in machine learning includes software that can learn patterns from large amounts of data however there are no machine learning systems that are good at deducing non-trivial patterns from small amounts of data. More importantly, the state of the art in machine learning software is terrible at learning new concepts. We might have robot truck drivers on the horizon but there won’t be any creative robot scientists or entrepreneurs anytime soon.

While there’s no real AI risk to humans there’s a really serious problem with the lack of innovation in High school education. In fact, the growing risk of severe long-term unemployment in these regions isn’t due to the arrival of super-human robots which won’t happen anytime soon, it’s due to a complacent education system that hasn’t taken into account significant changes in the modern job market.

Here’s what the actual job market looks like:
1) It is global which means that locals aren’t guaranteed a job in their own country as their forebears were.
2) Any uncreative task that can be automated will be automated.
3) Due to the previous points organizations are much more fluid and the notion of a job for life has all but disappeared.

Many business people anticipated these important changes but somehow High school education hasn’t changed accordingly. In fact, there is little sign of any effort to make the necessary changes. While there is serious discussion today about how we must increase social safety nets, some even going as far as arguing for universal basic income, the best that can be done to safeguard the future is to make significant changes to the current secondary education system.

Right now High School in the USA and Europe is exam-focused and strives to produce obedient children that stick to the curriculum. Moreover, this system breeds a zero-sum mindset where students compete for the best grades and then compete for the ‘best’ internships at big companies. However, all the points I mentioned indicate that we need to encourage an entrepreneurial mindset from an early age. In the modern world, job security is almost nonexistent so the education system should encourage people to build things from a young age.

This is a cultural problem in the same way that the absence of women in mathematics is a cultural problem. Women aren’t naturally bad at mathematics anymore than humans are destined for uncreative jobs in a big company. For these reasons, I believe we can do something about this. 

Here are the changes I would recommend:
1) Students will be assessed using bi-weekly examinations instead of massive exams at the end of the year.
2) At the end of each semester all students will participate in hackathons for fun, fame and credit. These will focus around software, engineering or robotics that can result in products of commercial value.
3) I expect companies of all kinds to participate in the process of changing the education system.

These recommendations don’t have to be followed literally but important changes must be made. At present the closest thing that resembles the school I imagine is Xavier Niel’s Ecole 42 which forms software engineers and digital entrepreneurs by encouraging them to work on interesting software projects of gradually increasing levels of difficulty.

Some might complain that these changes might be expensive but I’d like to argue that large-scale unemployment will be even more expensive and this is actually a good investment. In fact, the belief that people below a certain age can only be net-consumers is an outdated idea. The creative potential of adolescents has so far been underestimated in terms of its ability to contribute to human progress and economic growth.

Finally, I’d like to emphasize that there are no robots taking away the creative opportunities that we are capable of creating for ourselves. However, the future won’t build itself on its own.

[1] There’s a long list of intellectuals for this one: Nick Bostrom, Elon Musk, and Stephen Hawking among others. It really stuns me how much discussion about the potential of robotics and AI is dominated by unreasonable fear-mongering.