Legendary investor Bill Gross; the man behind PIMCO Funds, has endorsed the idea of a Universal Basic Income. In a May 4, 2016, blog post Gross intelligently describes the dilemma facing our economy; and offers a solution that would not be very popular.
“Millions of jobs will be lost over the next 10-15 years,” Gross predicted. “Virtually every industry in existence is likely to become less labor-intensive in future years as new technology is assimilated into existing business models.”
Unlike our political leaders; Gross is willing to identify the cause of the crisis facing our economy. More importantly, he is willing to mention some scary numbers few of us are willing to face. These numbers include:
- America’s economy has lost six million jobs since 2000.
- The percentage of the working age population (25 to 54 years old) in the United States that is actively employed fell by 4% in the last 16 years from 82% to 78%.
- That means 22% of the working-age population in the United States is not employed.
What’s truly scary is that Gross; now at Janus Funds, thinks the situation is going to get worse. He blames technology and robotization for the problem. Like a number of well-informed observers, Gross thinks that millions of people; ranging from investment managers to truck drivers, will lose their jobs to technology over the next decade.
News stores lend credibility to Gross’s gloomy predictions. In September 2015, Amazon announced that it had 30,000 Kiva robots working in 13 of its fulfillment centers; performing basic labor once provided by people, according to The Robot Report.
Sorry Bernie, College is not the Answer
Gross also thinks that some of the proposed solutions to the problem will not work. He is very skeptical of the idea of expanding the number people attending universities – a swipe at US Senator Bernie Sanders’ (D-Vermont) plan to offer free tuition to everybody.
“Four years of college for everyone might better prepare them to be a contestant on Jeopardy, but I doubt it’ll create more growth; for the Universities perhaps, but not many good jobs for the students,” Gross points out. Instead he suggests we invest in what he labels Universal Basic Income or UBI, healthcare and fixing our infrastructure.
Like a growing cadre of observers; Gross thinks that UBI is inevitable, because of the growing level of unemployment and technological progress. His view is that we have a choice of adopting basic income or reversing technological progress. Since reversing progress; and history, is out of the question UBI is in our future – whether we want it or not.
How the Fed Could Pay for UBI
“The question is how high this UBI should be and how to pay for it, not whether it’s coming in the next decade,” Gross wrote. “It is.”
What’s more interesting; is that Gross makes a very intelligent UBI proposal. He thinks such a program could be paid for by increased borrowing from central banks. The idea is that the Federal Reserve would issue bonds to create money to pay for UBI; much as it already creates money for mortgage financing through quantitative easing.
Under Gross’s suggestion, the US Treasury would finance the UBI through bonds sold to the Federal Reserve. Moneys raised from the sale of the low-interest debt would be remitted back to the Treasury to finance the program. Unfortunately; Gross believes this would also create higher inflation, but it might the only way. Particularly with Congress; and a large segment of the American people, violently opposed to tax increases of any kind.
The alternative would high levels of austerity that would create recession and possibly depression. That would create social instability; and possibly lead to higher rates of crime and rioting in our cities. Under rigid austerity, every city in America could become Ferguson or Baltimore with catastrophic results; particularly if poor whites joined poor blacks in the burning, looting and pillaging.
Would the People Accept UBI?
If Gross is right central banks like the Fed might be able to implement UBI on their own. That would lead to conflicts with policymakers and politicians. It would also probably provoke a popular reaction and suspicion from the audit the fed crowd.
The idea of Universal Basic Income might not be very popular either. I imagine there will be stiff resistance to it from two groups: working class people; who would see their social status threatened, and social services bureaucrats – whose jobs could be eliminated.
Working people that get their social status from their professions or employment would be offended by UBI. Most of the hostility to welfare in the US comes from the working class; particularly working-class white men, whose identity and self-worth are based upon their jobs.
Social workers would fear for their jobs if their “work” could be done by a digital wallet. Large numbers of bureaucrats could be made redundant if a combination of digital wallets and payment apps like Apple Pay; and possibly a block-chain based cryptocurrency like Bitcoin, could be used to distribute basic income payments. Another American billionaire; Bill Gates, has made such a suggestion.
Much of the opposition to UBI would be cloaked in the language of cultural conservatism and traditional values. Basic income would be labeled socialist, Communist and a threat to freedom and Christianity. A possible side effect of UBI would be an unholy political alliance of social and religious conservatives and social-services bureaucrats.
If Mr. Gross is right, Universal Basic Income is inevitable. The question we need to ask is: will its acceptance be violent or not? Gross’s essay on the subject is well worth reading and it can be found here.
Hopefully some of our policymakers will take a look at it. We will need out of the box thinking like this, if our society wants to avoid widespread poverty and class warfare.