The Truth About Universal Basic Income

October 1st, 2020 | DS

The CERB plan was an experiment and a harbinger of things to come. For Liberals, it offered a way to secure votes during one of the worst economic downturns in history. For Conservatives, the long term economic realities are too grim to keep it going. A Universal Basic Income had never been tried until now, but opinions are still mixed. The final outcome resulted in what many economists had predicted: a shortage of labour and a dampening of the recovery. Canada's CERB plan was more hefty and ambitious than America's pandemic benefits and the results of each country's economic recoveries reflect the differences.

In the month of August, America's unemployment rate shrunk to 8%, creating a faster than expected recovery. Canada's unemployment rate remained close to where it was in July at 10%. While America's economy roared back and moved closer to normalcy, Canada's economy remained stuck and stagnant. The difference between the two countries was the length and size of their pandemic handouts.

Economic Impact Payment (US): $1585 CAD

Canada Emergency Response Benefit: $2000 CAD

August Unemployment Rate (US): 8.4%

August Unemployment Rate: (Canada): 10.2%

In May, both countries had similar unemployment rates at 13%.

Even as new unemployment numbers come out, it is evident that America's economic recovery is happening at a faster pace than Canada's. Canadian business owners and managers of restaurants and retail stores appear to be repeating the same story: their employees are refusing to come back to work. The shortage of labour is creating an economic drain and a shortage of service. Lease and rental payments for stores and businesses remain unchanged, but their revenues have declined. The deeper consequences are being felt nationwide as businesses and consumers alike struggle to acquire the services they relied on in 2019.

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Stores and restaurants have less staff and, therefore, reduced business hours. Many are failing to provide adequate services, so consumers are taking their business online. Even warehouses and outlets that provide online services and delivery are struggling. Social distancing restrictions have limited the capacity of establishments that relied on their customers, while CERB payments have robbed the labour market. The affects have been felt across the board, at every level. While Americans head back to their jobs and embrace normalcy, Canadians are still enjoying their extended vacations.

If Justin Trudeau and Liberals have their way, the CERB will become permanent. In an attempt to free their supporters of the slavery of work and to secure more votes in the next election, Liberals are setting out to make Universal Basic Income a part of the Liberal Party's platform. When it finally becomes a part of the party's platform, it will eventually become a reality for all Canadians.

At current CERB levels, with $2000 per month, a Universal Basic Income could cost Canada $465 Billion per year—that's according to a study by the Fraser Institute. That means that over a span of five years, it would cost Canadian taxpayers more than $2 Trillion. With fewer people motivated to find jobs that pay less than $2000 per month, it is hard to imagine where exactly that tax revenue would come from. With Canada now finishing 2020 with a $1 Trillion national debt, the cost of servicing an additional two trillion is unimaginable.

With a national population of less than forty million, paying interest on a $3 Trillion debt is unfathomable. Even in a high growth forecast, it is unlikely Canada will exceed forty million in population by 2025.

These would be the estimated debt burdens placed on each individual Canadian with a $3 Trillion national debt in each scenario, not including interest payments:

2025 with 40 Million Canadians: $75,000 per Canadian

2025 with 38 Million Canadians: $78,950 per Canadian

The only way to curb such a dramatic debt burden would be to drastically increase Canada's population. In the event of high interest rates, a three trillion dollar national debt could collapse the economy and put Canada in a similar situation as Greece—or worse. With more Canadians given the option to opt out of work, UBI payments could increase significantly as more Canadians opt for a free ride.

"The difference between the two countries was the length and size of their pandemic handouts."

None of this takes into consideration all of the economic consequences of devaluing human labour. In fact, implementing a UBI this early on could expedite society's move toward automation. As fast food chains and retail stores face a labour crisis, they would be forced to find alternatives and to introduce machines and AI into the workforce much sooner than expected. That transition would eventually trickle upwards into higher paying jobs as companies and tech giants speed up their research into automation solutions and artificial intelligence.

Billionaires like Elon Musk have stated that UBI is inevitable, due to the simple fact that automation and AI will eventually make human labour obsolete. However, we aren't there yet. Saving UBI for a future date, when it truly becomes necessary, could save Canadians trillions in debt and taxes. At this point in our society, we don't need UBI and the costs far outweigh the benefits.

There will come a time when artificial intelligence and automation become capable of sustaining economic growth and GDP, but we aren't there yet. The era of revenue generating AI that can completely replace human labour is far off. We have at least one more generation to go before the transition becomes inevitable and all hard work becomes a thing of the past. In the meantime, we should save what we can and build a more financially sustainable future for our kids.

© 2020 Poletical