Universal Basic Income is the First Great Lie

Universal Basic Shares can work instead

The short version:

A common refrain I still hear from the so-called “futurists” who lack any sort of rigor is the call for some sort of “Universal Basic Income.” Not only does it rest on the premise of a faulty problem, that of “AI taking our jobs,” (part 1) and (part 2) but it is also an impossible solution. It does not consider the basic effect of “where does money come from,” or even “what money is.” The equations do not add up; UBI violates a “conservation of money” model, more commonly known as a “circular flow of money” model in economics. Attempts to make it add up turn back to the same old problem of “wealth redistribution,” which while theoretically more possible, can cause long-term instability in society through demographic changes. Also known as “economic genocide.” UBI can be transmuted into a system I designed and call “Universal Basic Shares,” which does not presume an impossible premise of automation of all labor. Rather, it extends and merges both capitalist and democratic models of governance into a single one, capturing most of the advantages of both with few of the disadvantages.

Long Version

A common part of the “vision” of the future among those attempting to forecast it is UBI. But the people who talk about it generally *only* talk about it. It is a feel-good signal for AI developers and detractors alike when faced with the problem of “AI will take our jobs.” Oh yes, we are supposed to say “UBI” and people are supposed to cheer. Now, AI will not, in fact, take our jobs, so I suppose it is nice to have a way to end the conversation peacefully, and one that does not involve too much thinking. However, some people have taken the idea too seriously. Not seriously enough to sit down and think about the financial flows, though. Nobody ever takes ideas seriously enough for *theory*. Instead, some people actually want to *implement* UBI. In real life.

The first problem in critiquing UBI is that there is no good write-up of how anything works under it. Everyone simply assumes that the solution is somehow obvious and simple, and that there is nothing to think about. So, a number of questions remain unanswered: How is the program funded? Do immigrants receive it? How is the amount decided? Is it tied to the cost of living, and who decides what “necessities” are? What happens if the government runs out of money? Are there extra programs in case UBI is not enough? What is the taxation policy that enables all of this?

Depending on the answers to these questions, my critiques will differ, ranging from “this is completely impossible, because you just don’t have the money” to “this is merely inadvisable because you are over-taxing productive people.”

So I must talk about two distinct types of UBI systems: one that I used to hear about two decades ago (I am calling it “UBI-classic”) and one that I hear about now. I am going to call it “UBI-nowork.”

“UBI-classic” used to make a tiny bit of sense. The original case for UBI, which I have not heard in a decade or so, stood AGAINST the waste of governmental programs. Many of these programs were so inefficient that people noted that if you simply divided the total spending of all the programs by literally everyone in the country, it could come up with a non-trivial number. According to ChatGPT, the U.S. government spent around $2.5 trillion in 2024 on low-income programs plus Medicare. This includes grants to nonprofits but does not include Social Security. If you divide $2.5 trillion by 300 million people, you get slightly more than $8,000 per year per person. Tricky to live on, but plausible. If you only give money to the poorest 100 million, they would get $25,000 per year, which is certainly approaching a living standard for a person. So we could already have a form of “basic income,” though it would certainly not be universal. We would just eliminate ALL specialized programs (food, emergency room treatment) and only focus on giving people money directly.

This is mathematically plausible, meaning it does not contradict the laws of mathematics or economics to divide $2.5 trillion by some number of people. This is an extremely low bar, but you will see below that other versions of UBI do not clear even this one. However, it is still highly inadvisable.

At the end of the day, both the current programs and this potential “UBI-classic” idea are a form of wealth redistribution, with everything this implies. The biggest problem with spending $2.5 trillion, no matter how “effectively,” is that the U.S. government is rapidly spiraling into a debt hole it cannot crawl out of. Committing to merely “equal” levels of spending is still a pathway to economic collapse once the debt cannot be repaid.

The political capital required for such reforms should be spent elsewhere or used to solve the actual insolvency issue. This is why we have so many diverging social programs and nonprofits dedicated to “solving problems.” There is tremendous political pressure to do things the “inefficient way.” There is simply no point in attempting to fight this “homelessness industrial complex” just to end up redistributing money into insolvency anyway. It is simpler to just cut programs and choke off the supply of “incompetent pretend do-gooders.”

However, even IF you somehow fix the debt hole and make this specific economic argument plausible, there are other problems with wealth redistribution. Wealth redistribution suppresses the fertility of productive classes, especially those with incomes just above the threshold where they would receive free money. And it increases the fertility of unproductive classes. Eventually, these types of “utopian” schemes fail, either because you run out of productive classes and the country runs out of money and dies, or the productive classes leave. Other, worse options are possible. In either case, if the people on UBI are having two kids and the people paying for it are having one kid, the system is unsustainable. Any futurist worth their salt—which certainly does not include Andrew Yang—must consider the possibility of how economic systems affect demographics, not just circlejerk about utopian schemes that only last a generation.

So, even the most grounded case for UBI *as a government efficiency measure* is not going to fly due to failing to solve the economic and demographic problems of any large-scale wealth redistribution.

While “UBI-classic” has a ton of problems, “UBI-nowork” is still significantly worse as an idea. People imagine a future where “nobody works” and they receive income from the state, made possible by “taxing the AI company.”

Let’s come back to our “Economics 101” and talk about the “Circular Flow Model” of money. Any decent econ text will explain it.

- [Circular Flow Model Explained - Intelligent Economist](https://www.intelligenteconomist.com/circular-flow-model/)

The whole view of an economy is that it is, roughly speaking, “a closed loop” of money flows. The money “flows” through the economy as if it were a closed pipe. Too much money cannot get “stuck” in a spot or “move” from a spot forever.

With that in mind, the “vision” of “UBI-nowork” does not seem to understand what “money” is or what “economy” is. Where is the AI company getting the money to pay tax? You cannot just wave the magic “AI” word to say “infinity.” Actual money has to materialize in the company’s bank accounts. You might say it gets that money from “customers.” However, who are the customers, and how do they get that money? Well, it has to be the people on UBI (who else)? And the money from UBI is being sent to the AI company. In other words, the “vision” of “UBI-nowork” imagines the economy with two gaping holes of money. The first hole is AI company revenue—where is the money flowing *from*? The second hole is the UBI money itself—what is it being spent on, and where is the money flowing *to*? Well, it has to be one into the other to make any semblance of a “Circular Flow Model” work.

However, given that AI company revenue ≥ tax ≥ UBI given to people ≥ AI company revenue, we must conclude that all of those quantities are equal. The AI company makes all the money in the economy, it gives all of it to the government, and the government redistributes all of it to people, and they have to give all of it to the AI company. There is no room for “decision-making” involved. In fact, there is no reason to have the state involved in the system at all. The system would work exactly the same with no state (the AI company just gives all of its money to the customers). And it would work exactly the same with NO MONEY, as the AI company just gives out the AI for free.

A UBI proponent may think that somebody somewhere has considered this obvious objection to the whole thing, that surely we would not waste our breath arguing for such impossible proposals. However, nobody has considered this, despite spending countless person-hours at parties talking up the idea. There have been no proper write-ups underscoring this problem until this one. The proponent may recoil in horror and try to backtrack on the idea: oh, we are going to fix this somehow, we will have *some* people work, we will have a way to “inject” money into the economy on a continuous basis, we will have more than one AI being taxed.

I cannot foresee every single objection being made, but I can foresee them all being wrong. Either they end up being a complex way to do income redistribution, or they simply do not work within the circular flow of money. To try and give a proper theoretical argument against forms of UBI feels a bit like explaining conservation of energy to a person who is convinced that perpetual motion is going to work and that a new design is just around the corner.

What if we make a perpetual motion machine out of a single wheel spinning? The left side of the wheel moves the right side, and the right side moves the left? No? What about TWO wheels, connected by a chain? The left wheel moves the right, and the right moves the left? Also no? What if we put a hamster into one of the wheels? Ah, is that cheating? No longer perpetual motion?

I talk about this at length because it illustrates the point that there is a general mathematical or economic principle that either prevents UBI from working, creates a highly degenerate case, or makes it a simple case of wealth redistribution. That principle—the “Circular Flow Model”—is quite similar to “Conservation of Energy.” It blocks many societal “designs” from being workable regardless of how complex or simple you make them.

The above argument should be sufficient to prove that a version of UBI that only relies on taxing an AI or AI company is generally unworkable, meaning that any real UBI scheme is a wealth redistribution scheme from the productive to the unproductive.

However, in order to drive the point home and perhaps teach some more basic econ to “nowork”-signallers, let us consider a number of OTHER practical issues with such proposals.

The first important issue to consider is that “a lot of value” from AI does not automatically translate to “a lot of money” for the AI company. This can happen due to costs, competition, or taxation.

a) Costs. If AI enables a lot of value, but this value comes at a high cost for the underlying infrastructure, either hardware or people, that means the AI company’s profit margins can be rather slim.

b) Competition. Even if the above is not true and the AI’s benefits are far above its costs, competition can drive prices down to not be far above costs, meaning the profit margins are once again slim. Another way to say this is that the “surplus” of AI has been distributed to the consumers rather than the producers.

c) Taxes. Even if the above is not quite true and competition is only mild in the AI space, taxation is another reason why the company might not have a lot of money left over. In fact, if the plan is to “tax the AI company” very heavily, this would create “deadweight loss” from transactions that do not happen due to the tax. And the surplus would move from the AI company to the government.

In fact, the profit margins of some companies are so slim that OpenAI is still LOSING money. And they have flirted a bit with a bailout, and we would be so lucky if they did not get it.

The second practical issue is once again the “lump of labor” fallacy. At the moment, assumptions about the “loss of work” imagine that we have a fixed pool of labor that needs to maintain our living standard. However, given how much debt the U.S. is in, the living standard CANNOT even be maintained with the current level of work. So some amount of automation has to happen just to get “back to even.”

And the last and most important practical reason is that a lot of government spending actually grows MORE than revenues. An example of this is, once again, property tax. The higher the AI company evaluations, the higher the real estate bidding war, the higher the property taxes. The more money the state collects, the more it wastes. But it gets worse. The more it collects, the more it spends on NGOs that thrive on convincing the state and the public of the importance of more spending. San Francisco property tax enabled the government–industrial complex to thrive on “not solving the problem.” Expecting the situation to “magically” reverse and the state to begin to care about the average person is not going to work. You have to understand the underlying structure of spending first (but this is a topic for another post).

Can UBI be salvaged? Yes, it can, but it would work quite differently. You simply cannot expect to utter the magic words “AI” and expect the economy to have an “infinite money glitch.” However, can a “slightly redistributive” economy work without collapsing the entire system and without crashing the fertility rate of the productive members of the population? I generally believe it can, and I designed a system that combines the better qualities of democracy and capitalism without a lot of the downsides of either.

I call it “Universal Basic Shares.”

Different planets in the Will of the Stars universe work based on different systems. While the Border Worlds (such as Derev) work on a “meritocratic neo-feudalism,” the Mid-Worlds work on the “Universal Basic Shares” system. And worlds transition between the two when they move on from spaceships onto megastructures as a dominant weapons platform.

The system is simple. The entire government is a megacorporation, and every person has a single share. At the end of the year, if the government had a surplus (taxes − expenses > 0), every share pays out the surplus as a dividend. That is basically it. You can add a lot of interesting complexity to the system, such as having a pool of floating shares in the market that can be traded and voted with. This helps establish a share price. If your planet is overpopulated and you need to have some population controls, you can force a family to buy a share if they need to have a third child. However, these complexities are optional add-ons to a basic working system. The reason this is fairly interesting is that it removes one of the big problems of democratic government, where a lot of individuals do not pay taxes and have incentives to vote more money to themselves. In Universal Basic Shares, everyone has an incentive to have an efficient government, regardless of whether you pay taxes or not.

This is a HUGE deal. The problem with standard democracy is that a large number of people never have an incentive to reduce government spending, and they do have an incentive to cause the government to spend more money on themselves. Even without the framework of the two-party system, this causes a number of “closed loops of power” to be created, where the people who take control of the money flows keep this control through convincing the population that the flows are necessary. And the ways they convince the population are just as much if not more harmful than the actual loss of money.

Universal Basic Shares creates a direct incentive for everyone to keep the state efficient. One of the many principles of a stable society that the design of different Will of the Stars planets builds on is that “all stable polities are owned.” They are either owned by a single individual (an emperor), a collection of individuals or families (as is the ownership of Noble Houses), or they need to be owned by everyone collectively (as in the Mid-World Universal Basic Share).

The basic share system has to be paired with an efficient taxation system (the unitax), which cannot be modified by the voters. That means a maximum tax rate along with having the same tax rate on all transactions. The system is actually simpler than Universal Basic Income, which hides a lot of complexity (how much income, to whom, etc.) because it simply fails to discuss the details. Universal Basic Shares is not a system that can simply implement without understanding the military weapon dynamics that make such a system viable or non-viable from a political stability perspective (but this is another post). This is a system that would need a lot of other messes that need to be cleaned up before one can even think about implementing it today. Still, it is worth describing due to being both plausible and still having a minor egalitarian component.

I call UBI the First Great Lie because of how often it is repeated without any level of rigor having been put into the thought. Promising people a cut of someone else’s money is a very strong political formula. Attempts to engineer societies based on Big Lies predictably end in disasters. Hyperinflation, collapses, famines, etc.

Reject the lie. Reject the fake problem of “job replacement” and the fake “solutions” for the fake problem. The Truth actually requires you to worry less and to create fewer demands for others to worry about.