We Need VAT and UBI - Wilsons Blog

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We Need VAT and UBI

There is a pretty serious gap in how the economy functions right now, has been for decades, and we have to close it.

I’m not here to be all “tax the rich” even though I maybe think that’s a good idea too.

I’m not here to say “free markets are amazing” even though I might have some opinions on that as well.

This is a simple, mechanical problem that needs fixing, and we fix it with VAT and UBI. I’m tired of being calm about this. If you so much as whisper “that’s socialist” or “you’re defending the bourgeoisie” I will beat you to death with a sickle tied to a demand curve.

This is not a political post 1

Why do we need this?

Because automation has moved labor markets so much that labor can no longer be the only way that people get money to participate in the economy. We have automated away jobs tied to the most basic goods that we need, and the jobs we create are tied to marginal gains in utility that are poor measures of output. Important necessities have been highly productive for decades, meaning a single person employed by say, the agriculture industry, can feed exceedingly many people. Automation replaces jobs, and yet, the economy is wonderful in that we can and will always create new jobs, we will never run out of work for people. But that is also a runaway train, we need to stop and ask “do we want all those new jobs?” . Here are the main reasons we need VAT and UBI:

We’re squeezing all our economic signalling for highly automated or necessity goods through labor intensive sectors unconnected to those automated industries and this makes our economies brittle, requiring targeted intervention. In particular, public sector wages (some of the most labor intensive ones) are not price set by the economy, so this is a particularly weak signal. We need alternative signalling.

The mechanism for creating new jobs is not instantaneous, it creates instability proportional to the speed of automation.

Some new jobs just, aren’t that useful? Do we really need foodora drivers or escalator attendants?

Why UBI?

This one is quite easy: Because it’s the fairest. You get money for existing. Whether you work or not, you are given some money to participate in the economy, to buy the things you want and to signal to the economy which things you want. It’s simple to administer because there are no checks or barriers you need to pass, and it discourages working less than most alternatives because your income doesn’t go down if you start working.

Why VAT?

This is a little harder but not too hard: Because it’s the mirror of UBI. The UBI will fund consumption, VAT taxes consumption. A 50% VAT raises the price of bread by 50%. The existing economy sitting underneath goes untouched, the base price of bread is set by scarcity and is paid by labor income, as before. The additional VAT on top funds the UBI in a circular fashion. (For questions about saving as opposed to consumption, I talk about that later in “what about saving?”)

Wait the price of bread will go up???

Yes, and a bit more than 50% (or whatever the VAT increase is), at least in the beginning. Here’s some examples of some people:

No Income: This person receives the UBI after having not had any money. They can now buy something, at least. Maybe not enough to live off, but more than before, probably at least some bread even though it is “expensive”.

Some income: This person was making some money, from benefits or working or whatever, doesn’t matter, but they find that the UBI they receive is completely eaten up by the increased VAT of all the things they used to buy. They are not touched by this change, for them their life is exactly the same and they largely don’t notice. Their savings have eroded somewhat though as they are smaller in relation to both their income and expenses.

A lot of income: This person finds that the UBI is not enough to cover the increase in price for all the nice things they used to buy. They have to decrease their spending. They probably still buy bread because well, that’s a necessity. Maybe they buy fewer luxuries though. Their savings, of which they likely have a lot, have eroded a lot.

So, yes, this is technically a form of redistribution. Buying power is being transferred from the rich, to the poor. However:

Redistribution isn’t the point of this system.

The point of this system is to adjust for the fact that the nature of what jobs can be done is changing. Physical labor, the kind that almost anyone can do, is mostly automated away. Other forms of labor require training that not everyone can obtain or learn, or takes years. Those jobs are in jeopardy too now, since regardless of what you think about AI it is able to do cognitive tasks to some meaningful degree. That’s not to say we can just wait for mass unemployment before saying “maybe now not everyone needs to work!” because the economy will almost always be able to create new jobs, and that...