The Universal Creative Income
A Probabilistic Argument For A Lump-Sum Universal Basic Income
The Universal Creative income is a derivative of a 500-year-old idea, now widely known as the Universal Basic Income. That society pays all its citizens a regular, unconditional sum of money is popular amongst diverse interest groups for a multiplicity of reasons, and variants of this basic idea are equally numerous.
The features specific to the Universal Creative Income outlined in this essay; that payments are annual, that it needn’t (and probably shouldn’t) be the equivalent of a year’s salary - centre first and foremost on the intended outcome of the UCI. The intention of making payments to citizens is not to directly end poverty, or to compensate for ‘technological unemployment’, or to free people from work - all are static and naive aspirations in a dynamic world - but to stimulate risk taking, creativity, new economic growth, and to free us from the absorbing barrier of poverty.
In some ways the UBI is a victim of it’s immediate and obvious appeal, for who doesn’t want free money? This very appeal makes UBI proponents seem naive and idealistic. The most potent refutation is a simple ‘how do we pay for it?’, not an unfair question, and one I hope to answer. To ask how one pays for the UCI, is really to ask that the cost is justified versus alternative spending options such as policing, healthcare or infrastructure spending. Another way to frame the question is, why pay for this now? When war is declared or national disasters occur, the money is always found. This is not because we keep emergency funds in reserve, but because priorities shift. A central point of this essay will be to demonstrate why now, why we have reached a point that necessitates large payments without attached conditions.
I hope to show that as it has developed, our world has become more informational and less physical, and that this gradual yet fundamental shift in our economy necessitates a policy change. Just as the industrial revolution required lawmakers to progressively raise the age at which it was legal to work, the UCI is another corrective in response to the latest developments of capitalism; what Popper called ‘piecemeal engineering’, rather than revolutionary change. In a world of industry concentration & winner take all effects, with enormous creation of wealth in few hands, we must find a mechanism to achieve two primary goals - to create genuine equality of opportunity, and to stimulate future growth.
Universal Basic Income
The Universal Basic Income, originating in Thomas More’s Utopia, is the idea is that of a regular, automatic, unconditional payment made by the government to individuals as a right, to spend on whatever they choose.
The UBI has gained in prominence and popularity in recent years, with U.S. Democratic Presidential Candidate Andrew Yang running with it as the centrepiece of his campaign, and such prominent advocates as Bill Gates, Hillary Clinton, Elon Musk and Jeff Bezos joining the chorus. Trials or partial implementation have taken place in India, Iran, Alaska, Finland, Holland, Canada and parts of the US, as well as successful charitable use of cash rather than goods or services Africa, most notably by GiveDirectly.
Arguments in favour of a UBI are copious, and come from left and right, socialists, feminists, libertarians and ‘modern luddites’. The recent rise to prominence of the idea stem, I think, from two main strains of argument: that of technological unemployment, and that of social justice.
The philosopher Karl Popper said that good political institutions are like forts - they need to be both well built and well manned. When stop and search laws are implemented by prejudiced law enforcement, they can be tools of racial harassment. When we create employment laws outlawing discrimination on the basis of race, gender, sexuality or religion, we rely on the good faith of the employer to be blind to their prejudices. We have little ability to police petty discriminations in day to day life; whats more, there is much evidence that we are unaware of our own predispositions in this regard.
The social welfare system in most countries is extremely complicated and bureaucratic, and so often can rely on the discretion of those charged with implementing payments to individuals. Is that person with back pain really disabled? Does this single mother deserve social housing instead of that family with four children? Do I believe this person is making a genuine effort to gain meaningful employment, or are they going through the motions? Once these decisions are made by human beings, we risk institutionalising prejudice into society. The people in such jobs all exist in a world of reactionary media, of narratives of politicians and the bubble created by social media validating and polarising our existing views.
The pay gap between men and women can of course be attributable to outright or unconscious sexism. There is also the issue of employers passing over women for promotion due to fear of losing a key worker when she becomes pregnant and takes a leave of absence (it is illegal to use this as a reason for a choice of promotion but again, we are at the mercy of the private conscience of individuals) . Feminist thinkers argue that the career disruption of pregnancy and child rearing is fundamentally unfair; that the vital role of raising children and looking after a home falls disproportionately on women in most societies, and that the job of cleaning, cooking, childcare etc that happens in millions of homes every day is unpaid labour, and goes unrecognised by policy makers.
By having an automatic ‘wage’ paid to all individuals in society, not means-tested, not conditional on subjective decisions by bureaucrats but encoded in law, so much potential for abuse of the system can be avoided - so goes the argument.
The second major cause of the rise of UBI in public debate is that of technological unemployment. When a supermarket implements self-checkout, it is able to replace 5 cashiers with one ‘trouble-shooter’, and thus save four salaries (not to mention save the cost of managing those employees, creating rotas, organising pensions, covering break times etc etc).
Of course, technology has replaced human labour since time immemorial - and this has been enormously beneficial for the human race. If we still all had to grow or kill our own food today there would be little time to create games for the Xbox or manufacture scented candles. And the fear of technology replacing humans and leaving us destitute is not a new phenomenon. In 18th century northern England, textile workers destroyed the new machinery that was replacing their formerly skilled jobs (these were the original Luddites).
The ‘creative destruction’ of capitalism is the constant renewal and destruction of entire industries, as we improve and replace ways of doing things, at times leaving in our wake entire ways of life for industries and geographies - often with dire costs for those whose livelihood is upturned. The counter argument to the Luddites is that overall, there is an economic improvement - that there are always winners and losers in change, but that for all of society, there is an increase in prosperity. Anyone comparing the quality of life between today and just a couple of centuries ago in modern societies would struggle to argue otherwise.
The difference between today and previous eras it has been argued, is the pace of change. It is difficult to visualise exponential growth (2,4,8,16,32,64), as most things in nature grow linearly (1,2,3,4,5,6). Computing power has been growing exponentially every two years since 1970, and what is known as Moore’s Law continues to hold today. This level of change has enormous implications for what we are able to achieve technologically, and most importantly the speed with which we are able to achieve things. We are not just getting more advanced, we are getting more advanced more quickly every day. A key aspect of capitalism is that people have to adjust to change - but today they have to adjust more quickly, and with less certainty than before. Google, Apple, Tesla and more are currently working on self driving vehicles. It is inevitable that these vehicles will be safer - much safer - than human drivers. Safety aside, this will mean that cars, which typically spend 80% of the time as parked, redundant, expensive resources, will be able to be utilised almost 24 hours a day. Taxis and haulage will cost a tiny fraction of what they do today.
There are three million truck drivers in the U.S. alone, 94% male, with an average age of 49. If the price of shipping goods by automating vehicles falls by 80% relative to manned vehicles, all those jobs will be lost within a very short period of time. A Universal Basic Income can ease the upheaval this will cause to so many people’s lives, whilst they retrain or find new jobs. And whilst it stands to reason that the simplest and most menial jobs will be automated first, skilled workers are far from safe. A recent trial showed AI to already be far more effective at reading X-Rays than top radiologists; a robot in China just performed dental surgery with no help from humans, and so on in every field work where humans look like an unnecessary expense, in the long run, to big business. By the time you read this, the above examples will already appear archaic.
Inequality
Related to both social justice and technological unemployment is the concept of inequality, and it’s rise to prominence in political discourse. Thomas Piketty, a Nobel Prize winning economist wrote an unlikely bestseller ‘Inequality in the 21st Century’, which postulated that inequality had grown since the 18th century, to extreme levels today. The central thesis was that inequality was a central facet of capitalism, that the rate of returns on capital gave greater returns than the rate of wage growth, and that the resultant concentration of wealth was a danger to democracy.
Piketty’s narrative and numbers have been strongly challenged by other economists, something I will not do here. I will argue however, that inequality by his measures are not the key issue in the new economy - ergodicity is. If ‘the 10%’ or ‘the 1%’ is a static group of people, and there is no chance for a person born in the bottom 1% to move into the upper distributions, this is clearly going to cause social unrest and resentment. My argument will be that it is not absolute equality that ought to be the aim of government (an aim which historically has led to oppression and stagnation), but genuine equality of opportunity.
Why did a 600-page economics book filled with tables and graphs sell millions of copies, and have such an influence on the social discourse? I believe that the explanation lies in it’s coinciding with a narrative that was unfolding before most people’s eyes - that of unfairness. By 2014 when the book became the number 1 best seller in the United States, most people had an understanding of what had unfolded before and after the financial crisis. A bubble created on Wall Street had managed to wreak havoc on the economy, and it appeared to most people that whilst their governments were preaching austerity and sacrifice, bankers had escaped punishment. In fact, banks that were bailed out by taxpayers in 2008 paid the highest bonuses in the history of Wall Street in 2010. Not only was this clearly an outrageous state of affairs, but most people knew it.
Running in parallel to this narrative was the souring of the public image of (some) Silicon Valley firms as the young, innovative start ups grew into the biggest companies on the planet. From largely positive press about boy geniuses like Mark Zuckerberg changing the world and challenging old media, came accusations of corrupting democracy, enabling right wing agendas, and innumerable other stories of bullying, monopolistic behaviour.
So when it appeared to be proven that the rich were getting richer and the poor were getting poorer, ‘the rich’ in most people’s eyes were an undeserving and corrupt elite, and the ordinary working man and woman were the victims of this corruption.
Undoubtedly crony capitalism is a blight on society, a dysfunction of western democracies and a moral disgrace. The idea that executives can earn seven and eight figure annual bonuses, then every ten years lose it all and be bailed out by the taxes of hairdressers and waiters makes no sense, and cannot continue. Equally, the very biggest Silicon Valley behemoths are often clearly guilty of crushing competition not with innovation but with their bigger war chests, superior legal resources and lobbying power.
But the problem of this narrative of the corrupt rich, is that it leads to ideas of punishing ‘the rich’ as a group, rather than those who do harm to our society. Tempting as this is, it leads us to ignore the enormous benefits we have all gained from competition, and how that competition is absolutely necessary for us to continue with the extraordinary improvements in the standards of living the planet as a whole has enjoyed in the past two centuries.
In Capital, Marx criticised capitalism for the fact that in England at the time, 9 year olds would work 15 hour days, 7 days per week. When the book was published in 1867, this wasa feature of capitalism. History has shown that the answer was not to destroy competition and capitalism, but to use the legal system to change the features of the system which we know to be wrong. We must avoid the punishment of a group to which corrupt individuals belong, mistaking one for the other, and punish the corrupt individuals, companies and institutions themselves.
How does this relate to the Universal Basic Income, and the idea of this essay, the Universal Creative Income? Because the difference between the two, simply put, is intention. The UCI differs from Andrew Yang’s mechanism to compensate people for the dramatic changes in the world; rather it is a mechanism to allow everyone alive today to participate in these dramatic changes. It’s intention is not to pay off the disenfranchised in the hope that they don’t riot or sink into depression and suicide, but to fund their creativity and ambitions. To create more positive change, more growth, and more prosperity. To give everyone time to create more free time - or less - depending on how they wish to spend it.
And so we begin with a creature that the movement sparked by Pikkety’s book wishes to ‘abolish’, the Billionaire. Mr Warren Buffet.
Distribution
In 1999, the US stock market was booming. After the unexpectedly successful IPOs of Netscape and Yahoo! in 1995, successive internet companies were launching on the Nasdaq and creating overnight millionaires from Silicon Valley start-ups. Speculation was rife, as the ever rising tide of tech stocks meant investors could do no wrong. This wasn’t the speculative folly of the 1920s, investors said - internet companies could change the world and make billions doing it. Online stores could offer near infinite variety and choice without the expense of brick and mortar stores or staff. The late 90s was a once-in-a-generation opportunity to own a share of the mega companies of the future it was claimed; and the outlandish valuations reflected this opportunity.
By the 1990s Warren Buffett was a world renowned billionaire investor, regarded by many as the greatest investor of all time. He was famously frugal in his personal life, living in the same home he bought in 1958 for $31,000, and paying himself just $100,000 salary despite his fortune. Investing his own money as well as that of friends and family from 1956, he was known as a ‘value investor’, one who cared about the long term prospects of a business rather than short term fluctuations in stock prices. Since he would only invest in businesses he understood (his ‘circle of competence’), he avoided technology stocks, instead investing in established brands like Coca-Cola or insurance companies like Geico. Buffett hunted for bargains and waited years to see returns, often making very few trades at all in a year, unlike the cliche of the hard-charging Wall Street trader, shouting into two phones for 13 hours a day. So whilst every investor with a tie was making unprecedented profits in the late 90s, Buffett’s Berkshire Hathaway Fund was having a less-than-stellar time. Between 1998 and 2000 the stock market grew 145%, while his own stock fell by 44%. On December 27, 1999, Barron’s published a piece entitled, “What’s Wrong, Warren?” stating “Warren Buffett may be losing his magic touch.”
Against this backdrop Buffett, who rarely speaks on the general level of stock prices was asked to give the keynote speech at Sun Valley - an invite-only, exclusive annual business retreat founded by his friend Herbert Allen. In a reflection of the times, Buffett’s audience contained many representatives of the ‘new economy’, who saw the older investor as a relic of the past, unable to grasp the new opportunities thrown up by the internet, a past master who’s touch had eluded him.
Buffett began his speech by eloquently outlining what he considered to be the fundamentals of investing. For an investor to “make juicy profit” over a period of time, one or more of three things must happen. First, interest rates must fall (making the relative return of stocks immediately better). Second corporate profitability relative to GDP must rise (companies must become more profitable). These were not especially controversial points.
The third way to profit in stocks he stated, was to pick the winners:
“I get to the third point now: Perhaps you are an optimist who believes that though investors as a whole may slog along, you yourself will be a winner. That thought might be particularly seductive in these early days of the information revolution (which I wholeheartedly believe in). Just pick the obvious winners, your broker will tell you, and ride the wave.
Well, I thought it would be instructive to go back and look at a couple of industries that transformed this country much earlier in this century: automobiles and aviation. Take automobiles first: I have here one page, out of 70 in total, of car and truck manufacturers that have operated in this country. At one time, there was a Berkshire car and an Omaha car. Naturally I noticed those. But there was also a telephone book of others.
All told, there appear to have been at least 2,000 car makes, in an industry that had an incredible impact on people's lives. If you had foreseen in the early days of cars how this industry would develop, you would have said, "Here is the road to riches." So what did we progress to by the 1990s? After corporate carnage that never let up, we came down to three U.S. car companies--themselves no lollapaloozas for investors. So here is an industry that had an enormous impact on America--and also an enormous impact, though not the anticipated one, on investors.”
Howard Marks (the Wall Street investor, not the cannabis smuggler) said “the most dangerous sentence in investing is ‘this time it’s different’.” Every boom that precedes a bust he says, contains the sentiment that there is a fundamental change from historical precedents that justifies the crazy growth of the stock market. This was exactly the argument of bullish technology investors in 1999, and Buffett was pointing out that this was not the first time. From cars (the new tech of its time) he moved on to airplanes:
“The other truly transforming business invention of the first quarter of the century, besides the car, was the airplane--another industry whose plainly brilliant future would have caused investors to salivate. So I went back to check out aircraft manufacturers and found that in the 1919-39 period, there were about 300 companies, only a handful still breathing today. Among the planes made then--we must have been the Silicon Valley of that age--were both the Nebraska and the Omaha, two aircraft that even the most loyal Nebraskan no longer relies upon.
Move on to failures of airlines. Here's a list of 129 airlines that in the past 20 years filed for bankruptcy. Continental was smart enough to make that list twice. As of 1992, in fact--though the picture would have improved since then--the money that had been made since the dawn of aviation by all of this country's airline companies was zero. Absolutely zero.”
Finally, he hammered his point home to an audience consisting of many young, confident and rich men whose wealth was tied intrinsically to the optimism surrounding the transformative effect of the internet:
“I won't dwell on other glamorous businesses that dramatically changed our lives but concurrently failed to deliver rewards to U.S. investors: the manufacture of radios and televisions, for example. But I will draw a lesson from these businesses: The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”
Most people know what happened next. From 2000 onwards, the tech bubble burst, with 52% of dot-com companies going bankrupt. By the end of the downturn in 2002, the stock market was down 78% from its peak, with stocks losing over $5 trillion dollars. Buffett’s own fund proceeded to trounce the market, and The Sage Of Omaha was proven right again.
What are lessons we can take from Buffett’s attitude to technology stocks in the 90s? Most people see this episode as an abject lesson that speculators tend to be greedy, over exuberant and destructive. And that Warren Buffett is indeed a mythical entity in Wall Street. But the wider conclusions drawn from the tech bubble are precisely wrong. The idea that the excitement of the new technology led to wasteful over investment is hard to dispute, when Pets.com was valued at $300 million just 3 years before going into liquidation (and 1 year before spending $2 million on a 30-second Super Bowl half-time advert). But dispute it we will. We will return to Buffett’s speech, and why it is important to the idea of the Universal Creative Income, but first, we must introduce a key concept of our idea - the distribution.
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People find it difficult at first to understand the idea that the outcomes of so many domains follow a certain distribution, irrespective of the specifics involved. When you hear that JK Rowling’s books make up over 70% of all children’s book sales, you think about JK Rowling, not that this is the natural order of things. That were JK Rowling to not have written a book, the likelihood is that another author would have dominated sales seems absurd, but is probably true.
The philosopher Nassim Taleb brilliantly simplifies the problem by calling two particular types of distribution ‘Extremistan’ and ‘Mediocristan’. To paraphrase his explanation, if one were to put 1000 humans in a football stadium, and take the average weight, there wouldn’t be a human being heavy enough to add to the total that would make much of a difference to the average. This is Mediocristan, where differences are small between each unit. If however, you put 1000 Americans in a stadium, and took their average wealth, then added Jeff Bezos - it would be the 1000 others that made no significant difference to the average. This is Extremistan, where very small numbers of units can change the makeup of the total beyond recognition.
Mediocristan has many names, the most popular being the Normal Distribution. This is an apt name, as intuitively this is how things ought to be - small differences between units making up an average seems natural to us. The Normal Distribution describes well many biological states of the world - calorific consumption over the course of time, height and weight amongst specific species and so on.
Extremistan also has many names, possibly the most famous being the Pareto Distribution, named after Wilfredo Pareto, a 19th century economist and philosopher. His study of land ownership in Italy showed that 80% of the land was owned by 20% of the population (hence the term the 80/20 rule); he realised that of that 80% of land, 80% of it was owned by 20% of the 20% and so on. This ‘power law’ showed itself to be prevalent across a surprising number of domains, from the distribution of book sales to city sizes by population, to citations by authors in academic papers.
So why would there likely be another giant in the field of children’s book sales were JK Rowling to never have written about Harry Potter and his friends? To quote the Christian Bible:
For to every one who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away — Matthew 25:29, RSV.
Imagine a book written at the same time as Harry Potter, Sally Trotter which was of similar artistic and literary quality. Perhaps Rowling’s book was released a month earlier (or any given chance occurrence that gives minor advantage to little Harry, unrelated to the quality of the writing).
As Harry Potter became popular, more book shops in more towns and cities stocked the book, and as there was clearly a demand, copies would be placed prominently in the store. Upon realising they had a potential hit on their hands, the publisher would assign an increasing advertising budget to the book - more billboards, more magazine adverts, more TV advertising. The Guardian Newspaper might write one article about a children’s book that year, and so national coverage to millions went to Harry Potter. Most people had never heard of Sally Trotter, and as a consequence, never would. Parents discuss the Potter book, and so more buy it to join the discussion, as do the children themselves. No one wants to be unable to participate in the discussion. Film rights are sold, merchandising deals are made, and the marketing machines of two giant industries spring into action, creating more cascades in favour of Harry.
Now imagine book two of Harry Potter and Sally Trotter (which at this point sold a modest 3000 copies worldwide). Sally Trotter 2: The Chamberpot Of Magic, could be twice as good artistically (if such a thing were measurable) as Harry’s second volume. It wouldn’t make any difference - the momentum propelling Rowling’s creation would make relative sales a foregone conclusion in her favour.
These winner-takes-all effects are a significant explanation for the existence of power laws. When we think of economies of scale we tend to think about factories saving on resources due to their size, but scalability is far more pervasive than this. Marketing one very successful book is less than double the work of marketing two mildly successful books (per sale). Critically, people tend to hold in their minds a very small number of examples in any given domain.
Einstein and Newton have levels of fame and recognition beyond the next 8 most significant contributors to science combined. When we hear that 20% of people in Britain hold 80% of the wealth (or even more extreme distributions than this), people tend to slowly shake their head, acknowledging what greedy individuals those 20% must be. But Isaac Newton isn’t greedily hogging the attention at the expense of Niels Bohr from his grave intentionally - these distributions are products of the conditions of the domain in which they exist.
An even stronger factor in reinforcing existing advantages (and thus creating Extremistan) are network effects. This is when additional units in a network actually benefit existing members, creating a tendency towards just one domain leader. For example, if a group of four friends have a telephone, every new friend added to the network is beneficial to everyone on the existing network. Network effects are especially strong in social media, but actually they occur in ways so ubiquitous as to be unnoticeable. For example, network effects explain why the distribution of types of plug socket in a given country is almost uniform, or why DVDs won an absolute victory over the rival format of Betamax.
The consequences of such distributions are that if you start from a point of thousands of participants, there is likely to eventually be only a few that are totally dominant. This makes things less predictable in Extremistan than Mediocristan.
When one looks at why something falls into the domains Extremistan or Mediocristan, a deciding factor is whether (or to what degree) something is physical or informational. If something is informational, it can be scaled with very little cost or friction, which can cause monstrous inequalities. For example a song, once written, can be reproduced at almost zero cost, and so can scale very quickly and cheaply, allowing for market dominance by a small number of artists or recordings. A live performance of the same song, being physical, is much more difficult to scale - venue size can be increased, but Beyonce can still only play one stadium per night.
The same is true of connectedness. If everyone travelled as often as your average air hostess, we would have the same plug sockets everywhere. As markets globalise, fewer firms can dominate overall, making the distribution more fat-tailed.
The world is becoming more connected and more informational, and therefore, we are all spending more time in Extremistan. In their book Capitalism Without Capital, John Haskel and Stian Westlake show how the structure of modern economies has become more informational as well as connected. We have transitioned from machinery and buildings, to design, software, R&D and branding. All these things lend themselves to power laws. This isn’t just the famous examples of large social media and online shopping companies, it is almost all companies. Consider how knowledge, information, ideas & technology are a part of farming, or coffee shops, or fashion. The resulting concentration of these industries is often missed.
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With the above in mind, what can we learn from Warren Buffett and his treatment of the dot-com bubble?
When he gave his speech in 1999, Apple shares were $3.24. At the time of writing (17th November 2020) they are $120.48. If someone was insightful enough, they could have made a 40X return on their investment, despite the famous crash in technology stocks after his speech was given. At the time of writing, Apple, Amazon, Microsoft and Alphabet (Google’s parent company) are amongst the world’s 4 largest companies by market capitalisation. The evangelists of the internet revolution were correct! It did change the world and it was the chance to get in early on the future of the businesses that would set the tone for the modern era.
Looking again at Buffett’s words, he was very clear that he wasn’t saying that the technology causing so much excitement was not going to change the world.
“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”
He thought it would. He was saying that the distribution of these companies in the final reckoning would be subject to power laws. There would be a few omnipotent winners, and many losers, and he didn’t know which would be which. But neither did anyone else.
We can go further. The dot-com boom itself was not just a prophecy but a cause of what has happened since. Prior to the tech boom, a top university graduate might be likely to head to Wall Street to find fame and (especially) fortune. The rise of the ‘dot-com millionaire’ (only later to be replaced by the dot-com billionaire) has led to a dramatic increase in graduates heading to the technology sector, and, significantly, increased preference of the STEM subjects over an MBA or business degree.
If you were an individual investor in 1999, it would be very difficult looking back to see the upside of this speculative bubble in technology stocks. But if you were an investor in the U.S. economy overall, it might not look like such a bad thing two decades later, since some of the most successful innovative businesses and ideas driving the economy were born out of the 'bubble'.
So, when thinking about a national policy to deal with the effects of the changes in society outlined above, we must think about the total, long term effect. We have a tendency to look at the quantity of success and failure stories rather than the truly important metric - the absolute net effect. That only ten or twenty of thousands of companies emerged from the dot-com bubble successful is immaterial if those few created more value than the total invested. It is a well known aspect of our psychology that we prefer numerous small wins to a singular monstrous win, no doubt a result of this being the nature of rewards of the hunter gatherer (food, sleep, sex), and thus how we have evolved. In a world of power laws we must ignore this urge when creating policy for the totality of a nation.
This brings us to our argument in favour of the Universal Creative Income. In a world in which there are spectacular, singular successes stemming from large numbers of unsuccessful attempts, it is in society’s interest to encourage as many of those attempts as possible. In short, we need as many people innovating as possible.
Trial & Error
The most powerful critique of government intervention, made by F.A.Hayek, was that the free market provided a collective intelligence, the aggregate of all it’s participants, born out in price signals. The interaction of supply and demand amongst millions of businesses and consumers meant that people could get what they want in supermarkets, at a profit for the seller, with seemingly supernatural accuracy and efficiency. Governments attempting the same feat by way of bureaucratic organisation had led to comically inferior results. This was evidenced in the USSR, where central control led to chandelier output being measured by physical weight, creating chandeliers too heavy to hang, and worse; fishing catches measured by weight, leading to the tragedy of the mass destruction of the whale population, despite it’s utter uselessness as a foodstuff.
Rather than there being anything miraculous about the allocative efficiency of capitalism, it is simply the result of mass trial and error. Just as a social media platform born out of Harvard passed test after test of consumer approval, the half a dozen online pet food stores failed the very same test and vanished from the face of the earth. Shoreditch restaurants provide better food than a Luton service station, because in busy east London, diners will vote with their feet if the food is poor, and failed restaurants will be quickly replaced. The ecosystem of failure is the driving force behind improvement.
This is not to make the reductive quasi-Darwinian argument used to justify punishing those who fail. Success may be at least as much to do with luck as skill, since the desire of consumers is often unknowable in advance. To give a trivial example, the first McDonald’s franchise, upon opening, failed to adequately replicate the hugely popular fries of the original restaurant. Despite using the same potatoes, cooking fat, salt, temperature and cooking processes, all agreed that they didn't taste as good. Upon abandoning reason and simply following precisely the steps involved at the original restaurant, it was discovered that leaving the cut potatoes in open air for a period of time had cured them, and allowed for a certain (desirable) consistency. McDonald’s had been inadvertently improving its product without the knowledge of anyone involved. This illustrates the randomness involved in business success, success that can only be found by trial and error. Businesses will have a variety of products and prioritise what is selling, not what they intuit the customer desires.
Just as the east London restaurant business is a successful and robust overall ecosystem by virtue of it’s independently fragile individual units, the same can be said of a competitive economy overall.
In the case of a country, the individual units are the number of people willing to start a business. The premise of the argument in favour of annual, lump sum, universal cash distribution to individuals is it’s encouragement of risk taking in business. The more willing to do this, the more innovation we can expect. Of course, many people will spend the money on day to day essentials, or a new TV, or heroin. Many do in Alaska, where oil revenues are distributed amongst all citizens. But firstly, risk taking without cost is not responsible risk taking, and so the opportunity cost of the money being risked (the TV, the heroin) encourages serious and realistic endeavours. Secondly, and crucially, in a world of power laws, only a tiny percentage of recipients need to create world class businesses for the whole to benefit from the policy. There is strong evidence that the likelihood of starting a business is predicted by parental wealth. This is not a surprise. And whilst it is not the fault of the well-off that they feel a higher willingness to try entrepreneurship, there is nothing to suggest that the ability to succeed reflects similar wealth patterns. Indeed, given the role of randomness in the process, nothing of the sort should be the case.
Conclusion
The Universal Creative Income is a proposal intended to increase the wealth of a country by fostering innovation, by way of trial and error business start ups, from a vastly increased proportion of the population than would presently be able to pursue such a course. Many arguments for the UBI would of course be positive side effects of the UCI.
The economist Tyler Cowen postulated that the strong economic growth in the first part of the 20th century was partially a result of the ‘low hanging fruit’ that came from transforming a mostly illiterate population into one that was educated full time up until adulthood. Any improvement in education levels from this point in time (in advanced economies) will only ever be at the margin. Yet what proportion of adults, reflecting upon their school years, wishes that they could do it again and do better? What proportion would like to improve their lot but have too much to lose, or too many responsibilities to step into the unknown? Surely then, the improvement of our human capital shouldn’t begin and end with adolescence, writing off anyone of adult age with capacity and desire to improve. In the epoch of the 19th century classical economists, it was believed that to help the poor would discourage them from work, and that whilst innocent, they should nevertheless be ‘punished’ for unemployment with poverty, for the greater good. We know now that our desire for meaningful work is not diminished by absence of hunger or destitution, and that in fact we will be more productive if we live lives absent of severe trauma. Innovation is the source of economic growth in economies at the technological frontier. We need freedom from certain impoverishment in order to be creative and take risks. The collective action of such risks benefit us all, even if the majority result in failure without ruin.
Bibliography:
Incerto - Nicolas Nassim Taleb
Capitalism Without Capital - Jonathan Haskel & Stian Westlake
The War On Normal People - Andrew Yang
The Fatal Conceit - F.A.Hayek
The Snowball - Alice Schroeder
The Great Stagnation - Tyler Cowen
Stubborn Attachements - Tyler Cowen
Utopia For Realists - Rutger Bregman
Give People Money - Annie Lowrey
Zero To One - Peter Thiel
The Four - Scott Galloway
The Great Transformation - Karl Polanyi
Knowledge and the Wealth of Nations - David Warsh
How Innovation Works - Matt Ridley
The Entrepreneurial State - Mariana Mazzucato
Bullshit Jobs - David Graeber
The Open Society & It's Enemies - Karl Popper
The Poverty Of Historicism - Karl Popper
The Elusive Quest For Growth - William Easterly
The Tyranny Of Experts - William Easterly