Basic Income Will Kill The Economy

Irony isn’t often as emphatic as this.

I’m sitting in the lobby of my favorite hotel in Bucharest, Romania, waiting on my girlfriend, and I’m scanning the news of the day on my phone. I come across an article, penned by an economist from the supposedly nonpartisan (but funded by labor) Economic Policy Institute that claims higher wages are the solution to America’s expanding reliance on payday lending.

A few minutes later, I come across a second article titled: “This robot-powered restaurant could put fast-food workers out of a job.”

The two theses are mutually exclusive. They cannot coexist. Only one will win … and, I can promise, it’s not the position held by the economist. I can also promise that you and I will ultimately feel the repercussions in our paychecks and in our wallets…

Basic Income
Photo by stevepb (Pixabay)

The winner is, of course, the robot-powered restaurant. It’s tied to a company I mentioned in passing in the May issue of Total Wealth Insider — a company known as Momentum Machines.

Momentum is quasi-famous (though largely unknown still) for having invented a machine that can cook — apparently perfectly — 400 made-to-order burgers per hour … all without human hands, except maybe to fill the hoppers of meat, veggies and buns from which the burger machines draw ingredients. Of course, given the profound leaps in robotic technology and machine learning, those hopper-filling humans will fall away as hopper-filling robots arrive.

Momentum, an exceedingly reclusive company that declined my request for a meeting when I was in San Francisco earlier this year, has filed a permit to build a restaurant — a largely robot-powered burger joint — in San Fran’s SoMa neighborhood.

Thus, we come to the irony of those two articles I read.

Basic Income: Dead on Arrival

In a world where machines can make perfect burgers, there’s no need for burger flippers earning $15 per hour.

Already, there are kiosks taking orders and payments, obviating the need for front-of-house staff earning $15 per hour. And in parts of Asia, robotic waiters have begun popping up, albeit with some glitches. Once they come to America — and they will — gone is much of America’s waitstaff.

The obvious point is that we are very near to the day when the value of human labor in the fast-food and casual-dining industries, among many others, falls to precisely zero. Pushing for higher wages, à la the Economic Policy Institute and a broad collection of politicians and labor unions, only hastens the arrival of that moment.

Unpopular as this sentiment might be, the truth is that flipping a burger, punching buttons on a computer, delivering food and taking payments from customers are not skill sets worth $31,000 a year, as the $15-per-hour movement implies. I’m not saying there is no honor in that job, and I’m not aiming to belittle fast-food workers making an honest living. I’m simply saying that technology is doing to them what mobile phones did to the pay-phone booth.

Fast-food franchises operate on thin margins, and driving up the cost of a commodity — labor — so dramatically will, definitively, turn profits to losses. Franchise owners will respond by either raising prices (not a winning strategy in a lame economy) or by replacing high-cost workers with technology that radically lowers costs, negates human-resource annoyances and greatly improves efficiency.

And that’s where problems start for me and you…

Economy-Crushing Unemployment

What will America look like when millions of workers have no place to earn a paycheck?

Some people I’ve talked to take the position that losing these jobs will pave the way for a new class of jobs not yet even created. Maybe.

But given the expansiveness of technology’s capabilities, such new jobs will be fewer in number and will require a more educated and skilled base of workers than currently exists at the service-sector level.

We’re looking at an economy soon enough imperiled by mass joblessness — not just at the fast-food level, but across a broad swath of industries. Think: self-driving taxis hailed via app; self-driving commercial trucks and delivery drones; computers that can read mammograms and CAT scans better than human technicians; technology that can prepare taxes, underwrite insurance and bank loans, track and order office supplies, fetch parts and orders from a warehouse, restock store shelves. The list is extensive.

Unemployment will be epidemic, easily exceeding 20% of the workforce, if not more.

How will people live?

Some have begun talking of a “basic income,” a minimum monthly income on which people can pay for their lives. I won’t comment on the moral and philosophical shortcomings of such an ideology. I will only say that “someone’s got to pay.”

If we assume that the government targets basic income at the unemployed only, that $15 per hour is what labor thinks people need to earn to live a middle-class existence, and that unemployment is in the 20% range, then the government will need to disburse something on the order of $1 trillion every year in basic income payments. That’s more than the government sends to Social Security recipients.

But basic income, as envisioned, would go to every adult. Assume the average payment is $15,000 a year, and the government is on the hook for something close to $4 trillion in annual payments — larger than the entire federal budget.

Western governments/economies already struggle under a corpulent quantity of debt. They cannot simply print the money needed to fund a basic income program without fueling uncontrolled inflation, a collapse of the dollar and a debt crisis that would prove terminal for America. The only solution would be to fundamentally restructure the tax system so that remaining workers and businesses pay sharply higher taxes.

That’s the second-derivative impact of the push for higher wages that, in turn, is driving faster adoption of worker-replacing technology.

Your Protection in This Dangerous World

It’s the world we’re rapidly racing toward. And aside from expatriating to some place like Uruguay, pretty much only one investment will protect you from this certain future: physical gold.

Gold will rise in value as the dollar falls and as the U.S. fiscal situation worsens, because you can be sure that politicians, loathe to lose their jobs, will fashion a solution that preserves their jobs at the cost of fiscal prudence for the country.

Like I said, irony is rarely so emphatic as it is when it comes to labor’s desire for higher wages and technology’s mission to destroy the need for those workers in the first place.

Until next time, good investing…

Jeff D. Opdyke

Editor, Total Wealth Insider