Australia’s Shift to a Booming Circular Economy Underpinned by a UBI
The photo is emblematic of our current system. It does not have to be this way. We can ensure everyone has their basic needs met, while the work is done to produce all the goods and services we collectively require — without taking anything from anyone, or destroying our environment.
The fact is, we cannot solve poverty by impoverishing our environment, upon which all life depends.
The answer to both human lack and environmental destruction is to shift to a ‘circular economy’ (See here for a definition).
For this to happen, two conditions are essential:
- Local automated supply chains using locally sourced and recycled materials and renewable energy, where we import electrons as ‘world best’ designs, rather than atoms as products. 3D printing, new materials, Artificial Intelligence, robotics and virtualization of many goods and services will enable us to achieve this vision in the next 30 years - if we set it as our goal.
- Money in the hands of people to buy the goods and services that the supply chain is capable of producing. Without money people are invisible to the market, so the market can never respond to their needs. This is bad for them, bad for business, and ultimately bad for society.
This paper suggests how Australia can solve the second condition, without limiting the first.
The start of the third decade of the 21st Century has shown how adaptable people really are: changing patterns of behaviour in days, and patterns of work in weeks; all while overturning economic practice in mere months. Where once austerity was the norm, advanced economies have been flooded with money. Instead of it simply going to ‘banks’, it has gone to many (but not all) people who need it to survive. The result has been a softening of the turmoil that would have once engulfed us as a result of a global pandemic.
Yet we can do even better, knowing that the boundaries of ‘what is possible’ have been shifted.
Today, Australia is the richest country in the world on a ‘per capita basis’, with average wealth of $351,000 per person.
Yet we have 3+ million people living in poverty
The percentage of the population living in poverty (12–14%) has hardly changed over 30 years of continuous growth, and despite the people in the group constantly changing — indicating that it is a system problem.
The problem is welfare must be kept low to ‘encourage’ the 50% of the population who can do paid work to take the available jobs. This has the side effect of pushing many of the 50% who cannot do paid work into poverty. (Mostly single women with kids, as well as old and disabled, and their unpaid carers, and those between jobs… all of whom lack savings and family support). What drives people into poverty is not a lack of character, it is a lack of cash resulting from divorce, disease, age and unemployment.
Welfare makes the problem worse by creating a ‘poverty trap’. It arises because people lose benefits as their income rises, discouraging them from taking on low paid jobs. This is a rational response (not ‘laziness’) when you consider the time you give up and the extra costs incurred in taking on paid work (travel, etc).
Also, a great deal of time is taken up proving that you comply with the conditions of payment, including applying for jobs you know you will never get, just to meet a quota.
The solution is simple: a Universal Basic Income (UBI)
A UBI is a set amount of money paid to every adult citizen, permanent resident, and refugee living in the community, every week — to meet their basic needs
For the 50% who can do paid work, a UBI eliminates the ‘poverty trap’ by allowing them to earn money on top of their UBI. It also eliminates the wasted effort required to ‘comply’, as the payment would be unconditional.
A UBI would also provide:
· For the ever-changing group of 3+ million people who lack income, savings & family support, who cannot do paid work, the UBI would meet their basic needs. They would no longer be forced to live in poverty.
· For all income earners, a base level of income insurance if they lose their earned income for any reason: business failure, personal circumstances, or automation, etc. — no need to apply, no delay.
· For low-wage employees, it would represent a wage rise, at no cost to employers.
· For the unemployed, no more second-class citizens. They would be encouraged to take on marginal work, as their earnings would add to their UBI — no more welfare trap.
· For stay-at-home carers (mostly women), it would provide, for the first time, some paid recognition of their valuable contribution to society in caring for children, the aged and disabled, and in supporting the local community. The UBI would also aid in work-life balance.
· For everyone, a UBI would support life-long learning, and new creative and entrepreneurial endeavours when starting out, as well as between gigs.
· For business, it would boost profits & investment as the UBI is spent into the economy.
· For society, it could lower crime & improve wellbeing, and mitigate major upheavals by allowing us to quickly adjust the amount due to changed economic and societal circumstances, such as natural disasters, disease epidemics, and economic crises.
· For government, a UBI provides an additional tool to help manage the economy to ensure full employment.
This paper suggests how we may implement a UBI in a way that mitigates risk.
Radical Ideas to be Implemented Upfront:
1. Payment for all Adults’ Basic Needs
2. Payment would be Universal and Unconditional
3. Payment funded via creation of New Money
4. Payment managed by a New Authority
5. Payment not included as part of Government Spending
6. Payment would result in spending by citizens to ‘vote’ for how they want society’s resources employed to meet their own needs. In essence it would be the ultimate expression of democracy in the economic sphere.
Take a Gradual Approach to limit risks
While we want to make the radical changes from the start, we recognise that the sudden payment of $500/week (current poverty line) to all adults may cause abrupt changes in behaviour that could be destabilizing. This could then result in the UBI being blamed (rather than its abrupt implementation); which could result in it being terminated, or changed in ways that limit its universality, and/or unconditionality, and/or amount.
To avoid this, we are also proposing:
Increase the amount gradually, starting at $10/week and increase at the rate of $25/qtr to $500/week over 5 years. While $10 is not much, for a person in poverty it is food for a day. And it would soon increase to a significant amount. Within a year it would be $110/week/person.
Taking a gradual approach gives the supply chain time to adapt to the new pattern of demand without creating shortages that drive inflation.
It also allows us to observe actual changes in the economy and society, as well as individual behaviour and well-being. It means we don’t have to ‘theorise’ about its impact. And, if at any time, the negatives appear to outweigh the positives, we can simply halt any further increase in the UBI until the negatives are counter-measured.
To Eliminate Potential Negative Impacts
1. Don’t change our welfare or tax systems
2. Don’t increase taxes or debt, or take money from other programs.
3. Target Net Benefits to those with zero/low income by:
a) treating UBI as income for determining welfare entitlement. As the UBI is increased, welfare benefits would go down, but the recipients would still be better off, just as if they had earned the money, and
b) also recover the UBI on a sliding scale from earned income:
The rationale for paying the UBI each week, and then recovering it from earned income via the tax system, is that it acts like basic income insurance. It is always there if you lose your earned income for any reason, without any need to apply, and without any delay.
To avoid extra administration the recoveries would be made via: group tax for employees, the GST system for self-employed, and their annual return for those earning a passive income.
Managing the Net Amount of new money injected into the Real Economy
At $500/week/adult, the total UBI could amount to an injection of $520 billion per year. In a $2 trillion economy this would be unsustainable. Hence the decision to target the net benefits to zero/low income earners.
There are also other offsets which are estimated in the table below:
The residual amount of new money injected into Australia’s $2 trillion economy should not be destabilizing. However, by taking a gradual approach, we don’t have to guess. We can see what happens as the amount is increased and take action to mitigate any demand inflation if it appears.
If demand inflation becomes a problem before the UBI reaches the Poverty Line:
1. Increase Interest Rates to damp bank borrowing, and if that is insufficient:
2. Levy a flat % on all spending until inflation is brought under control
By increasing the UBI and interest rates together (and if necessary, imposing a new spending levy), we can shift economic activity to meeting more basic needs and less on other spending, while keeping the economy at full capacity
The beauty of a flat amount UBI combined with a flat % tax on spending is that it creates a ‘progressive’ system, with most of the net benefit flowing to those on zero and low incomes — though everyone is treated the same!
Continue to increase UBI to keep it above the poverty line, taking account of inflation in the price of basic goods and services
Once the UBI reaches the poverty line
Increase the UBI to offset any unemployment (eg due to technology replacing labour). As the rate is increased some people will choose to drop out of paid work (and live on the UBI and any other passive income they may have, to do other things that interest them) until the labour market is in dynamic balance again. No one could complain that some people were not doing paid work, as by definition there would be none for them when the labour market is in balance, and everyone would be receiving the same UBI.
We would then have three sources of new money injected into the economy:
1. UBI to meet basic needs of everyone
2. Unfunded Government Deficit Spending to provide public assets, and to offset downturns (eg pandemic)
3. Bank Lending to meet the needs of borrowers, including suppliers who borrow to invest in additional capacity to meet the rising demand. (If you are not sure how ‘bank lending creates money, this Bank of England paper provides an excellent overview)
Given the UBI is to meet basic/survival needs, it should always take precedence over other modes of injecting money into the economy.
Three Potential Sources of Income
Once implemented, each person would have access to three potential sources of income:
1. UBI to meet their basic needs
2. Earned Income to better themselves and their family (for the 50% at any time who can do paid work)
3. Additional Welfare (for those incurring the extra costs of disability and aged care, as well as for childcare)
A UBI will not bring everyone to the same level
Imagine the world of 2050 in which all production in Australia is largely automated, so it can supply the basic needs of every person, without damaging the biosphere.
But every person’s needs are different. How to tell the machines what you want made to meet your needs? Money is the way.
By giving each person the same base amount (a UBI), it ensures each person cannot take more than their fair share; without dictating what goods and services that share should comprise.
Once, you’ve spent it, you cannot take more… until you get the next week’s payment.
To keep the money circulating, it is collected by the machines and returned to the issuing Authority to be reissued the next week.
However, as everyone spends, there will be people inventing new machines and new ways to provide new goods and services, as well as entertainment and art and craft and other services and sport, including in the virtual world, that only a person can provide. People will spend some of their UBI on these new goods and services. The most successful will earn the most money.
The extra money will represent the extra value they have contributed to society, which will entitle them to take out more than the basics… as they spend their earnings.
Despite all having the same base, some people (with effort, talent, and luck) will climb the pyramid.
By removing the main cause of systemic poverty (a lack of money to express your basic needs), a UBI will enable an explosion of human creativity, as machines do our dirty work.
One thing it will not do is bring everyone to the same level.
It will simply provide a floor to stand on, not a ceiling to achievement
Australia now has the resources and organizational capacity to supply the basic needs of every citizen without taking anything from anyone.
All that’s missing is the money in the hands of every person to express their needs in the market.
A UBI is not a ‘Silver Bullet’
A UBI paid from ‘new money’, structured to target the neediest, and managed to limit inflation and to keep the labour market in dynamic balance, provides the solution to the ‘demand’ side of the problem.
However, we will still need to ensure adequate supply. A whole other topic: which is where the ‘circular economy’ comes in, along with government support for universal health care, education, and housing.
The more universal low cost services provided, the lower the UBI can be.
Also, as automation continues, we will need to implement a shorter working week, as well as explore ways to better share the work that remains, and share the productivity that results — to give everyone a better work-life balance within a thriving society.
This is a link to a series of articles (each 5–6 min read) that go into the ideas in a bit more depth. In particular, they discuss why a UBI is preferable to Welfare and a Job Guarantee, as well as the 24 Benefits we’ve identified for Individuals, the 16 Benefits for Business and the Economy and the 19 Benefits for Government and Society.
Note: If you are supportive of the approach outlined, to help promote discussion, please click on the ‘hand’ icon below to add some ‘claps’, and also use the buttons to forward this article to other people you know who may be interested. Regardless, thank you for reading all the way through :)