WEEKLY, August 17, 2024
WEEKLY, August 17, 2024
UBI, censorship, a curious local election
Hi everyone! I hope you’re all well. Publication of the premium daily newsletter has been intermittent over the past couple of weeks as I’ve taken two short summer breaks (loved them!), so this reshare/update looks back to the beginning of the month.
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In this newsletter:
No “free lunch”
Think before you post
A solution to dysfunctional politics?
Some of the topics discussed the past two weeks:
Crypto headwind #1: politics
Crypto headwind #2: business optimism
Got the canary, where’s the coal mine?
CBDCs: Russia, India, Canada and more
Thailand’s airdrop
Crypto ETFs holding up surprisingly well
A global freak-out
The US employment data: just how bad was it?
… and more!
No “free lunch”
In light of encroaching digitization, creeping censorship and a looming employment crisis, it’s time to look down the slippery slope of Universal Basic Income (UBI). The idea is that the state distributes money, essentially paying people for being citizens.
The supposed benefits are a happier society and a boost in economic activity, because that money will of course be spent on what makes the recipients better off. The assumption is that much of the “free” money will be invested in education, parenting, better health and/or the stock market, with the resulting economic gains improving overall productivity while delivering additional tax revenue to the state.
This is especially relevant as all democracies are terrified of rampant unemployment, because unhappy and hungry people tend to vote for the opposition, whatever their platform. It is also becoming more urgent given the threat to jobs from new technologies such as artificial intelligence (AI).
The idea is appealing. Who wouldn’t want “free” money? Only, just how “free” is it?
Most UBI plans involve distributing funds with no strings attached. The mass stimulus from the US government during the pandemic is the only large-scale real-world example we have seen in recent years, and arguably it did insulate the economy from deep, long-lasting damage. It also triggered GameStop-style stock market volatility, was one of the sources of the surge in inflation, and created the not unreasonable expectation that, when the next crisis hits, the state will once again come to the rescue by printing even more money, to hell with the debasement effects.
Other experiments over the years have been small and therefore not that applicable for big-picture conclusions.
One of the largest studies to date, however, has delivered some unexpected conclusions that should not be overlooked, for two main reasons.
The impact
The first one we’ll look at is the project’s findings, which were published a couple of weeks ago.
The test involved the distribution over three years of $1,000 per month to 1,000 residents of Illinois and Texas, $50 per month to another 2,000 (the “control group”), with calibrated distribution across ethnicity and an emphasis on low-income individuals.
Here are the main takeaways as published in three papers by the National Bureau of Economic Research (NBER):
Total income of distribution recipients fell by an average of $1,500/year relative to the control group.
Employed recipients spent less time working, and those who were unemployed spent less time looking for a job.
There was a short-term increase in consumption, but no sign that this would lead to lasting financial health for young, low-income households.
There was also a small increase in savings, but this was offset by a larger increase in debt.
There was no significant impact on education.
Distribution recipients showed more interest in entrepreneurial ideas, but this did not translate into activity.
There was no discernible improvement in physical health of those receiving the handout.
There was also no discernible improvement in mental health.
There was no impact on time spent caring for children.
The greatest impact, by far, was time spent on leisure.
These were obviously not the hoped-for results.
The funder
The next aspect of the study worth raising is the backing entity: OpenResearch, founded and funded by Sam Altman, the CEO of OpenAI. If you’re not familiar with the company, it’s one of the leading artificial intelligence pioneers. According to its website, its mission is “to ensure that artificial general intelligence benefits all of humanity”.
The study itself is commendable, and $36 million plus administration is a hefty cost. But few doubt that the rapid deployment of artificial intelligence will make many of today’s jobs unnecessary. Sure, new types of jobs will emerge, but not for a while. Meanwhile, unemployment is likely to soar. This would be socially, economically and politically destabilizing.
So, of course, any AI promoter will also be interested in how to mitigate the social cost. For those used to thinking in institutional data-driven frameworks, just giving people money to keep them spending sounds like a great solution.
Only, the study showed that Universal Basic Income doesn’t make people better off, it doesn’t boost productivity or overall human capital, it doesn’t even make them happier. What’s more, where would the money come from? More runaway deficits, more money printing, essentially making everyone – employed or not – worse off.
Yet, unsurprisingly, OpenResearch is putting a positive spin on the results. Its report on the study features feel-good quotes from participants who could buy a car, quit a crappy job, fixed their teeth, and so on. Distribution recipients drank less, were more selective in their job applications, many moved to better housing. Some claims directly contradict the NBER’s conclusions, such as the impact on education, but there’s obviously leeway for interpretation in the data.
A deeper question is: what happens now? Perhaps we’ll see more tests, and then more, until a better result emerges. This should be feasible as future participants get a better idea of what the “correct” answers are. Maybe this trial will come to be regarded as an anomaly, a first attempt, a “we weren’t asking the right questions”. This could be combined with media campaigns, sorry I mean “news dissemination” and bite-sized thought pieces, stressing the advantages of a UBI life.
We could also see some trials looking at limited uses of airdrops, such as restricting spending to education, home improvements and transportation. Of course, this would require “programmable money”, which would imply a retail CBDC which is so far a political no-go area in the US.
Then again, things can change, and imagine voters being reminded that a rejection of a retail CBDC is a rejection of free money. Or, imagine voters being reminded that if they vote for a more fiscally prudent opposition, they lose their handouts.
As I mentioned above, the slope is indeed slippery, and it’s steep. It’s also leaving the realm of the theoretical, and is rapidly becoming something that will occupy the political stage as the next US election’s candidates (after the current cycle is done) grapple with the clash between economics, technological change, personal comfort and freedom.
What’s more, this is not just a US issue… Thailand is launching a live targeted stimulus distribution that is not UBI and is not a CBDC, but it rhymes.
Think before you post
One of the clearest signs of a scared state is a clampdown on free speech in the name of public safety. We’re used to seeing that in places such as Iran, China, Russia, Venezuela… but, increasingly, stable democracies are also enacting alarming laws which in some cases make sense but which also allow for a wide degree of interpretation, which is unlikely to err on the side of free speech.
Late last week, the UK government launched its “Think Before You Post” campaign, in which it warns social media users that they could be prosecuted for sharing “content that incites violence or hatred”. Indeed, arrests have been plentiful and sentencing has already started with an unusual swiftness designed to send a message that the government is serious about this. One man was sentenced for aggressively mocking certain ethnicities in public (“racially aggravated intentional harassment”), others for “affray” (getting in a street scuffle) after being identified by facial recognition. Many of those sentenced (including a Labour councillor) admitted to urging others to burn down buildings with people in them, slit certain protestors’ throats, etc.
I mean, yeah, don’t say stuff like that, because while you may think you’re speaking rhetorically, there are always idiots out there that will take you seriously. It’s not hard to come up with other ways to make a valid and motivating point. But who decides where the line between being an asshole and “inciting public disorder” lies?
It’s worth pointing out that this is not new – the UK has had “anti-hate” laws for some time, and in 2017, The Times published a study that showed an average of nine people a day were being arrested for posting “hateful content” online.
However, the scale of the current level of police action and the jettisoning of any pretence of tolerance for distasteful ideas is jarring. This is especially obvious in the official warnings against saying things that “incite hatred” on social media, because who defines what that is? I’ve seen fierce battles waged over whether pineapple should be allowed on pizza – are those taking firm sides (I mean, of course it shouldn’t) inciting hatred? Logically, no, but it’s not hard to see how the flexibility in this definition could be weaponized to imprison anyone the authorities don’t like.
This is especially unnerving given that even reposting something “hateful” could put you in jail, according to the UK’s Director of Public Prosecutions. Seriously. In an interview on Friday, he added: “Be mindful of what you are saying and sharing online, as you could face prosecution.”
What’s more, it’s not a leap to envision anyone “inciting hatred” getting their bank accounts closed. Is there a more effective way to shut someone off from society? If we’re entering a world of increasing censorship, we’re entering a world of increasing vulnerability for everyone, and no-one’s access is totally safe. Today’s mainstream could easily become tomorrow’s counterculture, a book you bought five years ago could become a red flag as purchase histories are combed, a rally your son went to could bring police to your door.
In such a world, access to independent financial rails becomes more important. We’ve always said that the day the whole world understands the value of bitcoin and other decentralized payment tokens and/or stores of value would be a bad day, as it would mean that things were getting ugly. Let’s hope voting booths restore common sense for cultures that once stood for encouraging independent thought.
A solution to dysfunctional politics?
On a lighter note, a town in Michigan has elected a horse as its mayor. Lucky, a cross between an American Quarter and an American Paint, is the first horse to be elected mayor of Omena, beating twelve dogs, five cats, and a goat.
HAVE A GREAT WEEKEND!
Did you see the Tiny Desk Concerts during the pandemic? They’ve been going since well before then, but it was only in the lockdown aftermath that they popped up on my radar, and I absolutely loved them - chaos and the creativity with a touch of musical madness. One of my favourites was Sting and Shaggy performing three songs, including an excellent riff on “An Englishman in New York” – so much fun, and I challenge you to sit still through this one.
DISCLAIMER: I never give trading ideas, and NOTHING I say is investment advice! I hold some BTC, ETH and a tiny amount of some smaller tokens, but they’re all long-term holdings – I don’t trade.